What the City Expects

Posted by Dave Fratello on Wednesday, February 18th, 2009 at 5:04pm.

In comments at MBC, some readers have pointed to the City of Manhattan Beach's budget impacts and projections related to housing sales and construction activity.

We fetched a Jan. 27 staff report by the city Director of Finance (click here to download the PDF) and culled out some figures related to local RE. Keep in mind, budget years start July 1; the figures below are dated by the second half of each budget year – i.e., 2008 = FY 2007-08.


Property Tax Revenue
2008: $18.6m
2009: $19.7m (mid-year projection, +$400k/+2% over budget)
2010: $20.3m (projected)
Overall that's good news for the city, for the time being. But the report does note that next year's expected growth rate in property tax revenues of 2.5-3% is well off the 7.7% from the current year. And of course, those revenues have rocketed forward at even higher annual rates throughout the first part of the decade.

Down the road, who knows. The county assessor is automatically re-assessing lots of recent purchases, and plenty of MB homeowners are taking it upon themselves to seek revaluations of their homes. Could property tax revenues drop year-over-year soon?


Real Estate Transfer Tax
2008: $450k
2009: $550k (budget)
2009: $244k (midyr. proj.)
2010: $230k (prelim. estimate)
Here is where the slowdown in home sales and prices is most evident. A 55% shortfall against the budget is a shocker, but the actual financial impact on the city is comparatively minor. From the report:
[S]ingle family residential sales volume has dropped dramatically, and with that, prices. In 2007, sales volume for residential properties was 391 units, with a median price of $1,628,500. Our most recent report indicated expected sales volume for 2008 of 300 units (a decrease of 23%), with a median price of $1,540,000 (a 5.4% decrease).
It looks like when the city budget was developed, someone thought we'd never see a slower sales pace than 2007. After all, it was the worst on record for 20+ years. (See MBC's stories, "Slower, Slower, Slower" and "Maybe It Can't Get Worse," both covering sales in 2007.)

But sales actually dove further, making 2008 a new low. (See MBC's story on the first 8 months of 2008, "Turns Out '08 Got Worse," and Kaye Thomas' post with sales from 2006-08, showing SFR sales dropping from 334 in 2007 to 243 in 2008 (-27%), based on MLS data.)

They're trying not to make that mistake again. The new 2010 projection assumes flat sales in 2009 (300 units, by the city's measure) and a drop in the median price to $1.4m.

That's the city projecting a 9% drop in the median price this year. (Get a rope!)


Building Permits & Plan Check Fees

The slowdown in new construction and remodels hits the city two ways, in reduced income from permits and plan check fees.
Building Permits

2008: $817k
2009: $785k (budgeted)
2009: $700k (midyr. proj.)
2010: $650k (prelim. est.)

Plan Check Fees

2008: $763k
2009: $735k (budgeted)
2009: $583k (midyr. proj.)
2010: $500k (prelim. est.)
Both areas were hit harder than expected. From the report:
While we conservatively budgeted this year's revenues given last year's declines, we expect them to still fall short of budget by a combined $237,200, or 15%...

[R]esidential demolition permits, which a few years ago averaged 15 per month, has dropped to just one in December 2008. This statistic serves as a leading indicator of future residential construction and permits/planning fees.
We will note here that the city can cut costs for plan checks, and has done so, to reflect the reduced activity.


The Big Picture

The city is still working on budgeting issues; this is a mid-fiscal-year report we're working from. But two big-picture figures stand out:
Overall budget shortfall (FY 2008-09): $1.68m (-3.2% of total budget, $51.3m)

Projected budget shortfall (FY 2009-10): $3.6m (-6.7% of total budget, $53.5m)
When these projections were prepared, it's doubtful the fiscal planners foresaw the rush of quick going-out-of-business sales all over downtown. They guessed sales tax revenues would be down next year by 5%. They also note that 50% of MB's sales tax revenue ($7.4m projected next year) comes from 15 businesses and therefore "remains sensitive."

Among the city's many needs, the school district would sure like to see the city helping out, as it did with a one-time cash injection recently. But the city needs help, first – chops and revenue enhancements, dipping into reserves. And then, presumably, we can talk about the kids.
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