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City Leaders Share Devastating Fiscal Impact of COVID-19 and Call for State and Federal Aid

April 29, 2020
Cities remain on the front line helping residents stay safe during the COVID-19 pandemic. 
However, delivering services, supporting local businesses, and protecting the community comes at a cost. A new data analysis from the League shows that cities are facing a nearly $7 billion revenue shortfall over the next two years, which will grow by billions of dollars if stay-at-home orders extend into the summer months and beyond.
Due to the immediate shortfall in revenue, city leaders have fewer funds to provide the essential services that residents rely on. A staggering nine out of 10 California cities may cut staff or decrease city services to residents, and nearly three in four cities report they may have to take both actions.
League Executive Director Carolyn Coleman, and League President and Town of Yountville Mayor John F. Dunbar hosted a media call Thursday, April 23 and issued a press release to share the results of the analysis which demonstrates the significant impacts of COVID-19 on city operations and budgets. They were joined by Immediate Past President and Grass Valley Council Member Jan Arbuckle, Rancho Cucamonga Mayor Dennis Michael, Fresno Mayor Lee Brand, and San José Vice Mayor Chappie Jones. They represented cities large and small to illustrate that all towns, regardless of population, are experiencing severe financial impacts.
The Town of Yountville, in the Northern California Napa Valley, is heavily reliant on tourism with approximately 74 percent of their annual budget coming in from hotel Transient Occupancy Tax (TOT), a breakdown of 62 percent TOT and 12 percent sales tax. Even though the town is anxious to see a reopening of businesses, the health and safety of residents is the priority.
“We’re forecasting a loss of close to 60 percent of our revenues in our next budget, but that is projecting a phased-in return to limited business activity by mid-summer,” said Yountville Mayor Dunbar. “We all agree the public health officers are driving the timing as we go forward — it’s the safest way to move forward to reopen the business sector.”
Grass Valley Council Member Arbuckle shared the plight of cities with a population under 500,000, which includes 99 percent of California’s cities, and were not eligible for direct funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The City of Grass Valley, a small rural city in the Sierra Foothills, has already suffered a significant reduction in economic activity that has greatly impacted the general revenue fund. As a result, the city has laid off several employees and put a freeze on filling vacant positions which include vital police officer and fire fighter jobs.
“The economic impact has the potential to be devastating to our small rural city without some swift financial assistance,” said Grass Valley Council Member Arbuckle.
With little to no property tax, the City of Rancho Cucamonga’s biggest source of revenue is in its sales tax and TOT. The city has experienced an 80 percent drop of TOT which has led to 289 part-time employee layoffs and left 40 full-time vacant jobs empty.
The loss in sales tax alone means the city will have more than a $9 million deficit going into the next fiscal year, which will negatively impact parks, streets, sidewalks, and public facilities, as well as closures and reductions in public safety and community services.
“Cities can’t close their offices, we are an essential service and it’s imperative that we get the help we need from the state and federal governments to keep our cities viable because our communities depend on it,” said Rancho Cucamonga Mayor Michael.
Pre-COVID-19, the City of Fresno had the biggest reserve in its history of $35 million along with a fully funded pension system. A few short months later and the city is experiencing the same severe revenue losses as other cities.
“Without the participation and the help of the federal and state governments, it will be very hard for the City of Fresno, and cities in the San Joaquin Valley, to provide services that we have always provided without having a significant financial challenge,” said Fresno Mayor Brand.
Fresno is one of six California cities that meets the 500,000 population threshold to be a recipient of funds from the CARES Act. However, heavy spending limitations on those funds prevent the city from covering revenue loss.
As the third largest city in California, the City of San Jose has an annual budget of $3 billion with most of the revenue stream coming from sales tax and TOT. San Jose projects more than an 8 percent decrease in revenue over the next fiscal year due to impacts from COVID-19 —which far exceeds the 2.9 percent decrease the city experienced during the Great Recession.
The shortfall will result in reductions, eliminations, and reprioritization of services already in place.
“We’re working hard to protect and continue to provide essential services during the state of emergency,” said San Jose Vice Mayor Jones. “However, considering the need to balance our budget, it will be extremely difficult and result in a reduction of services our residents rely on.”
The road to recovery for these, and all cities in California, will be long and difficult. The need for fiscal assistance from the state and federal government is vital to provide relief for cities and their residents so they can continue to respond to, and recover from, this global health crisis.
The League is calling on Gov. Gavin Newsom and the Legislature to support the recovery of California cities by immediately establishing at least a $7 billion city revenue stabilization fund for direct aid to all cities; allocate a share of the state’s $9.5 billion CARES Act funding for cities with populations under 500,000; and create a COVID-19 financing vehicle that all cities can access to support immediate cash flow needs. All cities need direct and flexible assistance now and no city can be left behind.

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