HomeMy WebLinkAboutItem No. 01 - Covid-19- Impact on City Operations and Revenue
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Staff Report
City of San Bernardino
Request for Council Action
Date: April 15, 2020
To: Honorable Mayor and City Council Members
From: Teri Ledoux, City Manager
By:Paul Espinoza, Finance Director
Subject: COVID-19 – Impact on City Operations and Revenue
Recommendation
Receive an update on the impact the novel coronavirus (COVID-19) pandemic is
anticipated to have on City operations and revenue.
Background
Since declaring a local Emergency on March 13, 2020, due to the novel coronavi rus
(COVID-19) pandemic, the City has taken a number of steps to ensure that it is able to
continue to have a strong public safety presence, maintain its infrastructure , and support
vulnerable populations through services like the senior meal program and t he issuance
of a moratorium on evictions for residential and commercial tenants for non -payment of
rent.
While the City has had to change how it operates to protect, to the degree possible, the
public and its employees, it continues to provide essential services in our community.
Although most of the City’s public counters have been closed through May 3, where
possible, the City is continuing to provide services by phone, email, and through other
electronic means. In order to provide for social distancing the City has made changes
to work schedules and, when possible, staff is working remotely. Operating under the
State of California’s stay-at-home order, which limits business operations to the State’s
critical infrastructure sectors, has necessitated the closure of City libraries, cancellation
of community events and suspension of all recreational programming. These services
are largely supported by part-time/temporary staff. As a result, all part-time/temporary
employees that are not providing an es sential service have been furloughed or will be
working reduced schedules based upon operational need. Updates to the community
regarding operational changes associated with COVID-19 are being communicated
through the City’s social media accounts and on the City’s website
(www.sbcity.org/covid19 <http://www.sbcity.org/covid19>).
The loss of revenue related to the COVID-19 pandemic will have a significant impact on
the financial health and wellbeing of the City of San Bernardino and its residents. While
it is too early to know the full impact, City staff has prepared a preliminary analysis
outlining the anticipated impacts to the City’s operating budget and general fund
reserves.
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Discussion
The major revenue sources for the City of San Bernardino inclu de Sales Tax, Transient
Occupancy Tax (TOT) derived from hotel stays, Utility Users Tax, Franchise Fees,
Property Tax in Lieu of vehicle license fees (VLF), and Use of Money and Property.
Together, these sources comprise roughly 70% of the General Fund's r evenues for the
FY 2019-20. General Fund revenues pay for many of the City's essential operating
services such as Police and Safety, Code Enforcement, Parks and Recreation, Streets,
Facility Maintenance and Administration.
The swift reaction by consumers and businesses to the outbreak of COVID-19 and the
stay-at-home orders issued throughout the nation has resulted in a significant decrease
in spending on certain goods and services. The national and state response, combined
with the uncertainty of how long the presence of the virus will disrupt the U.S. economy
has made revenue forecasting challenging. To identify the anticipated revenue declines
from the COVID-19 pandemic, staff has been working with the City's property and sales
tax consultants, fiscal policy advisors and local hotel operators in an effort to gauge the
impact on current year revenues.
General Fund - Revenues
The Mid-Year Financial Review for the Fiscal Year 2019-20 projected a slight surplus of
$100,643 and a General Fund reserve balance of $29.27 million. The Mid-Year
Financial Review projected General Fund revenues overall to amount to $132 million.
Based on the impacts of the COVID-19 pandemic, staff is now estimating General Fund
revenues to end the year at $126.9 million refle cting a decline of $5.19 million from mid-
year estimates. The updated projections on the City’s General Fund revenues are
outlined as follows:
Sales Tax: The FY 2019-20 Mid-Year Financial Review anticipated sales tax revenue of
$38.3 million. Based on projections provided by the City’s sales tax consultant, HdL,
staff now estimates sales tax revenue will drop by roughly $3.8 million (10%) to $34.5
million before the close of the fiscal year. The drop in sales tax revenue is
predominately expected in the following sectors:
General Consumer Goods (-30.4% or $1.15 million)
Auto and Transportation (-34% or $912,416)
Restaurants and Hotels (-35% or $780,723),
Business and Industry (-23% or $611,037)
Fuel and Services Stations (-32% or $530,436)
Building and Construction (-27% or $349,895).
