The city of Temecula was forced to do some budget wrangling amid the coronavirus pandemic, but the city’s operating budget is now balanced for the coming fiscal years, staff told the city council at a meeting earlier in June.
The city’s budget for the 2020-2021 fiscal year, which the Temecula city council approved June 9, is very different from the one that had been planned out at the beginning of the year.
“In January, we set out creating a very healthy budget … but this all changed in mid-March as the world began to report the devastation of COVID-19,” Temecula city manager Aaron Adams said.
Operating revenues, including from the general fund, Measure S sales tax and Temecula Community Services District funding, were originally projected to be about $110 million, according to a report from Jennifer Hennessy, director of finance for Temecula.
But the coronavirus pandemic has drastically affected the city’s revenue even in the current fiscal year.
“Several of the city’s major revenue sources will be significantly impacted by the business closures and the stay at home orders with sales tax and Measure S (revenue from the sales tax increase in 2016) being hit the hardest,” Hennessy said. “Within a four-month period, the city will experience a 13% decline or nearly $15 million in lost revenue for the current fiscal year. We are anticipating an additional 8.8 million decline next year as compared to the original or pre-COVID-19 projections.”
Hennessy broke down the revenue declines between March and June 2020 in more detail: regular sales tax revenue dropped by $6 million and Measure S revenue dropped by another $5 million. Program revenue from the Temecula Community Services District and revenue from the city’s Transient Occupancy Tax each dropped by around $800,000. Other miscellaneous revenue sources, including gas tax revenue, were affected by amounts in the low hundreds of thousands of dollars.
For 2020-2021, revenue is expected to drop by another $8 million, including a decline of about $5.6 million in regular sales tax revenue, $346,000 in Measure S revenue, $570,000 in Transient Occupancy Tax revenue, $521,000 in gas tax revenue, $428,000 in Measure A tax revenue, $656,000 in property tax revenue and a handful of other sources.
Furthermore, Hennessy said the city was projecting its revenue base over the next five years will be roughly $5 million lower each year compared to the city’s preliminary budget forecast.
Those drops in revenue by themselves, without any corresponding budget cuts, were projected to deplete the city’s available reserves by the end of the year and cause its balance to go negative by the end of the 2022-2023 fiscal year, Hennessy said.
So the city undertook multiple budget reduction measures. Some of those measures include releasing 137 part-time or seasonal employees, the majority of which are under the Temecula Community Services District, and reducing contributions to reserves.
The city is also deferring hiring for three currently vacant full-time positions, as well as deferring some capital improvement projects, including deferring the planned Ynez Road widening project from 2021-2022 to 2024-2025.
The city is projected to have to dip into its reserves by about $830,000 and $255,000 in 2021-2022 and 2022-2023, respectively, but will not have to do so this year, Hennessy said.
In total, cuts are most severe in the coming fiscal year, at about $12 million, and range from $9 million in 2021-2022 to $4 million in 2023-2024.
She cautioned that the budget adjustments were largely built on unknown factors and projections.
“With 57% of our total operating revenues coming from sales tax and Measure S, we spent a great deal of time analyzing the impact of the pandemic on each business sector,” Hennessy said.
The city projected revenue in many sectors won’t begin to rebound until the fall and likely won’t completely recover in many cases until 2021.
Auto sales, for example, were down 80% in March and are projected to stay negative until the second quarter of 2021, when they’re expected to climb by 133%.
Other sectors differ somewhat, but overall, sales tax revenue is expected to be between 4 and 16% lower than the 2019-2020 fiscal year until next spring.
Will Fritz can be reached by email at firstname.lastname@example.org.