Elk Grove will use reserve fund, cut expenses to cover $15 million losses from COVID-19 shutdown

Small cities are grappling with large projected revenue declines as a result of the coronavirus pandemic and the city of Elk Grove is no different.

Several weeks since the threat of COVID-19 emerged, dragging down economies and public life, the city estimates it will see revenues losses of about $15 million. To compensate for the income declines and additional spending, Elk Grove will have to dig into reserves.

City leaders detailed their financial position at a meeting Wednesday, a preview of the discussion that will occur when the budget is unveiled this summer. Based on the presentation by City Manager Jason Behrmann, Elk Grove will have enough money to weather the fiscal challenges spawned by the economic shutdown.

The council will receive the proposed $305 million spending plan in June.

“This shows the city started this pandemic in really healthy financial condition,” Behrmann said during the meeting. “We’ve done a great job with council support over the years building up a healthy reserve that we can rely on in times of distress.”

The city receives most of its revenue — about one-third — from sales taxes, which has been diminished greatly when many non-essential businesses were ordered to close. Now that Gov. Gavin Newsom and local public health authorities are easing restrictions more of that money might come back.

Big lag in Elk Grove auto sales

Still, Behrmann said the city anticipates the losses will extend to property, occupancy and other taxes as well. According to estimates provided by the auditing firm HdL Companies, Elk Grove could see a $4.7 million decline in sales tax revenue and could lose more than $1 million in transient occupancy taxes that come from hotels and lodging.

The lagging sales taxes mirrors the expected declines in auto sales, a big player among the city’s retail businesses.

“We expect it to continue to be slow with the economy struggling as well as restaurants closed and the economy in general still hurting,” Behrmann said.

The same can be said for hotels — although it makes up a smaller portion of income.

“Our occupancy rate for hotels has really declined precipitously and we expect that to continue in the coming months,” he said. “We hope for a quick rebound and a return. What we’ve done throughout this budget is hope for the best but prepare for the worst.”

Behrmann said the city will also freeze the open assistant city manager job and nine other positions in the police department.

“These are all estimates; we haven’t seen real numbers yet and we will not see them for a while,” he said. “The experts (HdL) are trying to gauge what it might look like based on what’s happening.”

The state disburses tax revenue to local governments every quarter. Behrmann said the city will receive the figures for the first three months of the year in July, which will take into account the first few weeks of the shutdown.

“The big quarter, which is April, May and June — that one will not get until the fall so it will be a while before we know the true impacts.”

This story was originally published May 29, 2020 at 8:45 AM.