Is the property tax revenue projection a conservative estimate?

  • No; it is a reasonable estimate. On average, property values have grown 6.1% annually over the last eight years (see above). The housing market “feels” like it’s appreciating much faster, particularly when teardowns can turn a sub-million dollar property into a three- or four-million-dollar home. It takes an assessed value of approximately $8 million to generate the revenue required for one child in the district. Here are two additional reasons for the disconnect:

     

     

    • Only a tiny fraction of the tax base turns over each year. Over the past ten years, approximately 40% of the residential properties within the MPCSD have been reassessed at current market values. That’s equivalent to only ~4%  turnover in housing inventory per year. Because of Prop 13, in any given year the property value assessments on the other 96% of properties are limited to an inflation factor of 2% or less, dragging down the overall growth in property taxes.

    • In the medium and long run, boom years are offset by bust years.  Recent years have seen average prices of home sales grow at over 10%, or even 15%, per year. However, over past 20+ years, Menlo Park real estate has suffered a downturn every 8-9 years, on average. In the last recession, home prices declined and property taxes experienced years of very low growth. We expect cyclical downturns to continue in the future. Therefore, despite experiencing higher growth in recent years, our forecasts reflect a “cycle-average” growth rate that is consistent with historical trends.