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Highland projects conservative revenue growth: modest property-tax uptick, flat sales tax
Summary
Finance staff told the council the FY26 tentative budget assumes a conservative 2% property tax growth, flat sales tax collections, and cautious interest income estimates amid economic uncertainty.
Highland City financial staff told the City Council the tentative FY26 budget uses conservative revenue projections for property tax, sales tax and interest income.
On property taxes, Finance Director David Mortensen and staff said growth is difficult to forecast. The budget assumes a 2% increase in property-tax revenue, described to council members as conservative compared with historical variability. Mortensen explained property-tax collections reflect valuation and a lag related to certificates of occupancy and county valuation timing.
Council questions centered on how the city derives the estimate. Mortensen said staff reviewed permit counts and recent development activity and noted the county tax commission provides certified valuations closer to the tax levy deadline. “Ultimately, it's them who get to determine that,” a staff member said about the tax commission’s certified values.
On sales tax, Mortensen said recent months showed volatility and that staff “don’t feel comfortable proposing any type of increase” in sales tax collections, so the tentative budget uses a flat projection.
Interest income was described as difficult to forecast because it depends on market interest rates and the amounts held in city funds. Mortensen said the projection is conservative; staff did not use a single fixed percentage, but set next-year interest projections modestly above midyear actuals. When asked, staff said current short-term yields are around 5% in the city’s accounts but that the budget uses a lower assumed outcome.
Staff also described an expected slowdown in building permits for calendar year 2025 that will depress building-permit fees and impact fees recognized in FY26. Mortensen said permit activity in 2025 trended lower than previous years and that a large Ridgeview project has only about 100 permits remaining to be issued and is not producing the previous surge of townhome permits.
Council members were told a certified property-tax estimate from the county will arrive later in the spring and that projections will be updated as those valuations are finalized.