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Measure Z: Measure Z sales tax (the City’s 0.25% district tax) revenue at mid-year
was projected to end the year at $9.3 million but is now projected to decline for the
remainder of the fiscal year by $610,000 (6.5%). Similar to the City’s regular sales tax,
this drop is anticipated to continue through the end of the fiscal year. Total Measure Z
revenue is now projected at $8.7 million.
Transient Occupancy Tax (TOT.): There are currently 42 active hotels and motels
operating throughout the City. Based on our mid -year estimates, these operators were
projected to generate $4.9 million in TOT revenue. To determine the direct impact of
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COVID 19 and the stay-at-home order, staff contacted several of the City’s hotel
operators. These operators reported averaging roughly 80% occupancy levels prior to
March 1st. Collections received since March 1st show steady declines with an average
occupancy rate of 30%. Based on these occupancy declines, TOT revenues are now
projected at $4.3 million for the FY 2019-20. This reflects a revenue decline of
$575,000, or 11.6% based on a comparison to our mid-year estimates.
Utility Users Tax (UUT): UUT is a usage tax on the consumption of utility services,
including but not limited to electricity, gas, water, sewer, telephone (including cell phone
and long distance), sanitation and cable television. UUT was estimated to generate
$23.3 million for the FY 2019 -20. It remains to be seen how the effects of COVID-19
and stay-at-home order will impact the City’s UUT revenues. At this time the mid -year
estimates appear to be valid. Staff will continue to monitor this revenue category.
Franchise Fee: Franchise fee revenues are projected to come in at $10.3 million for the
FY 2019-20. As with UUT revenues, it is unclear how the effects of COVID -19 and the
stay-at-home order will impact this revenue category. For the time being , our mid-year
estimates are unchanged. Staff will continue to monitor this revenue category.
Property Tax in Lieu of VLF: Revenues generated from Property Tax in Lieu of vehicle
license fees (VLF) at mid-year were projected to total $16 million. The County of San
Bernardino is allowing those adversely impacted by COVID-19 to receive a waiver for
penalties and interest on their property tax payments. It remains to be seen how many
payments will be made late or missed altogether. If fewer payments are received there
will be an increase in delinquencies for FY 2019 -20 but there is really no way to quantify
the impact at this time. Despite this, the assessed values and tax bills for the current
year are out and will, for the most part, be paid within the next month. The mid -year
property tax estimate remains unchanged and staff will continue to monitor this revenue
category.
Use of Money and Property: The FY 2019-20 Mid-Year Financial Review indicated that
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revenue generated from the Use of Money and Property was projected to be $959,517.
This estimate has been lowered to $779,273 (a decline of $180,244 from mid -year
estimates). For the last quarter of the FY 2019-20, business operators who lease
property from the City have either requested lease waivers or have cancelled their lease
contacts with the City altogether. These business operators include Big-5 Sporting
Goods ($12,144 in lease waivers), Shandin Hills Golf Course ($50,000 lease contract
termination), and Regal Cinemas, Inc. ($118,000 for the last quarter of the FY 2019 -20).
Staff will continue to monitor this revenue category for developments and updates.
General Fund - Expenditures
Overall, General Fund expenditures appear to be in line with our mid -year projections.
Based on the projected decrease in General Fund revenues for the FY 2019 -20 it is
now anticipated the City will end the fiscal year with a deficit of $5,094,251. This will
require dipping into general fund reserves and/or making reductions in expenditures.
CalPERS: Despite FY 2019-20 expenditures remaining flat when compared to our mid-
year budget update, the impact of the COVID-19 on the City’s CalPERS rates and
future rates is an area of concern. Although it is too early to estimate what the overall
impact of COVID-19 will be on long-term investment returns, the impact will adversely
affect the City’s CalPERS rates. CalPERS investments to fund California public
employee pensions have shrunk by $69 billion as the COVID -19 pandemic has
squeezed global markets.
