CALIFORNIA, USA — Turning off California’s economy for an indefinite period has thrown the best laid plans for city budgets to the wayside.
The coronavirus and an effort to prevent the hospitals from being overwhelmed with patients brought stay-at-home orders across California. All the shopping and hotel stays that funded cities of every size were brought to a crawl, meaning sharp declines in sales tax and tourism taxes.
It’s not like anything people or cities have seen before.
“With sales taxes and the hotel taxes… we’ve seen a very dramatic and very quick drop off in those which means local governments are left with budget shortfalls, because, certainly, no one saw this coming,” said Carolyn Coleman, executive director for the League of California Cities.
While California and the rest of the country saw big impacts from the Great Recession of 2008, she says there was some delay on fiscal impacts due to the revenue sources impacted. With sales taxes and hotel taxes, cities are feeling the impact immediately, all while balancing some kind of coronavirus relief.
“You combine the two and you wind up with revenue shortfalls and increased expenses that have thrown local budgets into a bit of a havoc,” Coleman said.
Even a city as a large as Sacramento wasn’t immune to impacts.
Sacramento Assistant City Manager Leyne Millstein says the city's trajectory was on the up and up until restaurants and retail businesses closed.
The city estimated a $32 million drop in revenue for the current year and an estimated $60 million hit in revenue for their next budget starting in July.
As cities review their budgets, it’ll be up to them to find their own way of resolving the shortfalls, whether it be taxes, furloughs, layoffs, or service reductions.
According to the league, 90% of cities are considering layoffs, furloughs, or cuts to public services. 72% are considering both.
“Everything will be on the table… budgets are about priorities and balancing the resources you have to execute on those priorities,” Coleman said.
For Sacramento, Millstein says balancing their budget came down to a first for them, relying on money from savings and some other one-time funds.
“We also, for the very first time… we counted on $11 million from the close of this year to balance next year,” said Millstein.
Sacramento's “status quo” budget yielded little discussion from City Council and even fewer augmentations. Sacramento only increased “mission-critical efforts,” totaling only four augmentations and funds needed to address labor, fleet and insurance costs.
Despite all the figures, numbers, and projections city staff around the state will be doing for their budgets, the hardest part might still be ahead.
While more and more counties begin the re-opening phases, there’s no telling when things might hit a post-coronavirus normal.
“We did [budget estimates] about a month ago, and a month ago, you have no idea – and we still really don’t – what will ramp up really look like and how will that ramp up then affect or compare to the ramp up that we had built into our forecasts…,” said Millstein.
There’ll be a lot to learn in the days and months ahead, in terms of numbers and in terms of people. California is experiencing record unemployment and they’ll have to learn how that impacts their residents and visitors.
“The hardest challenge for us is that we don’t even have data for April/May or March/April of Sales Tax. We don’t know what really happened compared to what we estimated…,“ Millstein said.
It’ll be a matter of “wait and see” and then addressing any issues that come up.
“There’s a cloud of uncertainty associated with the path forward in the COVID-19 environment that we didn’t necessarily see quite the same way in 2008 [with the Great Recession],” said Coleman.
Coleman says recovery will have a lot to do with a city’s mix of revenue, when they reopen, and how long it will take for people to feel safe again. It’s a process that she says might look different and play out slower than the impacts of the Great Recession, over the course of months or even years.
In the meantime, she says the reality of budget impacts is that residents ultimately bear the pain.
Options like furloughs, layoffs, and service reductions could translate to slower response to emergency calls, delays in inspections for business permits and housing construction, garbage pickup impacts, and road improvement projects.
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