City hears detailed property‑tax and sales‑tax outlook ahead of budget; consultants flag lag, pools and online sales

City of Milpitas staff and outside consultants presented a detailed briefing on property tax and sales‑tax revenues at the April 1 council meeting, offering context and forecasts staff said will feed into the upcoming budget.

Finance Director Luz Caffrese Howe introduced presenters from HDL Companies. Paula Cohn (HDL) reviewed property tax mechanics and trends; Tracy Vesely (HDL) presented sales‑ and transaction/use‑tax results and forecasts.

Paula Cohn outlined how property values are enrolled and taxed in California, emphasizing calendar and administrative timing: the lien date is Jan. 1; assessors use sales and events from the previous calendar year to build the roll; auditors extend and finalize the roll in June–August, and tax collections are allocated to jurisdictions on a schedule that creates a roughly 18–20 month lag between market events and city receipts. “By the time we get to the last payments being made to the city in July of 2025, we are 19 months down the road from the data that was used to develop this roll,” she said, explaining why recent construction or sales may not appear in city receipts for several years.

Cohn presented a 25‑year history of assessed values, noting Milpitas’s long‑term average assessed‑value growth and describing major drivers for recent growth, including the 2% Proposition 13 CPI adjustments and sales that re‑benchmark assessed values when properties transfer. She also explained that not all property tax dollars flow to the city: Milpitas receives roughly 16.6 cents of every tax dollar collected in a typical tax rate area, with schools and ERAF accounting for larger shares.

Cohn’s forecast work showed a baseline (without new construction) growth projection of roughly 3.7% for the coming year; incorporating a conservative allowance for new construction increased the general‑fund forecast to about 4% growth for the next fiscal year, staff said.

Tracy Vesely briefed the council on sales and use tax. She noted Milpitas’s total point‑of‑sale rate is 9.375% (including a quarter‑cent Measure F district tax). Vesely explained the difference between the local 1% Bradley‑Burns allocation, which relies primarily on the location of sale, and countywide use‑tax pools that redistribute revenue from out‑of‑state and internet sales to jurisdictions based on quarterly formulas. She said online sales and “marketplace‑facilitator” collections have materially increased pool revenues since 2019 and that pool allocations can fluctuate quarter to quarter depending on big local payments.

Vesely pointed out that Milpitas’s fourth quarter results were unusually high (reported at +12.3% for Bradley‑Burns sales tax), but that a significant one‑time taxpayer allocation skewed the quarter; removing that allocation would leave a smaller positive gain. On a statewide basis she said 2024 produced a modest pullback from the pandemic-era highs and that forecasts show comparatively small declines for 2024–25 followed by modest growth thereafter.

City leaders said the analysis will be used in the budget process and invited additional questions and follow‑up. Vice Mayor Barbadillo and other councilmembers asked staff to track and make available records that underlie pool allocations and to consider whether the city should review its bingo and other revenue‑related ordinances in light of growth in certain revenue streams.

Key takeaways

- Property tax receipts are based on prior‑year market events; the city typically experiences a lag of roughly 18–20 months between sales/new construction and receipts. - Milpitas receives about 16.6¢ of every property‑tax dollar in a typical tax rate area; school districts and ERAF are larger recipients. - Base forecast (no new construction) for general‑fund property tax growth: ~3.73%; with a conservative new‑construction allowance, staff estimate ~4% growth for the next fiscal year. - Sales tax: city rate 9.375% including Measure F. Online sales and marketplace facilitators increased county pool revenues; pool shares can change quarterly and may be affected by one‑time allocations. - Milpitas saw a quarter with an unusual one‑time allocation; staff cautioned against treating that quarter as a trend without adjustment.

The presentations were informational; no council action was required. Staff said the briefing would inform the next budget package and staff will continue to monitor parcel‑level developments and pool allocations.