In mid-March the California Public Employees Retirement Systems’ fund balance stood
at about $335 billion which was down from a record high of $404 billion just one month
before. As a result of the drastic declines, cities and counties will be forced to pay
CalPERS increased contributions to make up for these losses. The full ex tent of these
losses remains to be seen. The full measure of the losses will be determined by
CalPERS’s return on its investments for the present fiscal year measured as a
percentage and won’t be available until July of this year. As such, higher payment s
won’t go into effect until July 2022 when these losses are phased in.
Non-General Fund - Revenues and Expenditures
Gas Tax: Although the impact of COVID 19 and the stay-at-home order on the City’s
non-general fund revenue sources is unknown at this time, staff anticipates a
substantial negative impact to Local Streets and Roads (LSR) revenue including the
Highway Users Tax Account (HUTA) and the SB1 Road Maintenance and Rehabilitation
Account (RMRA). The effect of the COVID-19 pandemic on fuel consumption and
therefore tax collections and allocations depends on many unknown factors including:
restrictions by state and federal government on transportation activity and changes in
transportation during the recovery period. Most road transportation in Ca lifornia will be
suppressed through April and possibly as far as late June. Based on this, the California
City Finance Fiscal Policy Advisors expect a drop in HUTA allocations of between 15 -
30% and declines in RMRA allocations from 10-20%.
It is anticipated that the RMRA Fund will have an estimated ending fund balance of
$288,483, and therefore, would be able to absorb a drop in anticipated revenues during
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the current fiscal year. However, the HUTA Gas Tax fund, which primarily fund street
maintenance operations, does not have excess fund balance available to offset a large
decrease in revenue.
At mid-year the HUTA Gas Tax Fund was anticipated to end the fiscal year with a
surplus of $822,312. With an anticipated decline of 30% in HUTA Gas Tax revenue s
(worst case scenario) a deficit of $829,760 is expected.
Best Case
Scenario*
Worst Case
Scenario*
Adopted
Budget
Amended
Budget
Estimated
Actuals
Estimated 15%
Reduction
Estimated 30%
Reduction
Beginning Fund Balance 1,786,816 1,786,816 1,786,816 1,786,816 1,786,816
Revenues 5,506,908 5,506,908 5,506,908 4,680,872 3,854,836
Operational Expenditures (5,365,900) (5,576,300) (5,394,964) (5,394,964) (5,394,964)
CIP Expenditures - (2,605,048) (1,076,448) (1,076,448) (1,076,448)
Fund Balance (Deficit)1,927,824 (887,624) 822,312 (3,724) (829,760)
Recommendation:
Defund Street Light Replace SS 17-000 602,430 602,430
Balance (Deficit) after Recommendations 598,706 (227,330)
As the HUTA Gas Tax fund is a special revenue/restricted fund, it cannot remain in a
deficit positon. By the end of the fiscal year this will have to be adjusted in one of three
ways.
Option 1 (recommended): Staff recommends that the City defer all CIP
expenditures for the current fiscal year in the amount of $602,430. This will
reduce the FY 2019-20 deficit of $829,760 to a worst case scenario deficit of
$227,330. This deficit will depend on what actual HUTA Gas Tax revenues. It is
possible that the Gas Tax fund will end the year with a surplus of $598,706 if
revenues are only decreased by 15%. Staff recommends deferring the current
CIP projects in this fund and revisiting when more info rmation is known. If the
stay-at-home order remains in place through the end of the Fiscal Year it is
possible that the Gas Tax Fund will require assistance from the General Fund.
.
Option 2 (not recommended): While not recommended by staff, the City could
transfer $227,330 of expenditures from the HUTA Gas Tax Fund to the General
Fund by June 30, 2020 using the City’s emergency reserves.
Option 3 (not recommended): Alternatively the City could provide an inter-fund
loan in the amount of $227,330 from the General Fund to the HUTA Gas Tax
Fund and establish a repayment schedule over 3-5 years with interest charged at
the annual LAIF interest rate (currently 1.73%). This option is not recommended
by staff.
