The City of Morgan Hill has introduced an online budget simulator to involve residents in addressing a $4 million structural deficit. Launched in late November, the tool allows users to test different combinations of service changes and revenue adjustments to balance the General Fund budget.
In its first two weeks, the simulator drew more than 400 users. City finance staff say the tool is designed to educate the public about how the city’s budget works, highlight the limited share of local tax revenue the city receives, and gather community input on potential solutions. The simulator presents a range of options—from significant service reductions to more moderate changes paired with tax increases—each with explanations of their potential impacts.
On December 17, the Morgan Hill City Council unanimously approved plans for a $500,000 gateway arch over Monterey Road at Main Avenue, advancing a long-discussed downtown landmark. The Downtown Morgan Hill Improvement District will fund $250,000 of the project, with the remainder to be raised through private donations and community fundraising. Construction is targeted for completion by November 2026 in conjunction with the city’s 120th anniversary.
The arch will feature a laser-cut El Toro mountain silhouette with illuminated “Downtown Morgan Hill” lettering, supported by stone-filled columns and designed to maintain truck clearance and driver visibility. While the project prompted discussion about spending priorities amid budget constraints, the city does not control how the improvement district allocates its funds.
Morgan Hill’s commercial real estate market has entered a stabilization phase following two years of higher interest rates that reshaped financing conditions, particularly for speculative projects. Over the past five years, the city has delivered nearly one million square feet of new light industrial space, significantly expanding local inventory. Recent deliveries and tenant turnover have increased availability, creating opportunities for businesses seeking modern facilities that were previously difficult to secure.
Outside of industrial development, new commercial construction has been more measured, with higher borrowing and construction costs influencing project timing and scale. Retail and service-oriented properties continue to perform best in areas with strong foot traffic. Restaurants and personal services remain active, though operators are navigating higher labor and operating costs. Across sectors, businesses are operating more cautiously, prioritizing efficiency, lease renewals, and targeted reinvestment over rapid expansion. Consumer spending has moderated, particularly for discretionary goods, while demand for services and dining has held up more consistently.
What This Means for Morgan Hill
Overall, Morgan Hill’s economy is adjusting rather than contracting. The addition of nearly one million square feet of new light industrial space has shifted the market from scarcity to increased choice, giving businesses greater flexibility while increasing the importance of pricing, building quality, and absorption. Higher operating and financing costs have led firms to be more deliberate, focusing on efficiency, right-sizing, and targeted reinvestment. With growth moderating and financing conditions improving modestly, pointing to a more balanced and sustainable economic environment.
Federal Reserve Actions in 2025 — What Matters for Business Owners
In 2025, the Federal Reserve began easing monetary policy after several years of aggressive tightening. The most consequential action for businesses was a series of interest rate cuts, intended to reduce borrowing costs as inflation moderated and economic growth slowed. For business owners, these reductions provided modest relief on variable-rate loans, lines of credit, and some commercial mortgages, particularly for firms carrying short-term or revolving debt.
The Fed also ended its balance sheet runoff, commonly referred to as Quantitative Tightening. By halting the reduction of its bond holdings, the Fed reduced upward pressure on longer-term interest rates. This move helped stabilize credit conditions and improve access to longer-term financing, including loans for commercial real estate, equipment purchases, and capital investments.
How This Could Affect Morgan Hill
For Morgan Hill businesses, these actions may translate into slightly improved access to financing and more predictable borrowing conditions, especially for small and mid-sized firms considering expansion, tenant improvements, or equipment upgrades. Lower and more stable interest rates can also support commercial leasing activity and investment in industrial and mixed-use properties. While monetary policy alone does not drive local economic outcomes, the Fed’s shift in 2025 reduces some financial headwinds for businesses operating in a cost-conscious environment and may support gradual reinvestment and growth across the local economy.
As we close out another busy year, the Economic Development team would like to wish all of our businesses a prosperous holiday season and a Happy New Year.
We are grateful for the Community’s continued support of the Economic Blueprint workplan, launch of the Small Business and Entrepreneurship Program, updates to the Live Entertainment Ordinance, and removal of development barriers in the Condit/Auto Park/Laurel Planned Developments. For those that we connected with in-person, we appreciate you taking the time out of your busy schedule to host us for a business visit. This final newsletter of the 2025-year highlights just a few of our accomplishments.
We look forward to beginning the work outlined in our 2026 Workplan to support the City’s long-term fiscal sustainability and increase the number of local business services and job opportunities for all Morgan Hill residents.
