OC Cities Debate Financial Response To Coronavirus Sales, Hotel Tax Losses

JULIE LEOPO, Voice of OC

A quiet downtown Orange on March 19, 2020.

Cities across Orange County are reevaluating budget projections for the rest of the fiscal year as massive reductions in sales tax revenue and other essential city revenue sources have dried up amid the stay at home order. 


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One of the primary losses for most cities came from their sales tax revenue, which can make up anywhere from 10% to almost 40% of a city’s annual revenues. Transient occupancy tax revenue has also plummeted, as hotels report no new guests. 

A Voice of OC review found that according to each city’s estimations, the combined total losses for the cities of Irvine, Newport Beach, Huntington Beach, Brea and Fullerton comes to over $44 million for the current fiscal year. 

The fiscal year ends in June for all four cities, leaving staff a short time to reduce the shortfall and amend the 2020-21 fiscal year budgets, which multiple cities have said could change depending on how long the stay at home order lasts. 

Brea’s losses were calculated based on the assumption that nonessential businesses will remain closed through the end of May, but staff indicated they would need to develop another report if they extended past that. 

Other cities did not include a breakdown of time frame assumptions in their staff reports. 

According to their current projections, Brea has lost roughly $3.7 million in tax revenue for the current year, and their five year projection shows that without a reduction in spending the city will end multiple fiscal years at a net loss. 

According to a staff report given on Tuesday, the city has just over $26.2 million in total reserves to help counteract the losses. 

Huntington Beach, which was originally set to have almost a $5 million surplus by the end of their fiscal year, is now estimating around a $14 million shortfall in their budget according to a presentation earlier this month given by city manager Oliver Chi. 

To offset the loss in revenue, city staff proposed a series of reductions, including the delay of new infrastructure development and a freeze on new hires. Altogether, the new reductions are projected to save the city over $18 million. 

Newport Beach, which is set to discuss their financial situation on Tuesday, stated in staff report that they are set to lose anywhere from $8 million to $13 million from their general fund revenues alone, and that city staff had identified $13 million in expenditures that could be reduced as a “bridge” to end the current fiscal year. 

Cities have also taken different approaches regarding staffing, with some being forced to layoff part-time employees.  

Fullerton announced layoffs for over 150 part-time employees, mostly in the Parks and Recreation department, with smaller layoffs in the Public Works and Library departments. 

In a phone interview on Monday, Fullerton City Manager Ken Domer said that most of the positions were for summer programs in the city that were cancelled to comply with the stay at home order. 

Domer indicated that some of those laid off could be rehired if the situation changed, and that by laying off part time employees instead of reducing their hours to zero it would help them apply for benefits.  

“If something changes and everything gets back to normal and it’s a program we can put back together, we’ll do that,” Domer said. “Some of the Park and Rec employees had not even had hours this year so far…31 didn’t have hours yet in 2020. That means they were probably recently hired for summer programs.” 

The layoffs will save Fullerton roughly $130,000, but that still leaves nearly $2.9 million in lost funds to fill with reserve funds according to Domer. He also said that further layoffs for full time staff could happen in the coming months, and that a decision on that would likely arrive before June. 

Other cities have faced similar issues. At a city council meeting on Tuesday, the city of Brea announced they would furlough 88 regular part time employees, with no statement on whether further layoffs would be coming.  

The city of Irvine, which is set to hold a presentation on their finances next Tuesday, has promised that there will be no layoffs or reductions in hours for staff in a report prepared for the council.

According to the report, Irvine has a total of $113 million in reserves available for use, that “will provide a one-time source of cash to deal with these unprecedented fiscal impacts.” 

Some cities are also struggling with whether or not to approve new expenditures that were already discussed before the shutdown, amid concerns that the stay at home order and a projected slow return to work will significantly damage tax revenue for the coming fiscal year. 

Members of the Huntington Beach City Council shared concerns that a large portion of the city’s businesses would be heavily impacted by the loss of summer revenue, many of which use summer revenue to help offset the drop in beach shoppers during the rest of the year.

“This month was a bust,” said Councilman Erik Peterson at the meeting. 

At that same meeting, the council narrowly approved a set of controversial raises for several unions that would cost the city over $5 million in the next three years. The raises were negotiated prior to the coronavirus shutdown. 

“I don’t want to do this without a full picture of our finances, I think this should be tabled to at least 2021,” Peterson said, who proposed a motion to delay the approval that died for lack of support. “I think it’s fiscally responsible to wait, but it doesn’t seem like that’s the consensus of the council.” 

The only thing that all the cities agreed on was that the total impact for the 2020-21 fiscal year is still unclear, but that reductions to city services could be seen for the next year or two. 

“That’s part of the problem, assessing operations going forward is all based on the guidance we get from the public health officer and the state,” Domer said. “We expect some programs to not go forward initially, but we expect some to start as revenues begin to flow into city council.”