Santa Barbara County expects $5 million budget surplus this fiscal year. Here’s why

Santa Barbara County reported a better financial status than expected on March 2, and staff presenting the second-quarter budget report said the general fund is projected to have a $4.9 million surplus by the end of fiscal year 2020-2021.

“The fiscal year 2020-2021 adopted budget was considered with many unknowns primarily related to resources available and ultimate costs of the response due to the pandemic,” Nancy Anderson, assistant county executive officer, said at the Santa Barbara County Board of Supervisors meeting on March 2.

“Overall at the mid-year point, critical sales tax revenue that impacts many realignment programs is coming in stronger than initially estimated. CARES Act federal funding and FEMA reimbursements have been instrumental in substantially covering pandemic costs through the end of the fiscal year.”

The second quarter of the fiscal year ended Dec. 31, and the budget report compared year-end numbers against the county’s adjusted budget.

General revenues were $3 million higher than expected, and the largest driver of this surplus was property taxes, according to Paul Clementi, a budget analyst for the county.

Secured property tax was $3.5 million over budget and property transfer tax revenues are projected to be $2.5 million higher than the budgeted amount, indicating how the real estate market in the county has been doing this fiscal year, Clementi said.

“There’s a higher volume of transactions taking place each month, and those transactions have higher values than we anticipated,” he added.

“This is much better news than we anticipated six months ago for sure,” said Third District Supervisor Joan Hartmann. “I had no idea that it was going to be quite this good.”

Revenues from sales tax are projected to be $1.7 million above budget, and Clementi noted there was a shift to more online consumer spending during the coronavirus pandemic.

“This is not to say that there has not been an impact from COVID; Sales tax revenues would have ended last year higher and continued upwards this year in the absence of the pandemic,” Clementi said. “It’s just that the impacts on sales tax have been less severe than we anticipated when we were building this budget last spring.”

Cannabis tax revenues are expected to end the year $3.4 million above budget, a growth attributed to higher consumer demand during the COVID-19 pandemic and more accurate reporting of gross sales by operators, according to the report.

Transient occupancy tax revenues, which are paid by hotels, motels and short-term rentals, are $2.8 million lower than expected.

When the budget was developed last spring, county staff anticipated severe short-term impacts to transient occupancy tax revenues followed by a quicker bounce back, Clementi explained.

But as the pandemic stretches on, with travel restrictions in the fall and winter and ongoing closure of The Four Seasons Resort The Biltmore in Montecito, revenues have not rebounded as expected, he said.

The Community Services Department reported that COVID-19-related travel restrictions drove demand higher for campsites and cabins, but the surplus is partially offset by closures of group site rentals and group campgrounds.

The Santa Barbara County Sheriff’s Office is the only general fund department projected to end the fiscal year over budget, by about $718,000, Clementi said.

He said the costs were due to COVID-19-related overtime pay and testing at the jail for staff and inmates.

When a staff member is out sick with coronavirus, subject to quarantine, or has to care for a family member that is quarantining, overtime hours were used to fill the gap, Clementi explained.

However, the county received about $46 million in CARES Act funding that included money for pandemic-related overtime and staffing costs, and some of the Sheriff’s Office costs may be reimbursed by that money, Clementi noted.

Among special revenue funds, the county Resource Recovery and Waste Management is anticipating a $1.7 million deficit, driven by lower fees being paid on waste delivered to the Tajiguas Landfill, Clementi said. There was less waste due to pandemic-related business closures, which has resulted in lower revenues.

The Court Special Services Department is projecting a $691,000 deficit. This is due to the reduction of fines, fees, and penalties stemming from legislative changes impacting the department’s ability to collect revenues. This fund has depleted its balance in previous years and will likely need a transfer from the general fund to balance out the deficit, Clementi said.

The fiscal year ends on June 30, and the Board of Supervisors will review and adopt a 2021-2022 budget in the next few months.