Why doesn't property tax growth meet the district’s funding needs?
It does seem counterintuitive that with such high property values and the recent boom in real estate prices, the district still faces a structural deficit. Indeed, MPCSD has benefited from rising home prices and expects this trend to continue. However, property taxes only account for one source of district funding. A large portion of district revenue does not experience such robust growth, and, overall, we expect that total revenue growth will be outpaced by total expense growth.
Property taxes have grown 6.1% annually. Forecasts (August 2016) assume property tax revenue growth consistent with recent historical trends. Over the past eight years, property tax revenue has grown at a compound annual growth rate of 6.1%. The district’s revenue projections assume that this will continue. We are also projecting incremental reductions to the growth rate starting in year 2020-21 to reflect a gradual slowdown that has been occurring over the past 15 years. The resulting 5-year revenue projection for secured property taxes is 5.6% growth per annum (2016-17 through 2021-22).
Other funding sources are growing much more slowly (actually projected to shrink). In 2016-17, property taxes represent about 60% of total district funding. The remaining 40% of district revenues are either (a) one-time, not expected to continue beyond this year, or (2) largely driven by inflation and cost-of-living adjustments. In fact, as one-time revenues go away and Measure C expires, this 40% of revenue is projected to decline at a 0.6% annual rate (2016-17 through 2021-22).
So, even with robust property tax growth, total funding for the district is projected to grow at only 3.1% annually through 2021-22. Again, this is because nearly half of the district’s revenues are projected to shrink over the next five years.
Consequently, revenue growth will lag behind expense growth. Due to both enrollment increases and increasing pension costs (discussed here), MPCSD is facing unusually high annual increases in expenses while striving to deliver the same quality of education it currently provides. Expenses are projected to grow at 4.3% annually (2016-17 through 2021-22), or 1.2 percentage points faster than revenues.