Marin County has lowered its projection for revenue from property taxes that fuel a large chunk of its discretionary spending.

“We still project a balanced budget over the next three years,” said Josh Swedberg, the county’s budget director. “But it is something we’ll be watching closely.”

Swedberg provided the Board of Supervisors with his last financial forecast on March 25. Hearings on the fiscal 2025-25 county budget begin in May.

“I don’t want to be too alarmist here, but most of the economic indicators that we are using and have historically used have worsened,” Swedberg said. “We’re seeing most economic forecasters assume at least some level of gross domestic product decline.

“Tariffs, potential funding freezes, all of that has contributed to a sense of uncertainty, which is being incorporated into our forecast,” Swedberg said. “The largest increase in uncertainty is changes at the federal level.”Stock prices have been driven down by that uncertainty and a significant drop in stock market returns would increase the county’s pension and retiree health costs, he said.

Briefing supervisors on the county’s finances in February, Swedberg forecast that the county’s property tax growth would dip to 4% in fiscal year 2025-26 from 4.3% during the current 2024-25 fiscal year, but then rise to 4.5% in fiscal 2026-27 and 5% in fiscal 2027-28.

Over the last 20 years the growth rate has averaged 5%. Property tax revenue accounts for approximately 35% of the county’s general fund discretionary revenue.

Swedberg said he is now forecasting the growth rate to remain at 4% over the next two fiscal years and increase to only 4.5% by 2027-28.

The budget director said there has also been a drop in sales tax revenue.

“The sales tax is a small portion of our general fund, but it is significant for certain special revenue funds,” he said.

Sales tax accounts for about 1% of the county’s general fund revenue, or a little under $10 million a year. However, Measure A, a one-quarter of one-percent sales tax that funds the protection, expansion and preservation of open space, parks and agricultural land, generates about $14 million in revenue annually.

Swedberg said the state’s Mental Health Services Act is also significantly driven by sales tax. The law imposes a 1% tax on individuals with income over $1 million to fund mental health services and programs. Marin has historically received $16 million to $23 million in Mental Health Services Act funding annually.

Swedberg said he doesn’t expect any significant cuts in state revenue in fiscal 2025-26. His forecast of balanced county budgets over the next three years also assumes no significant cuts in federal funding or a recession.

“If we did have those significant changes,” he said, “we would need to revise this projection. I want to highlight the fact that the county has significant sensitivity to federal funding cuts.”

In fiscal year 2023-24, the county received over $100 million in federal revenues for grants and ongoing services. It received over $22.5 million in housing and urban development grants, more than $19.5 million for in-home supportive services, $10.8 million for temporary assistance for needy families and just short of $10 million for food stamps.

“If we were to receive even a 5% to 15% reduction, we would be looking at having to come back and make decisions about potential changes to our ongoing budget,” Swedberg said.

The county has several reserve funds to help smooth out the transition if such a loss in revenue were to occur, he said.

He added, however, “The key thing here is we are not able to backfill revenue loss on an ongoing basis.”

The county’s financial managers are recommending that supervisors add over $12 million to the county’s economic uncertainty reserve, increasing the balance to over $71 million and adopt a new fiscal policy.

The new policy would prioritize the use of excess revenues in the general fund, or health and human services operating funds, to first fund pensions and retiree health benefits. After that the priority would be to address deferred maintenance or equipment replacement.

Supervisor Eric Lucan, however, suggested that such a policy might be too restrictive.

“Sometimes there are opportunities where a small, one-time investment from the county, half a million dollars or a million, can pull in five million dollars of outside funding,” Lucan said.

Rollie Katz, executive director of the Marin Association of Public Employees, said, “If the worst of the Trump-Musk administration chaos happens and the market drops and we have a recession, or we have an economic downturn, or if the Trump-Musk-Johnson attack on health care happens and there are lots of cuts in federal aid, you’re going to need to use those rainy day funds.

“You don’t have them just to have them.” Katz said. “You have them for when it rains and if all of those things happen it will be pouring.”