Item 25 - Public Hearing - Fiscal Year 2025-26 City Budget

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Everyone who shops or dines pays a sales tax on the transaction. There is a statewide levy, as well as allocations for counties and cities. As discussed in the Local Sales Tax (Measure X) section of this budget narrative, the City’s voters approved a local add-on of 1.5% that became effective April 1, 2019. The local add-on decreases to 1.0% on April 1, 2029 and sunsets completely on April 1, 2039. A break-down of the total 9.25% tax currently paid in Santa Ana follows. Sales tax is a revenue source that is susceptible to economic fluctuations. During the Great Recession of 2009, the City experienced a 14% decline in sales tax revenue. According to Morgan Stanley’s Economic Outlook in AprilϮϬϮϱ, there are ongoing concerns of stalled economic growth due to persistently high interest rates and the imposition of new tariffs. The original FY24-25 sales tax projection was revised downward to account for lower-than-expected receipts, largely driven by slowing sales growth across multiple economic sectors as consumers face elevated prices and borrowing costs. While modest growth is anticipated in FY25-26, overall revenues are expected to remain relatively flat, reflecting a continued shift in consumer spending driven by inflationary pressures, global trade disruptions, and rising costs. Throughout FY25-26, City staff will continue to monitor economic indicators closely and utilize the quarterly budget reports to adjust revenue estimates as needed. Morgan Stanley, Tariffs Could Jeopardize Growth Outlook & Rate Cuts, https://www.morganstanley.com/insights/articles/trump-tariffs-fed- interest-rate-uncertainty-2025-outlook 79