H.B. adjusts budget for economic slowdown, ‘tremendous fiscal discipline’ will get them through, staff says
Huntington Beach prepares to tighten its belt in light of projected revenue decline due to measures to limit the spread of COVID-19.
City staff presented a revised budget at Monday’s City Council meeting, illustrating a 7.8% reduction of revenue to the general fund and a “dramatic and gigantic decline” in total budgetary spending, City Manager Oliver Chi said.
Prior to closures designed to limit the spread of the coronavirus, Huntington Beach anticipated $236.9 million in tax revenue. New projections put the city at earning $218.5 million, Chi said.
Based on original expenditures for the fiscal year, the city had been planning to bank $4 million in surplus funds — that plan would now lead to a deficit of $14.4 million.
“This is an incredibly dire financial situation,” Chi said, presenting the City Council with a new budget that he said made up for the deficit while not impacting the city’s ability to perform services.
Chi outlined changes the city could make to reduce expenditures by $16.5 million, which, he said, wouldn’t impact services or operations and would leave the city with a $2.2-million cushion.
The budget balancing strategy sets up the city finances to maintain a reserve that would rely on reduction in transfers to employee benefit funds and a hiring freeze on the current 64 vacancies — constituting a 7% reduction in the city’s workforce. All the vacancies are for noncritical positions, Chi said.
The hiring freeze, while shifting more work to existing staff, will save the city more than $2 million from the general fund for this fiscal year, according to the staff report.
The city already anticipates a slight drop (0.39%) in property tax revenue and any negative economic impact to property tax receipts wouldn’t be felt until 2022, at the earliest, staff said.
Sales tax estimates were also reduced by over 10%, representing a more than $4-million drop in revenue to the city.
The estimate considers a 55% drop in auto sales, 60% drop in hotel and restaurants and 50% drop in fuel and service station revenues in the second quarter of 2020. City staff conservatively estimates that sales tax revenue will total $37 million.
The Huntington Beach City Council adopted a number of measures Tuesday that attempt to address the economic impacts of the current COVID-19 crisis.
Restaurants and hotels have been hit hard by the economic freeze of the COVID-19 response, and the city speculates that the lag in tourism-related activity will continue as health concerns linger and belt-tightening by consumers and potential visitors causes a drop in transient occupancy tax receipts.
The city is budgeting for TOT revenues to drop by 95% to 99% for April through June, according to the staff report.
Chi called the projections “realistic numbers that are probably more conservative than what we’ve heard, but obviously it’s been devastation on the travel and leisure industries.”
The city also implemented a rent holiday for city concessionaires and zeroed out expected revenue for metered and city-owned parking.
“The council should be commended for the conservative way we’ve managed our finances over the years,” Chi said. The city has nearly $73 million in unrestricted reserve funds in the bank and the budget doesn’t rely on the use of any reserve funds.
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