How hard did coronavirus hit San Luis Obispo? Here’s where the city budget stands
The city of San Luis Obispo’s budget is balanced and its revenue was slightly better than expected, according to a year-end review.
But the city has had to tighten its belt in a number of areas to cover costs associated with the coronavirus pandemic.
Meanwhile, San Luis Obispo’s pension payment obligations — currently totaling $158 million — remain a long-term budget challenge.
While the economic impacts of COVID-19 delayed the city’s strategic approach to allocate additional money to pay those pension costs down in the current budget cycle, the city is making required payments to California Public Employees’ Retirement System (CalPERS), the agency that manages pension benefits for more than 1.6 million California public employees, retirees and their families.
In a year-end review in October, city officials cited a much more optimistic budget than what was forecasted in May.
The city projected spending would exceed revenues by almost $1.4 million. Instead, the 2019-2020 budget ended with revenues exceeding expenditures by nearly $1.8 million; the fiscal year runs from July through June.
San Luis Obispo spent about $73.7 million while generating $75.5 million over the 2019-2020 fiscal year.
“This was largely due to sales tax revenue being less impacted than previously assumed and property tax ending the year stronger than anticipated,” the city said in a staff report.
San Luis Obispo had budgeted about $17.6 million in sales taxes in 2019-2020 and adjusted its amount to roughly $15.9 million once COVID-19 arrived, ending the year with approximately $16.6 million, better than anticipated, according to Brigitte Elke, the city’s finance director.
Separately, it collected $7.5 million through its half-cent sales tax, about $300,000 under budget, but more than $200,000 over its adjusted projections in the early stages of the pandemic.
A large portion of sales tax that typically comes from Cal Poly students, parents and families has declined significantly in recent months due to fewer students on campus and university-related visitors in the community, city manager Derek Johnson told The Tribune. But visitors to San Luis Obispo, including tourists from the Central Valley, helped make up some of the losses, Johnson said.
Of the excess revenue, the city will carry over $1.5 million to this fiscal year, 2020-2021.
The 2020-2021 budget is expected to generate about $70 million in revenues versus $69 million on spending, with budget revenues being impacted by costs associated with the new coronavirus, Johnson said.
But the predictions remain uncertain in a volatile economy, Johnson said.
“A lot of our predictive models about how we do our forecasting were essentially burst” when the pandemic hit, Johnson said. “In modern history, we had not seen (such) a pandemic and a shock to the economic system and related impacts to the city finances. ... We’re at a point where we need to closely monitor our expenses.”
SLO furloughs employees, delays projects
According to city data pulled from business licensing, about 230 businesses in the city typically close each year. A total of 353 local businesses closed this year, while 150 opened.
“The shutdown of the economy has been a strain on the economy to which nobody was immune,” Elke said. “With the ongoing pandemic, many uncertainties remain.”
A decline in revenues from tourism and hospitality remains a top concern, city officials said.
San Luis Obispo has laid off one full-time employee since the start of the pandemic, Elke said.
“In addition, 84 supplemental (temporary) employees were furloughed due to programs shutting down” in response to coronavirus, she said. “Many of the furloughed workers have been redeployed, but 58 remain in a furloughed status.”
Some budget decisions have included deferral of capital projects, including pausing progress on a planned parking structure at the corner of Palm and Nipomo streets, a pivotal infrastructure project for downtown businesses and visitors.
Expenditures on the city’s parking needs exceeded revenues by about $1.6 million, largely due to suspended or reduced fees, which were covered by the parking fund’s unreserved working capital.
Meanwhile, San Luis Obispo has spent about $1 million on its Open SLO program, which included the installation of temporary and semi-permanent parklets and other measures to help stimulate business. Other expenditures included 25 handwashing stations around the city, as well as umbrellas, tables, chairs and lighting for outdoor dining in Mission Plaza and outdoor dining installations using city-provided materials on private parking lots.
San Luis Obispo also has set aside $250,000 for a small business relief grant program and $20,000 to update zoning regulations to allow for childcare centers in the city’s Airport Area.
Meanwhile, the city implemented a chill on hiring, purchasing and travel — meaning that it didn’t hire any positions that weren’t considered essential, buy nonessential items or conduct nonessential business-related travel.
“(San Luis Obispo) also directed the organization to freeze all budget line items including staffing at 2019-2020 levels for the 2020-2021 budget,” Elke said. “This action together with a reduction in capital spending lead to an operating budget reduction of $5.6 million dollars and balanced the budget. The city is continuing to monitor the economic environment and will recommend additional adjustments as needed.”
Measure G funding to help address SLO economy, infrastructure
Measure G, a voter-approved new 1-cent sales tax and continued half-cent city tax, will bring in $12 to $14 million per year in additional revenue, Elke said.
Measure G funds will go to a variety of costs, mostly related to infrastructure, Johnson said.