General Fund Reserves
At the mid-year review, total combined reserves were anticipated to be $29.27 million at
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year end (June 30, 2020). These funds are restricted into categories under the City’s
adopted Reserve Policy.
The chart below illustrates the various General Fund Reserve Policy targets :
Analysis of Reserve Policy Targets
Target
Reserves
per Policy
Actual
Reserves at
6/30/19
Use of /
Contribution to
Reserves
Projected
Available
Reserves 6/30/20
Operating Reserve:
Emergency Reserve - 15% of adopted budget 19,024,050 19,024,050 - 19,024,050
Economic Contingency Reserve -10% of adopted budget 12,682,700 10,151,928 100,643 5,158,320
Assigned for Carryovers 2,367,474 (2,367,474) -
Use of Contingency Reserve for COVID-19 Impact (5,094,251)
Unassigned:- - - -
31,706,750 31,543,452 (7,361,082) 24,182,370
The City’s Reserve Policy also identifies four different categories of Special Reserves to
which any remaining funds can be allocated. The four categories established in the
policy are:
Risk Management Reserve
City Facilities Reserve
Vehicle and Equipment Reserve
Infrastructure Reserve
Currently the City is below the target reserve for the economic contingency reserve and
there are not additional reserves available to fund these other recommended areas.
Should the Mayor and City Council approve the use of one-time Economic Contingency
Reserves in the amount of $5,094,251, the remaining reserve would total $24.18 million
by the end of the FY 2019-20.
2020-2025 Key Strategic Targets and Goals
The update on the financial impact associate with the novel coronavirus (COVID-19)
aligns Key Target No. 1: Financial Stability. Completing a detailed analysis of the
impact of this event on operational costs and revenues enables the City to take
proactive steps to address anticipated changes in expenditures and revenue.
Fiscal Impact
With the anticipated loss of revenue resulting from the COVID -19 pandemic the General
Fund is now projected to end the year with a deficit of $5,094,251 if no action is taken to
curb spending through the remainder of the Fiscal Year. Staff will continue to monitor
the situation and provide updates to Council as more information becomes available.
Next Steps:
On Monday April 6, 2020 the Fiscal Year (FY) 2020 budget for the Department of
Housing and Urban Development (HUD) was enacted, which includes Coronavirus Aid,
Relief, and Economic Security (CARES Act) supplemental funding. The City of San
Bernardino has been allocated $2,003,529 in Community Development Block Grant
(CDBG) Funds, and $1,019,997 in Emergency Solutions Gr ant (ESG) to cover COVID-
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19 related expenditures. Staff has reached out to the Community Planning Division at
the HUD Los Angeles office to receive guidance/interpretation of Public Law 116 -136
(CARES Act). Based upon the limited guidance that has been pr ovided it is expected
that the City will be able to utilize the CDBG funding to cover expenditures related to
COVID-19 in the following areas:
Staff costs for CDBG program administration and eligible activities
Costs associated with unused and partially utilized spaces
Costs associated with increased police services
Buildings and improvements, including public facilities related to COVID-19
Assistance to Businesses, including Special Economic Development Assistance
Planning, Capacity Building, and Technical Assistance
Based upon existing HUD regulations it is anticipated that the ESG funding can be used
to support programs related to COVID-19 in the following areas:
Emergency Shelter-Shelter Operations
Street Outreach
Expanded Staffing
Staff will be preparing and presenting a programming plan for the use of these funds to
the Mayor and City Council for approval.
The City’s non-essential part-time personnel have been furloughed or will be working
reduced schedules based upon operational need and all non-mandatory travel and
training has been suspended through the end of the fiscal year. Other cost savings
measures including additional furloughs, holding positions vacant through the remainder
of the fiscal year and the deferment or elimination of planned expenditures are under
review. Staff is also tracking all of the City’s costs as they relate to the COVID -19 event
and will seek every opportunity we can to obtain funding from the federal and state
government and other funding sources.
The impact COVID-19 will have on City revenue and operations going into next fiscal
year is being analyzed and will be incorporated into the preliminary budget for review by
the Mayor and City Council in May. A repayment schedule for the use of Gener al Fund
Reserves required to carry the City through the remainder of FY 2019 -20 will be
incorporated into the proposed budgets for future operating years.
