How Sacramento City Hall plans to fill a $92 million budget hit caused by coronavirus
Sacramento City Hall is not planning to cut services or lay off employees, despite an estimated $92 million hit to its budget caused by the coronavirus crisis.
Instead, City Manager Howard Chan’s proposed budget, released Thursday, lays out a plan to fill the budget hole using revenue from a recent sales tax increase, budget surplus funds and money the city saved by enacting a hiring freeze, stopping staff travel and taking other early measures in reaction to the pandemic.
“This is no frills, just to continue the services we have in place until we get more clarity on our financial picture,” Chan said. “There’s not going to be a lot of controversy with it.”
For the current fiscal year that ends June 30, officials plan to use about $33 million in money left over from this budget year to fill a projected revenue hole caused by the coronavirus shutdown.
Officials project a $59 million loss in projected revenue from the virus for next fiscal year, which starts July 1, mainly from lost sales taxes, hotel taxes, business operations taxes and parking meters. The projection is based on an estimate that the stay-at-home order will lift July 1, which will likely change, Chan said.
“If this thing continues well into next year, we’re going to be in front of (City) Council more frequently talking about what strategies we can use to close the gap,” Chan said.
For now though, to make up for the loss, officials plan to use savings from the hiring freeze; from canceled staff travel and from delaying issuing bonds to create a fund to spark new affordable housing. The city also plans to use money it would normally put in its rainy day fund, and a $1 million grant from the Federal Emergency Management Agency.
Mayor Darrell Steinberg, who championed the 2018 Measure U sales tax increase as a way to uplift disadvantaged neighborhoods, said he agrees with using it to balance the budget this year. About $4 million in new Measure U revenue is set be used to make up for revenue losses in the current fiscal year, Assistant City Manager Leyne Milstein said.
“Even though that money was intended and still intended for inclusive economic development, it also provided us with this cushion for an unforeseen emergency and this is an unforeseen emergency,” Steinberg said.
Other cities have been forced to take more drastic measures. Los Angeles plans to furlough its civilian employees for 26 days in the next fiscal year.
“We have challenges but I think our city should feel good,” Steinberg said. “In part because of the sales tax measure, we have a chance to get through this without massive cuts or layoffs. That’s both a relief and an achievement.”
Last year, the council voted to “safeguard” $40 million in new Measure U revenue for projects and services that uplift the city’s underserved neighborhoods. The plan was for the council to vote each year for the next five years on a similar plan. That will not happen this year, Steinberg said, but the council can return to that plan next year.
Spending coronavirus stimulus aid
In the meantime, Steinberg wants to use the $89 million stimulus check the city received from the federal government last week on those types of projects, in order to “keep the promise” of the spirit of Measure U to the voters.
Steinberg has said he wants to use the money on projects that address the city’s housing crisis; redevelop commercial corridors; fund tourism initiatives; support the city’s growing creative economy of artists; and support workforce development training for recent college graduates and adults, such as the Aggie Square project at UC Davis Medical Center. He’d also like to see it fund some of the inclusive economic development projects that have been submitted to a city portal, he said.
All of those areas were financially affected by the coronavirus, Steinberg said. Most of them were also ideas he used to sell Measure U to the voters.
“There’s a big overlap between responding to the economic impacts of COVID-19 and investing in the economic future of our city,” Steinberg said. “So we want to work toward being clear about what categories and what specific investments represent that overlap.”
The stimulus should also be used for businesses affected by the virus who were unable to access federal resources, including the Paycheck Protection Program loans, Steinberg said.
The city will not need to ask the federal government for permission for each project it plans to spend the money on, but could be audited later, Stienberg said. Officials have told Steinberg’s staff that cities will be able to spend the money in a flexible way, he said.
“The message is spend it responsibly, spend it in a way that it relates to the COVID-19 crisis, but there’s a fair amount of discretion as long as we’re investing it responsibly,” Steinberg said.
Last week, the U.S. Department of the Treasury said the money must be spent on necessary expenses incurred as a result of the coronavirus public health emergency and that meet other requirements. It cannot be used to fill budget gaps.
Chan said he needs more clarification on that direction before weighing in on whether the mayor’s ideas would qualify.
“It’s clear as mud right now,” Chan said. “While we think it’s good that it’s vague and broad, it’s also a challenge ... the worst thing to do is get out early with priorities and then find out they’re not eligible. We’re constantly on the phone with lobbyists, other cities and the federal government. We’ll take help anywhere we can get it.”
City officials are hoping to get some clarity when other cities start announcing what they’re using the money for, Milstein said.
The full council will need to approve a list of projects to fund with the stimulus money, and is planning to hold a public workshop meeting on the topic in late May, Chan said. The money, which only five other California cities received, must be spent by the end of the 2020.
The council is expected to discuss and consider Chan’s proposed budget on May 12.
