TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Scott Agajanian, Deputy City Manager/Economic Development Director
PREPARED BY: Javier Carcamo, Finance Director
SUBJECT:
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Report on Long-Term Strategic Economic Planning and Revenue Generation Opportunities
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ABSTRACT
At the request of City Council Member DeForest, this report provides an overview of the City’s revenue-generating opportunities and long-term strategic efforts that could provide the greatest economic benefit to residents and sustain long-term financial health.
RECOMMENDATION
recommendation
Discuss a report on Long-Term Strategic Economic Strategies and Revenue Generation Opportunities.
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PRIOR ACTION/VOTE
None.
STRATEGIC ALIGNMENT
This item aligns with the City Council to: maintaining a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency relating to an administrative priority.
DISCUSSION
This report provides an overview of the City of Murrieta's (City) primary revenue sources, long-term economic development opportunities, and strategic initiatives that could provide the greatest economic benefit to residents while supporting the City's long-term financial sustainability.
The City's objective should be to pursue economic development strategies that diversify revenue sources, create quality jobs, attract private investment, and maximize the return on public infrastructure investments.
Long-Term Strategic Economic Strategies
Sales Tax Revenue
Sales tax is Murrieta's largest General Fund revenue source, representing approximately 28% of the City's total revenue budget. As a result, maintaining and expanding the City's sales tax base remains one of the most effective strategies for supporting municipal services and long-term fiscal health.
Murrieta's largest sales tax-producing sectors include general consumer goods (29%), autos & transportation (20%), state & county pools (15%), and restaurants & hotels (11%). These four sectors generate approximately 75% of the City’s sales tax revenue.
The City's top 25 sales tax producers generate approximately 55% of total sales tax revenue and are largely concentrated in:
• Big-box retail establishments
• Automobile dealerships
• Fuel and convenience retailers
Strategic Opportunities to strengthen long-term sales tax growth, the City should continue focusing on:
• Recruitment of destination retailers and regional shopping attractions.
• Expansion of the Murrieta Auto Mall.
• Development of specialty retail and entertainment destinations.
• Attraction of businesses that draw customers from outside the City.
• Reduction of retail leakage by encouraging residents to shop locally.
Because sales tax revenue is generated by consumer spending, developments that sell products insufficiently supplied by existing retailers sell high dollar items and those that attract regional visitors often yield a greater fiscal return.
Property Tax Revenue
Property tax is the City's second-largest revenue source and represents approximately 25% of the City's revenue budget. Residential neighborhoods remain the foundation of the City's property tax base; however, commercial, office, healthcare, and industrial developments generally generate greater assessed value per acre and often require fewer City services than residential development.
Strategic opportunities to maximize long-term property tax growth, the City should continue to encourage commercial development along I-15 and I-215 and other major roadways, medical office and healthcare facilities, and corporate headquarters. Commercial and employment-generating land uses typically provide a stronger long-term fiscal return because they contribute property tax revenue while also generating sales tax, business activity, and employment opportunities.
Transient Occupancy Tax (TOT)
TOT is generated from visitors staying in local hotels and resorts. Unlike most local taxes, TOT is primarily paid by non-residents, making it one of the most desirable revenue sources available to local governments. Research consistently shows that the highest-performing lodging facilities are resort-style accommodations, full-service hotels, conference and convention hotels, and upper-scale and luxury hotel brands. Murrieta's current TOT rate is already among the highest in Riverside County; future revenue growth will likely depend more on increasing hotel room inventory and visitor demand than on increasing tax rates.
Commercial Development and Business Sectors Providing the Greatest Economic Benefit
Economic development efforts should focus on industries that generate strong revenue, offer quality employment opportunities, and support long-term fiscal sustainability. These industries include:
• Regional retail and shopping destinations such as large-format retail centers, specialty big-box retailers, open-air shopping districts, and dining and entertainment destinations.
• Automobile sales. The City’s Auto Mall remains one of Murrieta’s strongest economic assets. Development of new opportunities for additional automobile dealers, luxury and specialty vehicles, and vehicle services is highly desirable.
• Hospitality and tourism development can generate multiple economic benefits, such as TOT revenue, sales tax revenue, and job creation. Potential opportunities include destination hotels, conference facilities, and an entertainment district.
• Healthcare and medical services continue to be one of the strongest long-term sectors in Southern California and align well with Murrieta’s existing economic base. Opportunities include medical offices, specialty healthcare, medical technology firms, and research and healthcare support services.
Comparative Review of Key Development Opportunities
The following is a comparative analysis of three key development opportunities currently in the pipeline. This analysis includes potential uses and primary benefit.
The Jefferson Corridor, including the Madison Specific Plan area, represents one of the City's most significant long-term economic development opportunities. Potential uses include expanding the Auto Mall, hospitality development, corporate offices, and technology & innovation businesses. These types of developments support sales tax generation, property tax growth, and job creation. This area offers a strong potential to become one of Murrieta’s primary employment and revenue-generating districts.
The Jackson I-15 Area represents another opportunity for auto mall development or other commercial/ hospitality.
The Keyhole Area provides opportunities for residential development. While this type of development only directly supports increased property tax generation, residential developments also indirectly support a growing base of consumers that pay sales tax when shopping locally
The Triangle has significant potential as a regional destination district. The potential uses include entertainment venues, dining destinations, specialty retail, hospitality development, and mixed-use commercial projects. These types of developments support sales tax generation, property tax, and TOT.
Other Commercial Centers exist throughout the city where small and mid-sized parcels provide opportunities for expanded retail and hospitality developments.
Strategies to Incentivize Business Growth and Investment
To remain competitive in attracting private investments, the City may consider incentives. Any incentive program should be performance-based and designed to generate a positive long-term fiscal return for the City. Examples of incentives include:
• Revenue-sharing agreements.
• Development impact fee reimbursements.
• Permit fee reimbursement programs.
• Expedited entitlement and permitting processes.
• Public-private partnerships.
• Infrastructure participation agreements.
• Development Agreements
Revenue Generation Opportunities
Sales Tax
The City's current sales tax rate is 8.75%. Of this current sales tax rate, the City receives 1% in Bradley Burns and 1% in local transactions and use tax. Potential future considerations may include evaluating future voter-approved sales tax measures. With voter approval, Murrieta could have up to an additional 1% sales tax.
TOT
The current TOT rate is 13%. Given the City's existing rate structure, the greatest opportunity for growth lies in increasing hotel room inventory and visitor activity rather than pursuing rate increases.
Utility Users Tax (UUT)
Murrieta currently does not impose a Utility Users Tax. While many California cities utilize a UUT to support municipal services, adoption would require significant community discussion and voter consideration. A UUT could provide a stable and diversified revenue source; however, any evaluation should carefully consider community priorities.
Conclusion
Murrieta's strongest long-term economic development strategy is to continue diversifying its revenue base through targeted commercial development, hospitality investment, healthcare expansion, technology-oriented employment centers, and destination retail opportunities.
Particular focus should be placed on the Jefferson Corridor, the Triangle, and the continued expansion of the Auto Mall, as these areas offer the greatest potential to generate sales tax revenue, spur property tax growth, create quality jobs, and ensure long-term fiscal sustainability.
By strategically investing in infrastructure, business attraction efforts, and employment-generating development, Murrieta can strengthen its economic resilience, expand municipal revenues, and maintain the high quality of life valued by residents.
PUBLIC NOTICING
The agenda item has been noticed according to the Brown Act.
CEQA AND REGULATORY OVERVIEW
This action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly.
FISCAL IMPACT
There is no fiscal impact associated with this report.
ATTACHMENTS
None.