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Santa Maria Sun / News

The following article was posted on April 1st, 2020, in the Santa Maria Sun - Volume 21, Issue 5 [ Submit a Story ]
The following articles were printed from Santa Maria Sun [santamariasun.com] - Volume 21, Issue 5

Cities and the county begin to weigh financial implications of COVID-19

By ZAC EZZONE

As public health officials continue to grapple with the COVID-19 pandemic, cities in Northern Santa Barbara County are beginning to understand how closures related to the virus are affecting their budgets.


LOSING MONEY
Due to COVID-19 related business closures and shelter-at-home losses, cities in Santa Barbara County—including Solvang—are preparing to deal with losing revenue. The city laid off eight employees on March 27 in anticipation of transient occupancy tax and sales tax shortfalls.
FILE PHOTO BY JAYSON MELLOM

With many businesses closing that are deemed nonessential under Gov. Gavin Newsom’s stay-at-home order, local cities and the county are poised to lose millions of dollars in revenue from hotel and sales taxes. To make up these losses, cities need to reduce costs, pull money from reserve funds, or both.

The city of Solvang—which has a local economy almost entirely dependent on tourism, and therefore is one of the hardest hit jurisdictions in the county—declared an economic cessation emergency during a special City Council meeting on March 20. More than 50 percent of the city’s general fund revenue comes from its transient occupancy tax, which hotel and motel guests pay; another 15 percent comes from sales tax collections. 

During the meeting, City Manager Xenia Bradford told the council that the city could lose about $500,000 a month for as long as the local economy remains nonexistent. This is a substantial amount of money for a city that operates on about $9.5 million in general fund revenue annually. 

To begin offsetting some of these losses, the city laid off eight employees on March 27, according to a message the city released from Mayor Ryan Toussaint to the public. In this message, issued a day after the lay-offs, the mayor said the city made these reductions to focus its funding on essential services, like water, law enforcement, and maintenance.  

“The significant impacts of this unprecedented financial crisis are already being felt, but we must plan into the future not knowing how long this cessation will last or how long the recovery period will take, or cost,” Toussaint said in the message.

Similarly to Solvang, as a city in the Santa Ynez Valley, Buellton relies heavily on tourism dollars for funding. City Manager Scott Wolfe said the city anticipates it’ll lose $1.35 million during the current fiscal year, which runs through June, as a result of the COVID-19 pandemic.

Wolfe said the city is beginning its budget adjustment process, but that it’ll probably rely on a mix of expense reductions and the use of reserve funds, of which the city has more than $10 million, to make up for the losses in revenue. 

“These [reserve funds] are available for use as a “rainy day” fund, and this pandemic would certainly qualify as a ‘rainy day,’” Wolfe said. 

Unlike Buellton and Solvang, the city of Santa Maria isn’t as reliant on tourism dollars to keep the city afloat. Instead, city Public Information Manager Mark van de Kamp said sales tax revenue has traditionally been the lifeblood of the city’s revenue streams. This income makes up almost half of the city’s general fund.

With many retail businesses closed for the duration of the pandemic, Santa Maria is bracing for losses in revenue and subsequent budget cuts, although officials are still calculating what these numbers will look like, van de Kamp said. 

“There’s an inherent lag time between point-of-sale when consumers make a purchase and then reporting that to the state, and the state reporting to the city,” van de Kamp said. “But we do fully expect to see a downturn that will be significant.”

Van de Kamp said it’ll be up to the City Council to decide how to make up for any losses in revenue, but that by law, the city is required to pass a balanced budget. However, the city initiated a hiring freeze on March 27 to begin reducing its expenses.

As for alternatives to cutting costs, the city maintains two different reserve funds, one of which had about $2 million as of September 2019, while the other has about $19 million. The city uses the former to bridge gaps between revenue and expenses, when the expenses are higher than revenue. Van de Kamp said the other fund is one the city hasn’t touched in years and is in place for dire emergencies.

Santa Barbara County also appears to be in a position where it can sustain a temporary loss in revenue. During a Board of Supervisors meeting on March 24, Assistant County Executive Officer Jeff Frapwell said he anticipates the county will lose $3 million in revenue during this fiscal year, which runs through June. But the county has about $34 million in its strategic reserve fund to cover such a dip in revenue.

Fifth District Supervisor Steve Lavagnino said having that money to fall back on puts the county in a position to cope during this pandemic. 

“Although we’re going to have a lot of negative impacts coming forward, I think we’re well positioned because of some of the sacrifices that were made,” Lavagnino said.

But for cities without such reserves available, the situation is a bit more unclear. 

Tourism isn’t as important in Lompoc as it is in Buellton or Solvang, but revenue from transient occupancy taxes makes up about 6.5 percent of the city budget. More costly is the anticipated reduction in sales tax revenue, which makes up about 15 percent of the city’s general fund.

Lompoc City Manager Jim Throop said it’s too early to truly understand how the pandemic will affect city finances, but right now he’s anticipating about a $1 million hit to the budget during this fiscal year. This is a problem for a city operating on an already slim budget, with only about $1.5 million in reserves, compared to the $8 million or $9 million it should have in its reserve funds. 

“When we adopted the budget, we made cuts and had a deficit,” Throop said. “So trying to go back and make any other reductions would be pretty severe reductions. We have to, right now, get by with what is in the reserves.”

Reach Staff Writer Zac Ezzone at zezzone@santamariasun.com.








Weekly Poll
What do you think of the Lompoc prison facilities' ways of mitigating the spread of COVID-19?

Definitely cruel and unusual—more people should have received home confinement.
It was certainly inhumane; inmates couldn't even shower for almost two weeks.
It was not great but was typical of our current institutions.
I think it was adequate given the situation.

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