City Manager Ken Domer gave a report on the impacts of the COVID-19 crisis on city revenues (that is, funding for roads, parks, and other city services) at the April 7 Fullerton City Council meeting. Put simply, a reduction in business means a reduction in taxes to fund city services.
“This public health crisis, this pandemic, has had a significant fiscal impact on city revenues,” Domer said.
The city’s current fiscal year general fund budget is about $98 million in expenditures and revenues. A reduction in sales tax, hotel tax, and development-related fees, has created a $3 million shortfall in city revenues, thus creating a current year deficit for the general fund.
Property Tax Revenue
The largest portion of city revenue comes from property taxes. For the current fiscal year, the city is expecting to bring in $45.3 million, or 46% of the general fund.
Most of the property taxes have been paid for the year; however, there is the possibility that some collection will be delayed due to the crisis, this could impact the city’s revenues.
Longer term impact of the crisis on property tax revenue is unknown, but will depend on market conditions, potential for defaults/bankruptcies, and home prices being impacted by the labor market.
“With so many layoffs and other displacements, we don’t know how property values are going to rebound and come back, how soon, and if they’re going to dip,” Domer said.
Sales Tax Revenue
Sales tax is a major source of city revenues. For the current fiscal year, sales tax was budgeted at $22 million. Due to the downturn in business, sales tax revenues are down 7%.
Here’s how the crisis is affecting the following industries on a larger scale:
-The auto industry is down by 32%
-The retail business industry down by 16.5%
-Fuel/service stations are down by 20%
-General consumer goods are down by 25%
-Restaurants/hotels are down by 20%
“Sales tax is probably our biggest concern because it’s an indicator, really, for the life of our retail and commercial businesses,” Domer said. Downtown, many businesses are closed. Some restaurants are offering takeout, but their revenue is a fraction of what it is normally.
Regarding the longer-term impact of sales tax decline, there are unknowns regarding how long the economy takes to rebuild. Once a restaurant opens, once a movie theater opens, will people feel comfortable going back out into crowds?
“We’re going to see an impact in next year’s projections for revenue, which will impact our overall budget,” Domer said.
City revenue from sales tax could also be affected by Governor Newsom’s recently-announced Small Business Sales Tax Deferral.
Regarding restaurants and hotels, Domer said that that estimate is “very conservative” locally, because Fullerton has two major hotels here that are already closed (Holiday Inn and Howard Johnson), which causes a major impact because of the city 10% hotel tax.
The overall projection is 30.3% decline in revenue from $3.3 to $2.3 million for hotels.
The ability for hotels recover will depend on other industries such as transportation, airline, and tourism, including Disneyland.
Other Revenue Losses
The Library Fund has seen a revenue reduction of 9.9% (or a loss of $41,343) due to the Library being closed.
The Park Fund revenue has seen a reduction of 27.3% (with a projected loss of $750,000), as the city is not collecting revenue for park rentals, weddings, and other events.
Gas Tax Revenues
The city is also seeing a reduction in its share of gas taxes due to people staying at home, not driving, and therefore not purchasing gas. Most gas tax revenue goes toward road repairs.
-Gas tax revenues are down 4% (or a loss of $161,982) for the current fiscal year, and the projected loss for 2020/21 is $305,220.
-SB 1 Tax (also gas tax) is down 2% (or a loss of $50,000 for the current fiscal year, and the projected loss for 2020/21 is $52,000.
-Measure M2 (environmental mitigation) funding is down 2% (or a loss of $50,000 for the current fiscal year and the projected loss for 2020/21 is $223,000.
Regarding gas tax/road funding, “any reduction is painful because it means less slurry, less crack seal, and one less mile of doing something with our roads,” Domer said.
The City’s Share of Recovery Funds
Mayor Jennifer Fitzgerald also requested that the city create a special COVID-19 legislative platform, for the city’s state and federal lobbyists (Townsend Public Affairs) to advocate for on behalf of Fullerton.
Fitzgerald said that this should include issues with CalPERS (state employee benefits), school testing procedures, sales tax, and economic development funding “that we need here at the city for infrastructure and to get our economy rolling again.”
She said that, with the federal stimulus package, $1.5 billion is coming to the state of California; however no money is earmarked directly for any city with a population under 500,000, which is the vast majority of cities in California.
“We are wholly at the mercy our of county government to share that funding with the cities,” Fitzgerald said. “So I think it’s imperative that our city council arm its lobbyists with information that they need to advocate on our behalf.”
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