California cities will get more stimulus money than they lost during pandemic, state auditor says – Orange County Register

When life as we knew it came to a screeching halt last year, municipal bean counters shook in their moccasins.

The city of Los Angeles faced a $750 million shortfall, the loss of nearly 2,000 jobs, or a combination of the two. Anaheim prepared to borrow $210 million – using city libraries, fire stations and City Hall itself as collateral. The town of Riverside slashed its revenue estimates by 10% and sold bonds to pay off heavy retirement debt — a strategy that many good government pundits frown upon.

But a funny thing happened on the way to municipal collapse. Alcohol, gambling and shopping swelled the coffers of California taxpayers. Property values ​​have jumped. And the federal government stepped in with a mighty $8.2 billion stimulus fund to heal the wounds caused by the pandemic in California city budgets.

“Tax drought?” requests a new analysis from the auditor. “In fact, city revenue is flowing in. … Our analysis shows that the vast majority of California cities will receive more stimulus money than they lost during the pandemic.”

Los Angeles got far more than it feared to lose — nearly $1.3 billion in American Rescue Plan Act money, the auditor said. Anaheim got $106 million. Riverside, $73.5 million. etc

Of California’s nearly 500 cities, only 18 have not received enough stimulus funds to cover COVID-19-related revenue losses, the auditor said. This includes Avalon, Beverly Hills, El Segundo, Indian Wells, Laguna Beach, Santa Monica, West Hollywood and tiny Yountville in the heart of Napa Valley.

But all have seen their incomes increase through things like property, hotel and sales taxes, enough to cover COVID-related losses — all but little Yountville.

“Last year, we found that the sudden consequences of COVID-19 had a significant impact on cities that depend on tourism and entertainment for their income,” the auditor said. “The situation has improved significantly.”

“Grossly distorts the situation”

The League of California Cities – the organization that represents them in Sacramento – did not have the opportunity to examine the auditor’s methodology or data closely, but said it was clear that the analysis The auditor’s report didn’t include all of the information necessary to draw those kinds of conclusions, spokeswoman Jill Oviatt said via email.

“The recovery from the pandemic is uneven and that is not reflected here in any way,” she said. “While the recovery in some cities has been strong, other cities are still suffering and their local economies are still struggling. To say that all but one California city is rolling in dollars is inaccurate and grossly misrepresents the situation for cities and towns. cities that are still suffering.

On the front line, city officials agree.

“I know of many cities that have received more stimulus money than they have lost,” Indian Wells city manager Chris Freeland said by email. “For Indian Wells, we would disagree that our community saw significant revenue to cover our losses.”

The auditor’s numbers include economic recovery projections that some city finance officials have struggled to keep up with. Indian Wells, for example, was expected to decline by $858,484 at the end of the three years under review, even with stimulus funding of $1.3 million (and pandemic-related losses of $5.2 million).

A winter oasis near Palm Springs, Indian Wells typically expects around $8 million a year in hotel taxes, chief financial officer Kevin McCarthy said. But, in two COVID-battered seasons, hotel taxes have been nearly cut in half, to around $4.5 million a year.

“I see us bouncing back to 21-22 to sort of where we were before the pandemic — absent the delta variant — but we haven’t seen that strong recovery yet,” McCarthy said. “We’ve had a bit of a summer bounce from people just wanting to travel, but the lion’s share is between January and April-May. So we haven’t seen a huge amount of actual recovery of that stuff yet.

“We’ve had two years of declining revenue from tourism, and I don’t expect to ever catch up on that,” he said.

Years of growth “erased”

As some COVID-19-hit revenues now exceed pre-pandemic levels, the coastal city of Torrance continues to see its hotel occupancy taxes and business licenses trail behind. The city has “lost several years of growth” since the pandemic began, according to an email from city manager Aram Chaparyan and deputy finance director Ian Dailey. Increases in property and franchise taxes have helped offset the losses, but the state auditor’s projections underestimate the severity of the hit the city has taken.

“The effect of the pandemic has lasted longer than originally anticipated with multiple waves of COVID-19 infection spanning years, erasing years of growth in multiple revenue stream areas,” they said. writing. “While the economy is and we expect it to continue to recover, due to the lasting multi-year impacts, we do not expect the recovery to erase losses and grow to a level that would match the rate compound that we would have known if not for a pandemic.”

Torrance will receive $24 million, spread over two fiscal years, as part of the U.S. bailout, but Chaparyan and Dailey say the city will still have to pass a 3/4 cent sales tax hike – which is expected to generate 26, $75 million – in June 2022 to avoid deep cuts, though even the tax increase won’t completely eliminate the need for cuts.

They estimate that COVID-19 contributed to an overall loss of approximately $15 million in revenue. The city has already cut 46 full-time equivalent positions in 2020-21 and issued a $349 million bond to pay off the majority of its unfunded debt. The city council will receive an emergency budget in September detailing what will be needed to balance the budget should the tax increase fail.

“If the sales tax measure is passed, these implemented reductions may be partially reversed,” Chaparyan and Dailey wrote.

SOURCE: CALIFORNIA STATE AUDITOR

Other cities are doing better. El Monte predicted a deficit of $6.3 million for the 2020-21 fiscal year, but higher-than-expected revenue from sales and property taxes reduced that deficit by about $4 million.

“Initial sales tax projections for fiscal year 2020-21 were conservative due to the pandemic, but middle- and high-income earners have been less impacted by the pandemic than low-to-moderate income earners; as a result, people with disposable income continued to make high-end purchases such as automobiles, which was not expected at the start of the pandemic, City Manager Alma Martinez said.

According to Martinez, about $6 million in stimulus funds will completely eliminate a projected deficit for the next fiscal year and leave the city with a surplus. El Monte will receive about $42 million in total through ARPA and must spend it by the end of 2026, she said. The city is still working out a plan for how to use the money, but some of the early recommendations include expanding rent assistance, implementing a guaranteed income program, reimbursing employees for reduced wages and funding for various capital improvement projects, Martinez said.

Edward Enriquez, chief financial officer for the town of Riverside, said these are one-time funds that will be used for the community, and not necessarily to benefit the town financially. “With council leadership, the vast majority of funds will be funneled back into the local economy,” he said.

Cities greatly appreciate the federal funding coming their way over the next few years, but they aren’t off the hook yet, said Oviatt of the League of California Cities, “and it would be irresponsible to paint a picture of recovery. in another way.. With our economies still fragile, an ongoing pandemic, and wildfires threatening our communities across the state, Cal Cities will continue to advocate for funding so that all of our cities can recover.

Bernard P. Love