A fiscal year for the books
Managing city budgets as a deadly pandemic ravages livelihoods and revenues
Jill Oviatt is the director of communications and marketing at the League of California Cities and editor in chief of Western City magazine; she can be reached at email@example.com.
California cities have been on the front lines for nearly a year taking action to protect their residents and businesses and maintain the delivery of essential city services, despite unplanned expenses and revenue shortfalls brought about by the COVID-19 pandemic. While federal relief packages funneled emergency funds to American workers, families, and many businesses, local governments were left out and left to fend for themselves in helping their communities weather the pandemic.
The only real relief cities in California received was an allocation of Coronavirus Aid, Relief, and Economic Security (CARES) Act dollars in the 2020-21 State Budget. But cities have yet to receive the kind of emergency relief necessary to address the billions of dollars in revenue shortfalls they experienced this past year when local economies were shuttered due to the pandemic. Without that support, cities have been forced to cut budgets, services, and jobs. Throughout the state, more than 165,000 local government jobs have already been lost since the start of the pandemic.
We talked to three city managers – Martinez’s Eric Figueroa, Yountville’s Steve Rogers, and Murrieta’s Kim Summers – and asked for their reflections from the past year and forecasts for the future on how on earth one manages a city budget with so much uncertainty, and so little support from the state and federal governments.
Top municipal finance challenges in 2020
Eric Figueroa, Martinez City Manager: The fiscal challenge for 2020 was the same for cities that many of our businesses felt. Where was the revenue going to come from? Were we going to see sales tax dollars, were there going to be cuts in property tax assessed valuation, hotel taxes, and building permits? In those early days of the pandemic, we saw all the revenue sources dry up quickly, but since all of our information is delayed by a few months we really had no idea what the real impact would be until the end of the year. Add on top of all that the sales tax deferral agreements by the state and you felt like you were driving on an unknown road with one headlight and no cell signal for your Waze app on your phone.
Steve Rogers, Yountville City Manager: We saw an immediate reduction of $2,927,147 (24 percent) in our general fund revenue from $12,271,647 to an estimated $9,344,500. Yountville has a tourism-based economy with approximately 60 percent of our general fund revenue derived from transient occupancy tax (TOT) and restaurant activity accounting for 70% of our sales tax revenue.
Kim Summers, Murrieta City Manager: Our largest challenge, like all California cities, was the uncertainty of how severe our revenues would drop, how long they would remain down, and how to balance all of the unknowns with providing the community the services they need.
Key strategies to offset the pandemic’s financial impact
Eric Figueroa, Martinez: For Martinez, our strategy was pretty simple. We cut expenses as fast as we could to allow us to stabilize through the pandemic. We froze positions throughout the city, delayed hiring, strategically used consultants to control costs, and looked to cut back on any non-essential expenses. However, due to the speed of the shutdown, you could not simply cut your way out of the downturn. Instead, the Martinez city council stepped in with reserves to help us close the short-term gap. Reserves were an essential asset for our community, and I am grateful this was a priority for staff who worked here long before I arrived. Once we got over the short-term gap, we held fast to our cost-reduction strategy and restored expenditures once we saw needs in our community that we could effectively meet.
Steve Rogers, Yountville: We immediately reviewed and adjusted our internal service fund transfers to our Other Post-Employment Benefits (OPEB) Trust Fund, Unfunded Accrued Liability (UAL) Pension Trust Fund, and internal fleet and equipment reserve funds, and internal facilities reserve fund. Although the Town of Yountville has a small workforce of 31 full-time employees, we reviewed our organizational service-delivery structure, which resulted in a recommendation to eliminate one position in our parks and recreation department.
We reviewed and trimmed and/or eliminated and/or deferred expenditures that could be made without negatively impacting service delivery, such as delaying capital projects; trimming conference, travel, and training program budgets; and held off on discretionary or “nice to do” projects in favor of critical efforts.
We also utilized, when needed, funds set aside over several years in our revenue stabilization fund for use in event of a loss of TOT. The town council established this fund a few years back in recognition of our dependency on TOT and to have a plan for a sudden loss in this revenue.
Kim Summers, Murrieta: The loss in revenues due to COVID caused us to immediately freeze 32 vacant positions that we had planned to fill during the fiscal year, and we froze all new programs and projects that we could (turns out you can’t stop the building of a fire truck). Staff did a great job keeping their expenses as low as possible while moving the city forward in a number of key areas. With 30 percent operating reserves and a healthy contingency fund, we are in better shape than many cities but the anxiety over what the future holds has been very difficult on the city council and staff alike.
Fiscal challenges forecasted for 2021
Eric Figueroa, Martinez: No one knows how the economy will recover in 2021. When will we be able to open up for business again, will our programs go back to what they once were, and are we going to see revenue growth back to pre-pandemic levels? It is again a great unknown for us as staff and makes planning very challenging. The trend lines you relied on in the past to project growth are obsolete, and we will need to maintain flexibility in how we plan our revenue. It will be essential that we prioritize revenue opportunities in our community, however we can find them.
Steve Rogers, Yountville: Our top challenges that we are actively working on are getting our businesses reopened and the economy back on track so we can generate TOT and sales tax; also developing a balanced budget that recognizes TOT funding will continue to be less than normal projections, while not being too cautious or optimistic in our projections, as that will negatively impact restoration of services and internal transfers.
Kim Summers, Murrieta: We will continue to have the standard challenges such as pensions, competitive salaries, the closing of big box retail, and rising costs to deliver services. However, the uncertainty of what the pandemic will do to our economy and to our sources of income, will make financial forecasting and decisions painful for some time.
Adapting in 2021
Eric Figueroa, Martinez: After 10 months of operating in ways we never imagined we could, it is time to look around us and see what should stick for the long run. Remote work, digital submissions, Zoom council meetings, and flexible staffing – all of these should be evaluated. It would be a waste if we simply went back to the way that things were. So in 2021, we will solidify the changes in our organization that make us more effective, and we will focus on our core objectives just as we have done over the past 10 months. It is my sincere hope that we will reinvent ourselves as local government agencies to see ourselves as an entity that empowers the community and not just a regulatory machine.
Steve Rogers, Yountville: I will continue working with our town council, management team, and employees to continue to implement similar steps as we collectively did in 2020 to incrementally address the budget shortfall. And we will review, evaluate, and continue to pivot and adjust, as necessary.
Kim Summers, Murrieta: We are working on our biennial budget with the intent to fund all key services and the programs that have been frozen. Along with most of the positions, these programs will remain frozen until we are confident that we can reasonably model what the future looks like. As the economy and revenues stabilize, we will slowly lift the freeze.
Lessons learned in 2020 to be used in managing 2021 budgets
Eric Figueroa, Martinez: Focus on what matters and double down on your staff. We would have never made it through the pandemic unless the team stepped up and did amazing things for the community. It was hard on staff in Martinez, but they met every challenge even when people did not see what was going on behind the scenes. In 2021, what will guide us is a clear understanding that we go as far as our team will take us, and that any real change takes a committed group of people working together to really make things happen.
Steve Rogers, Yountville: Open and transparent communications with the town council, community, and our employees on the approaches that the town is taking to respond to the fiscal crisis resulting from the COVID19 pandemic.
Kim Summers, Murrieta: The ability to create a healthy operating reserve as well as sustainability funds for things like vehicles, building maintenance, and technology, has proven critical. When we talk about emergency funds for a crisis, I don’t think anyone could have imagined the multiple crises we have all faced.