As retail sales plummet during the pandemic, local governments across America are facing massive budget holes.
Orange County is no exception.
The county government – which handles social services like food assistance applications, as well as law enforcement like the Sheriff’s Department – is projecting a $458 million drop in revenue between now and the middle of next year.
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“It is significant,” said Michelle Aguirre, the county’s chief financial officer, when she publicly announced the amount at the county supervisors’ meeting Tuesday.
“Devastating” was how county CEO Frank Kim put it at a recent news conference.
“We’re going to struggle to meet the basic funding needs for our district attorney and the sheriff,” Kim said when asked by Voice of OC about the county’s financial picture.
There’s a $140 million projected hit to the public safety sales tax that helps fund the Sheriff’s Department and DA’s Office, he added, calling it a “devastating loss” of funding.
The revenue drops are also expected to hit the county’s social safety net. Officials are projecting a steep drop in sales tax revenues that fund the eligibility workers who process applications for food assistance and public health insurance for people who have lost jobs.
“So at a time when we’re seeing a rise in the demand for these core safety net services, the funding that is going to support the actual enrollment into these services is declining. So that is a challenge,” said Kim.
This comes as the county has less budget flexibility, given that the general fund budget is absorbing large salary increases granted by county supervisors to sheriff’s deputies just ahead of the November 2016 elections and again last year. The deputies’ union is the largest spender on county supervisor elections.
The raises have prompted another pattern – where the county has pulled millions from public health and other funds to pay for overages at the Sheriff’s Department.
In their public update Tuesday, county officials said they’re still figuring out how to cover the $458 million they project in lost revenue amid the pandemic. They’re looking at dipping into reserves unless the federal government provides money to backfill it.
The existing $554 million in federal stimulus money to the county – under the CARES Act – can’t be used to backfill lost revenues because it can only be used for new, direct expenses for pandemic response, county officials said Tuesday.
Congress is currently debating a $1 trillion aid package for state and local governments across the nation that could be used to backfill lost revenue. The U.S. House of Representatives approved the package last week as part of the HEROES Act, though it was not expected to be approved in the Senate.
Of that amount, $357 billion in the HEROES Act would be for local governments. Orange County is about 1 percent of the national population, which would make OC’s proportional share about $3.5 billion for local cities and the county government.
County officials cautioned Tuesday about the possibility of further budget impacts in the future, particularly if a second wave of coronavirus hits.
“There are still some risks and some unknowns,” Aguirre told the supervisors Tuesday.
“We don’t know if we’re going to have an additional wave of COVID-19. So as I mentioned earlier, that’s why we need to ensure that we have sufficient funding available for the county to provide that emergency response.”
County supervisors received a written update Tuesday on the HEROES Act, and did not take a position on whether to support or oppose it.
The pandemic also is affecting when the county will approve its annual budget.
Usually, the budget has to be adopted by June 30, in time for the new fiscal year starting July 1.
That budget approval is now pushed back three months to September, which will buy more time to figure out what revenues will – and won’t – be available for the new fiscal year.
The annual budget hearing is now scheduled for Sept. 1, with supervisors finalizing the budget on Sept. 15.
In the meantime, supervisors are scheduled to vote June 2 on essentially continuing the existing spending levels for the time being, so the county can keep paying its bills.
This isn’t the first time the county has had to deal with a major funding hit.
In late 1994, Orange County declared the largest local government bankruptcy in U.S. history up until that point, after its high-risk Wall Street investments went south and lost $1.7 billion.
Supervisors at the time made the steepest cuts to programs for people in poverty, including homeless outreach, job training for people with serious mental illness. They also cut in half the number of “contracts with community therapists that counsel and monitor thousands of families at risk of child abuse,” according to a news report at the time.
“It’s been the disadvantaged, the poor, the incarcerated who have felt what this bankruptcy is about,” then-Supervisor Marian Bergeson said at the time. “They have been the losers, and will continue to be.”
Nick Gerda covers county government for Voice of OC. You can contact him at [email protected].