The tax revenue will help fund health emergency and disaster preparedness, protect creeks from pollution, address homelessness, keep public areas clean and safe and retain local businesses, among other needs.
The use of the revenue is guided by a citizen advisory body, and the city’s Revenue Enhancement Oversight Commission, which makes recommendations on spending directly to the San Luis Obispo City Council.
At Tuesday’s City Council meeting, Johnson initiated a proposal to allocate $3.8 million projected to be generated by Measure G for economic development. That funding would include about $2.5 million in small business grants, $451,000 for further downtown San Luis Obispo improvements such as parklets, $200,000 for rainy day funds and $225,000 for a homeless liaison coordinator.
Johnson’s proposal will be formerly presented at the Dec. 8 City Council meeting.
City debt and pension obligations
The city holds $70 million in long-term debt and $158 million in long-term pension liabilities, Elke said.
CalPERS anticipates a 7% return on its investment, but has received 6.7% and 4.7% the past two years, respectively, Elke said.
The city plans to pay down the unfunded pension liability over 20 years, instead of the 30 years required by CalPERS. Doing so, will help reduce the long-term costs associated with the pensions, city officials say.
San Luis Obispo has deferred a discretionary prepaid pension allocation, which included reallocating $7.2 million in its 2019-2021, two-year budget cycle for ongoing pension obligations to CalPERS.
“The city still holds the $4.2 million (earmarked for an April 2020 payment) in reserve due to the economic uncertainty with COVID-19, and absent a need to use the funding to pay for emergency services for COVID-19 will use it as intended to pay down the unfunded pension liability,” Elke said.
“We are in the final stages of the annual audit that will reveal whether any additional funding will become available toward the initially anticipated $3 million payment in 2021,” Elke added. “Given the steep reduction in revenue, it is not likely to happen. However, the city still plans on making additional payments if at all possible.”
City debts that are being paid back through means including bonds and state loans include the General Fund ($21.9 million), Water Fund ($11.1 million), Sewer Fund ($27.9 million) and Parking Fund ($9.1 million).
Elke said San Luis Obispo doesn’t look likely to go bankrupt, as community members Steve Barasch and Leslie Halls recently speculated as guests on Dave Congalton’s “Hometown Radio” show.
“San Luis Obispo adopted a balanced budget and its revenues can meet all of its obligations both on the short and long term, and all its reserve levels are intact,” Elke said.
SLO Chamber of Commerce suggests ways to help businesses
More than a third of business owners cited cash flow as their greatest need, according to an August survey conducted by regional chambers of commerce.
Around 14.3% of business owners reported losing more than 75% of their business and 16.9% said they dropped between 50% and 75% since the coronavirus pandemic first hit San Luis Obispo County in March, the survey house.
San Luis Obispo County recently returned to the purple tier of state COVID-19 restrictions, meaning that businesses such as restaurants and gyms are losing indoor service options.
To help stimulate the economy, in an Oct. 20 letter to the Council, San Luis Obispo Chamber of Commerce CEO Jim Dantona encouraged the city to expand its parklet program, fast-track tenant improvements, offer business grants, mediate landlord tenant rental disputes in partnership with Creative Mediation, and make investments in pedestrian and bike infrastructure.
In addition, the letter recommended incentives to fill downtown storefronts, infrastructure to support remote work and distance learning, homeless prevention programs, bike share programs and zoning flexibility to allow more uses for street-level retail.
Dantona told The Tribune on Wednesday that zoning flexibility might include creating office space in a commercial zone or waiving tenant improvement permitting fees that typically can cost between $3,000 or $5,000. That would help to fast-track the addition of new businesses and generate revenue through taxes.
Having a technology framework to enhance high-speed connections and cell coverage also would help students and families succeed, he said.
Measure G funding can be applied to some of these needs, Dantona said.
“We look forward to partnering with the city to explore these ideas, ensure that the business community is engaged and help provide feedback whether at is through surveys, digital events or setting up more personal conversations with industry leaders,” Dantona wrote in a letter to the council.
Johnson said in October that the city is open to pursuing some of those options for economic support to small businesses.
“This is undoubtedly a challenging time for us all and, as we work to navigate through these circumstances as judiciously and gracefully as possible, trust, collaboration and shared goals are more important than ever,” Dantona wrote.
Diversity grant funding
San Luis Obispo received grant funding requests from 20 agencies totaling $640,719, officials said in a news release.
Up to $120,000 of grant funding was available.
The city’s recently appointed Diversity, Equity and Inclusion Task Force voted to forward funding recommendations for eight application requests of $109,800.
San Luis Obispo’s City Council approved grant funding for the following programs: Literacy for Life, Central Coast Coalition for Undocumented Student Success, R.A.C.E. Matters SLO, San Luis Obispo International Film Festival, Diversity Coalition San Luis Obispo County, One Cool Earth, SLO Noor Foundation and San Luis Obispo Repertory Theatre.
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