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The city of Mountain View is projecting a balanced budget this year despite facing the same big losses in tax revenue that are forcing drastic cuts in neighboring cities. But that could change if the county’s shelter order is extended.
Cities and counties across California are sizing up just how much damage has been caused by the new coronavirus, particularly local shelter in place orders that continue to shut down most nonessential businesses. In Mountain View, the estimated toll is already $7.6 million in lost revenue for the 2019-20 fiscal year, followed by steep losses forcing deficit spending through 2023.
But city officials acknowledged the numbers are all just best guesses, clouded by the uncertainty of when and how Santa Clara County will lift restrictions. If the current shelter orders are extended through June, for example, that alone would bump up deficit spending by $4 million for Mountain View in the coming years, said Jesse Takahashi, the city’s finance director.
“The overall outlook and economic impact to the city’s budget due to the COVID-19 situation is poised to become one of the steepest economic downturns that we’ve seen since the Great Depression,” Takahashi said.
Despite the grim financial portents, Mountain View’s barely break-even budget for 2019-20 was seen as good news at the May 5 City Council meeting, at least relatively speaking. In Palo Alto, city officials are already weighing cuts to offset an expected $39 million shortfall next year, including reduced public safety staffing and library cuts.
On a larger scale, the state of California projected last week a $54.3 billion budget deficit for the upcoming fiscal year, marking a sudden, abrupt end to budget surpluses and a decade of economic recovery and growth from the Great Recession.
In the immediate term, Mountain View has largely been shielded from economic devastation caused by the coronavirus pandemic and subsequent public health orders. Assessed property taxes, which make up nearly 40% of the city budget, were decided in January, creating a relatively small $443,000 shortfall from what was projected before the crisis.
Where Mountain View is expected to take the biggest hits are in sales and hotel taxes, caused by skyrocketing hotel vacancies and limited retail sales. Sales tax revenue is expected to decline by $3.2 million, or 14%, for the fiscal year ending June 30, while taxes on hotel stays are expected to plummet by $2.9 million (34.5%).
Both taxes are considered relatively small parts of the city’s $148 million general fund budget for the fiscal year, limiting the damage to the city’s financial health.
Costs have also been lower than anticipated, with 74 staffing vacancies that were originally budgeted for the current year, Takahashi said. Recruitment is being slowed down significantly in order to keep spending down and prioritize essential positions like public safety officers. To balance the books, city staff members are reversing a decision to inject $3 million into capital projects from the general fund.
“While it’s very important to have this money in the Capital Improvement Plan reserve for future projects, staff have determined that it’s not critical to have that at this point,” Takahashi said.
Though the city is projected to stave off deficit spending for now, that won’t last forever. Takahashi said declines in property taxes and other revenue sources are expected to create a $1.5 million budget deficit in the fiscal year beginning July 1, followed by an even larger $2.4 million in the 2022-23 fiscal year. Add an extension of the shelter in place order through June of this year, and those numbers grow to $3.5 million and $4 million, respectively.
“The longer this crisis persists, the more that is unknown,” said City Manager Kimbra McCarthy, adding that budget deficits are likely to grow.
Though details are slim on the 2020-21 fiscal year budget that will be approved next month, Takahashi said the approach will be to keep the “status quo,” holding even on funding for critical services while skimping on paying for long-term pension costs. The city is also expected to slow down new hires, and many of the City Council’s less critical goals for the upcoming year may also be postponed. The city may be forced to rely on its general fund reserve, which was roughly $25.4 million in July last year.
City budget estimates, by the numbers
Lost sales tax revenue – $3.2 million
Lost Transient Occupancy Tax (hotel tax) revenue – $2.9 million
Lost or deferred rent and lease revenue – $869,000
City funds spent on COVID-19 programs and initiatives – $470,000
2019-20 general fund balance – $175,000 (previously $4.2 million)
This is a good article. Let’s us know the situation.
Glad to hear that Mountain View is weathering the storm decently for now.
@Mountain View Voice – Did the City share the projected total cost of the raises adopted two weeks ago (one week before getting financial update)?
@SRB
My understanding is the raises were already budgeted for as they are every time. It takes months and sometimes years for a city to negotiate raises with union groups. Once they come to an agreement such as 2% for the next 3 years the city budgets for it, hence how they were able to balance the budget.
@The guy
Regardless of how the raises were arrived to (and they were approved a mere few weeks ago), do you know ho much cost they’re adding to the 20-21 budget?