To: Honorable Mayor and Members of City Council
From: Bret Prebula, Finance Director
Prepared By: Bret Prebula, Finance Director
TITLE:
Title
Declaration of Fiscal Emergency
LABEL
RECOMMENDED ACTION:
Recommendation
Adopt a resolution declaring a local fiscal emergency in response to the Coronavirus (COVID-19) pandemic.
Body
DISCUSSION:
The Finance Director recommends that the City Council adopt a resolution declaring a fiscal emergency as a result of the unprecedented impact of COVID-19 and the City’s projected loss of revenue from Sales Tax and Transient Occupancy Tax (TOT) in recent months. Continued revenue losses are expected through the end of the current Fiscal Year 2019-20 with a projected shortfall of approximately $10.5 million. Projected revenue losses for Fiscal Year 2020-21 are estimated to range from $15 million to $20 million. As such, the City must address the realized and forecasted revenue losses and revise the City’s budgeted revenues for both FY 19-20 and FY 20-21. A loss of $10 million equates to approximately 10% of the City’s General Fund budget. Consequently, the City must evaluate ways in which expenses may be drastically reduced as budgeted expenses outpace projected revenues.
To balance the current fiscal year budget, City Staff are actively identifying one-time project costs that may immediately be suspended while utilizing a significant portion of fund balance from the Non-Recurring General Fund; cancelling of capital projects; and reducing various services and supplies. The specific estimated reductions for FY 19-20, which were approved by City Council on April 7, 2020, are as follows:
• Use of majority of remaining reserves available in the Non-Recurring General Fund ($4 million-$5 million)
• Indefinite postponement of the Civic Center Project and reduction of the current project budget back to the General Fund ($3 million)
• A 5% reduction in all City Department budgets ($830K) achieved through reductions in services and supplies and holding of vacancies
• Cancellation of Dwight Murray Plaza Project ($1.6M)
These initial measures balance the current fiscal year budget; however, the need for ongoing expense reduction will require further consideration to balance the FY 20-21 budget with additional one time and ongoing budget cuts. City departments are currently prioritizing operational needs to perform adequate service delivery with significantly reduced resources and expect these reductions to have an impact on service delivery to the community.
The duration and actual economic impact of COVID-19 remains unknown at this time. Due to the nature of this event being a global pandemic affecting all sectors of local, state, federal, and international commerce, the City’s flexibility in remaining financially solvent is of primary concern. To ensure prudent fiscal management, preservation of reserves and a disciplined cash flow management approach are critical.
Current considerations for additional budget cuts for FY 20-21 are not sufficient to provide a balanced budget. Options currently in discussion among departmental leadership are reductions in overtime for all departments, including Public Safety; continued elimination of all non-essential travel and training; suspension of all non-essential professional service agreements; hiring freezes for vacant positions with consideration of eliminating some vacant positions; and other potential staff resource reductions (including the implementation of the Voluntary Separation Program, and the Voluntary Time Off Program, both of which were approved by City Council on April 7, 2020).
The unprecedented reduction in local business activity directly results in a reduction of revenue for the City. Reductions in TOT, sales tax (including Measure T revenue), and fee revenue require an immediate, proactive, fiscal response. Local economic indicators in conjunction with the $2 trillion federal stimulus package passed by Congress known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are signals that the impact of COVID-19 will extend into FY 20/21 with a recovery period not forecasted at this time.
The City currently has $18.6 million in General Fund reserves. Use of reserves without any other measures to balance the current fiscal year would result in a remaining reserve balance of $8.1 million, which is approximately $7 to $12 Million less than the projected revenue shortfall for 2020-21. With consideration to the City’s current General Fund operating budget of $99,463,200 in Revenues and $101,723,813 in Expenses and an adopted budget for Fiscal Year 2020/21 of $104,747,300 in Revenues and $103,294,500 in Expenses, the impacts of COVID-19 clearly support the recommended declaration of a fiscal emergency.
A declaration of fiscal emergency will authorize the City to reopen terms of contracts (Memoranda of Understandings, or MOUs) with City employee bargaining groups, in order to negotiate furloughs or other measures to address an unanticipated event causing a fiscal emergency.
FINANCIAL IMPACTS:
A declaration of fiscal emergency is an early step in addressing the City’s fiscal issues. No budget adjustments are requested at this time. The Finance Department will continue to evaluate the impact and return to Council with recommended budget actions.
CEQA:
The Finance Director has determined that the recommended actions described in this agenda report are not subject to CEQA, pursuant to CEQA Guidelines Section 15060(c).
DOCUMENTS ATTACHED:
ATCH 1 - Resolution
NOTIFICATION:
None