Sales tax is up and Elk Grove is getting millions in stimulus. Here’s where the money could go
Elk Grove is expected to get $23 million from the latest Washington economic stimulus plan — or about 7.5% of its current yearly budget — and officials are not sure yet what to do with the money.
As the COVID pandemic sent the economy reeling last year, the city had to freeze hiring, cut its operating and equipment budgets and halt supplemental pension fund contributions. But last month, revenues shot up.
So suddenly, Elk Grove has a lot of new options.
City officials have been reluctant to divulge plans for the federal funds. City spokeswoman Kristyn Laurence would say only that there are “a number of important issues and projects to be considered.” Elk Grove Mayor Bobbie Singh-Allen will deliver the annual State of the City address Thursday.
The federal funding, with few strings attached, is part of the $65 billion aid package available to cities. Elk Grove can use its allocation for costs incurred by the end of 2024.
The city expects to receive the money in two parts, half by mid-May, the other half probably by May 2022.
Federal guidance for use of the money so far has been deliberately open-ended, since different cities have different needs. Money can be used to help residents, small businesses, nonprofits and industries such as tourism. It can go for government services affected by a revenue reduction as well as investments in water, sewer and broadband infrastructure.
City officials are still waiting for more specific guidance from the federal government and will send recommendations to city council members likely by the end of April, Laurence said.
The city’s current budget — and Elk Grove’s unexpected performance during the pandemic — may provide some clues.
Elk Grove anticipated a $7 million hit to its general fund due to COVID-19’s toll on sales, room and gas tax revenues when it released its $304 million 2020-21 budget last June. That was part of a projected overall $17.7 million shortfall, including smaller but still significant losses forecast in transportation and development funds from gas tax dollars, Measure A traffic funds, roadway and parks fees.
Elk Grove operates on a two-year budget cycle. City officials are now at work on a budget for 2021-22 and 2022-23 that will go to council members in May, Laurence said.
The statewide shelter-in-place orders that shuttered those stores and restaurants dealt an early blow to the city’s coffers. Sales tax revenue from stores, restaurants, supermarkets and Elk Grove Auto Mall make up a full 34% of the general fund in this city of nearly 180,000, the county’s second-largest after Sacramento.
Leaders responded, approving a budget that slashed $5.7 million by freezing city hiring until the 2022-2023 fiscal year, leaving 10 positions unfunded including five on its police force; and stopping extra payments to pension liabilities among other reductions in operations and equipment spending.
A new library
But last month brought surprising news: A projected $30 million in sales tax revenue by the end of the fiscal year — $5.6 million or 23% more than projected when the budget was adopted back in June.
“Assuming that the auto sales sector, building and construction sector, and large general consumer establishments remain open for the remainder of the fiscal year, staff is confident in the current projection,” Elk Grove budget officials wrote in their February report.
Officials recommended $4.7 million of the surprise influx go into the city’s capital reserve fund to pay for priority projects such as the new library planned for Elk Grove Boulevard and Waterman Road in the city’s historic downtown and reinstating $900,000 toward the CalPERS pension payments delayed earlier.
Key to the positive projection were auto sales out of economic driver Elk Grove Auto Mall. Auto sales are considered essential businesses in California during the pandemic.
“The auto mall has weathered the pandemic really well. It didn’t have the precipitous drops that other sites had,” Elk Grove Economic Development Director Darrell Doan said.
‘No strings attached’
It’s this evidence of economic health, though, that’s sparked an often bitter debate in Washington as revenues have trended up elsewhere. Republicans charged the grants to local and state governments were little more than payoffs to Democratic-friendly cities and states, while Democrats argued the money was a lifeline to struggling communities.
Cities with more than 50,000 people, such as Elk Grove, had funding amounts devised by using a formula in place for Community Development Block Grants.
Those federal grants, which help revive and maintain neighborhoods, take into account not only population, but poverty rates and housing stability.
California taxpayer advocate Jon Coupal, president of the Howard Jarvis Tax Association, warned Monday of a “cash infusion to local governments with no strings attached.”
Coupal, who has criticized the size of the federal $1.9 billion economic relief package, anticipates the money will not be used by California cities to tackle structural issues such as pension reform or for one-time expenditures directly related to COVID-19.
The flow of new cash from Washington is “going to remove all incentive to do that,” he said.
Republicans pointed to the unspent money from last year — in Elk Grove, most of the unspent funds so far are for education-related activity — but supporters have pointed out that the money is destined for future use.
“What may look like unspent funds are already earmarked for certain functions,” said Michael Wallace, legislative director, housing, community and economic development at the National League of Cities, talking about unspent money nationwide.
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