AUGUST 17, 2021

FISCAL DROUGHT?

Actually

City Revenues Are Pouring In

COVID-19 related revenue losses through fiscal year 2020-21 varied across the regions of the State of California. Northern California, the Central Valley, the Inland Empire, and the Sacramento region have cities that are less likely to rely on revenues impacted by COVID-19. Therefore, in aggregate, cities in these regions did not face revenue losses. In contrast, cities in the Los Angeles, Central Coast, and San Diego regions did face COVID-19 related revenue losses. Revenue in cities in the Bay Area and the Sierra region were the most impacted by COVID-19. 
    
    The projected recovery through fiscal year 2021-22 shows that cities in all California regions are doing better. Those that were less impacted by impact of the pandemic are doing better than those that faced COVID-19 related revenue losses. The city of Yountville is highlighted because it is the only city not projected to receive enough stimulus funds, property tax revenue, and other tax revenue increases to cover its COVID-19 related revenue losses.
Out of the over 450 cities in California,only Yountville is projected to receive insufficient stimulus funds, property tax revenue, and other tax revenue increases to cover its COVID-19 related revenue losses.
Last year we found that the sudden consequences of COVID-19 were significantly impacting cities that rely on tourism and entertainment for revenue.

But . . .
The situation has significantly improved.
Economic projections show that revenues that took a hit during the pandemic are increasing.

Dollars in Millions

For example, in fiscal years 2019-20 and 2020-21 hotel taxes are projected to dip by $608 million and $648 million dollars across the State. In 2021-22 economic projections indicate hotel taxes will rebound to $827 million dollars. Total projected revenue changes for hotel taxes are $429 million over three years. Similarly, business license taxes are projected to decline by $76 million dollars in 2019-20 and $360 million dollars in 2020-21. However, business license taxes also projected to rebound to $191 million in 2021-22. Total projected revenue changes for business license taxes are $245 million over three years. According to economic projections, sales and use taxes initially declined by $226 million in fiscal year 2019-20, but recovered by 2020-21 increasing by $838 million in 2020-21. They are projected to increase another $128 million in 2021-22. Total projected revenue changes for sales and use taxes are $742 million over three years.

Note: Projected changes to California city tax revenues when compared to the prior year.

And theAmerican Rescue Plan Act of 2021 will deliver $8.2 billion to California cities to respond to the COVID-19 emergency. Cities can use this money to do things like ...
Assist small businesses and impacted industries like tourism
Provide additional housing to support residents
Provide premium pay for essential workers

Cities can also use American Rescue Plan funds to replace public sector revenues  lost due to COVID-19. Our analysis shows that the vast majority of California cities will receive more stimulus money than they lost  during the pandemic.

Property tax revenues also increased across the State. Economic forecasts indicate that California cities will receive over $2.3 billion in additional property taxes between fiscal years 2019–20 and 2021–22.
Specifically cities received an additional $711 million in fiscal year 2019-20, $791 million in fiscal year 2020-21, and $842 million in fiscal year 2021-22.
In fact, by the end of fiscal year 2021-22, we project that five cities will have received revenue increases equal to at least one year of pre-pandemic revenues.
  • San Joaquin
  • Maricopa
  • Parlier
  • Mendota
  • Orange Cove
Because of these increased revenues, most cities are well positioned toincrease or improve services for residents or reduce taxes and fees.
However, we project that 18 cities did not receive enough stimulus funds to cover their COVID-19 related revenue losses.
  • Avalon
  • Beverly Hills
  • Brisbane
  • Burlingame
  • Calistoga
  • Carmel-By-The-Sea
  • El Segundo
  • Emeryville
  • Indian Wells
  • Laguna Beach
  • Mammoth Lakes
  • Menlo Park
  • Monterey
  • San Francisco
  • Santa Monica
  • Solvang
  • West Hollywood
  • Yountville*

* When also considering other tax revenue increases, only Yountville is projected to receive insufficient funds to cover its COVID-19 related revenue losses.

We based our analysis primarily on audited financial statements from cities, economic forecasts developed by a consultant, and estimated American Rescue Plan allocations from the California Department of Finance and the U.S. Department of Treasury.