Finance Committee Passes Amendments to General Fund

The City Council’s Finance Committee on Wednesday unanimously approved amendments to the city’s general operating budget.  

Several one-time savings passed by the committee include:

•  $1.89 million in construction and demolition program deposit forfeitures.
• Forgoing a $541,000 general fund contribution to the fund. Withholding the funds would have no impact on current projects.  
• A $780,000 reduction in the city’s vehicle replacement contribution. The reduction would have no impact on current replacements.
• A $500,000 reduction in the transfer to the library services fund.

The reductions identify $1.3 million that will go back to the general fund’s 5% operating reserve to support the budget.

The city entered the pandemic in a strong financial position, with a combined 20% general fund reserve, an available fund balance over that amount, and a trust reserve, which provides a tax-exemption for funding retiree health benefits.

However, “The impact of COVID-19 has effectively exhausted the available fund balance and eliminated a quarter of the General Reserve Fund,” the report states

According to a city staff report, “the fiscal impacts of COVID-19 are very significant leading to a sharp decline in several key city revenues most notably sales tax and transient occupancy tax [TOT].”

According to the staff report, leading economists are predicting robust economic growth once the COVID-19 vaccine is widely available. 

GDP growth is projected to remain under 2% for 4th Quarter 2020 and 1st Quarter 2021 as travel, hotel, and restaurant industries continue to suffer, according to a PowerPoint presentation included in the agenda.  

Occupancy at hotels was less than 40% with Average Daily Rates (ADR) below $115.

Driven by losses in TOT, charges for services, and fines and forfeitures, the projected general fund deficit has ballooned to $9.4 million.

The Transient Occupancy Tax, or TOT, is paid by everyone who stays at a local hotel. Hotel operators are compelled by city law to collect the TOT and Tourism Business Improvement District (TBID) assessments from guests.

The funds are held in trust for the account of the city until payment is made to the tax administrator.

The city’s TOT revenues have been decimated by the pandemic, which forced local hotels to close. 

The $9.4 million shortfall is being bridged by $5 million in personnel savings caused by vacancies, reduced hours of some part-time staff, and $2 million in savings on services and supplies.

The Rose Bowl Operating Co. debt service remains the city’s largest risk at more than $12 million for the next fiscal year. 

“Numerous businesses, particularly restaurants, may not reopen, impacting sales tax and other revenue such as parking,” according to the report.