Conclusion
Receive an update on the impact the novel coronavirus (COVID-19) pandemic is
anticipated to have on City operations and revenue.
Attachments
Attachment 1 General Fund Revenue and Expenditure analysis
Ward: All
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Synopsis of Previous Council Actions:
November 21, 2018, the Mayor and City Council adopted Resolution 2018 -308,
establishing the General Fund Reserve Policy.
June 19, 2019, the Mayor and City Council adopted Resolution No. 2019-168,
approving the FY2019/20 Operating Budget and Capital Improvement Program
Budget.
February 19, 2020, the Mayor and City Council adopted Resolution No. 2020-42,
receiving a Fiscal Year 2019/20 budget update and approving budget
amendment actions.
March 18, 2020 - the Mayor and City Council adopted Resolution 2020-51,
ratifying Proclamation 2020-01 issued on March 13, 2020, and declaring the
existence of a local emergency.
Revenues by Category
FY 19/20
Adopted
Budget
FY 19/20
Midyear
Estimates
*FY 19/20
Year-End
Estimates
$ Variance
from
Midyear
% Variance
from
Midyear
Charges for services 4,455,900 4,974,015 4,974,015 - -
Fines and forfeitures 1,815,900 1,339,969 1,339,969 - -
Franchise Tax 10,220,000 10,130,000 10,130,000 - -
Intergovernmental 2,306,000 5,298,178 5,298,178 - -
Investment income 432,000 450,058 450,058 - -
Licenses & permits 10,453,000 10,987,079 10,987,079 - -
Measure Z Sales Tax 9,021,000 9,378,979 8,768,000 (610,979) -6.51%
Miscellaneous 2,446,800 2,436,902 2,436,902 - -
Other Taxes 2,799,100 2,757,648 2,757,648 - -
Transient Occupancy Tax 4,900,000 4,956,551 4,381,551 (575,000) -11.60%
Property Taxes in Lieu of VLF 16,805,900 16,805,900 16,805,900 - -
Sales and Use Tax 36,619,400 38,323,670 34,495,000 (3,828,670) -9.99%
Use of Money and Property 908,000 959,517 779,273 (180,244) -18.78%
Utility Users Tax 23,700,000 23,300,000 23,300,000 - -
TOTAL REVENUES 126,883,000 132,098,468 126,903,574 (5,194,893) -3.93%
Expenditures by Department
010 Mayor 811,200 847,356 847,356 - -
020 City Council 931,800 867,661 867,661 - -
030 City Clerk 779,300 978,762 978,762 - -
050 City Attorney 2,319,800 3,807,414 3,807,414 - -
090 General Government 8,619,000 9,926,239 9,926,239 - -
100 City Manager 3,179,000 3,045,606 3,045,606 - -
110 Human Resource 1,064,800 1,434,119 1,434,119 - -
120 Finance 3,673,400 3,601,826 3,601,826 - -
150 Special Assessment District - 118,755 118,755 - -
160 Capital Improvement Projects - 956,333 956,333 - -
180 Community & Economic Development 3,948,600 7,635,237 7,635,237 - -
210 Police 80,164,900 79,666,201 79,666,201 - -
380 Parks Recreation & Community 4,332,700 4,300,663 4,300,663 - -
400 Public Works 15,189,900 15,370,648 15,370,648 - -
470 Library 1,812,600 1,808,479 1,808,479 - -
TOTAL EXPENDITURES 126,827,000 134,365,299 134,365,299 - -
Use of Reserves for Carryovers (2,367,474) (2,367,474)
Surplus (Deficit)56,000 100,643 (5,094,251)
*FY 19/20 Year-End Estimates assume revenue impacts from the Coronavirus pandemic with a shelter-in-place order in effect
through May 2020. However, the unknowns surrounding the course of this virus and the nature and effects of the ongoing
government response may continue to change as we get closer to our year-end.
City of San Bernardino General Fund Analysis
Update to Revenues for COVID-19 Impact