A review of the city’s financial status at the five-month mark tracks only slightly off of expectations, which had already been tweaked during the fiscal year in anticipation of additional pandemic-related shortfalls.
These projections, as is typical, could be considered with a grain of salt, of course. Even in a normal year, revenues are more erratic than linear, and revenues through November would not be expected to offset expenditures yet. The first round of property taxes — among the city’s highest and most consistent revenue sources — don’t start rolling in until after November and weren’t reflected in the city’s report.
The next dive into the financials ought to prove more interesting to city officials, as that will illustrate the impacts of the stay-at-home orders and other commercial restrictions imposed by Gov. Gavin Newsom in November and December.
“The good news is, based on the numbers we’ve seen, we are tracking the projections we had presented to council” for the first five months, interim City Manager Roubik Golanian told the council on Tuesday. “The unknown is that we don’t know as of yet what the impacts of the latest stay-at-home orders that were issued by the governor last November and what impacts they will have on our sales tax.”
Total revenues through Nov. 30 were $50.61 million, around 22.6% of the projections for the full year. Again, this is in large part because only 2.1% of property taxes — out of nearly $70 million expected for the year — have been tabulated.
By comparison, expenses for the time period were $91.374 million, or around 38.7% of the year’s budget. This was where the biggest discrepancies presented themselves, according to city officials. Expenses to that point in prior years average around 42% of the proposed budget.
“As you can see, in the various categories, we do expect our hourly wages to be lower because of our different closures of facilities and programs, and our contractual services and supplies [to be lower] as well,” explained Michele Flynn, the city’s finance director.
Flynn added that her department was working lines of communication with the business community to try to get an idea of what sales tax revenues might look like with regard to the stay-at-home order period. Newsom this week allowed counties to start making decisions locally again; personal care services could reopen in Los Angeles County earlier in the week with restrictions, and on Friday restaurants could again resume outside in-person dining.
Given the timing of the stay-at-home orders, cities are looking at around 2½ months of sales tax disruption.
“It’s changing our habits on how we shop, how we dine and everything,” Flynn said. “It’s really hard for us to see that, so we’re talking to people, looking at things and trying to figure it out.”
After borrowing to close anticipated revenue gaps at the end of the fiscal year, Flynn estimates that general fund reserves will drop to $76.6 million, which represents 32% of the prior fiscal year’s budget. At the start of this fiscal year, those reserves were at 34%, after the city used $769,000 to close the 2020-21 gap.
City policy is that the reserve at minimum be 25% of the prior fiscal year’s expenses, with a target of achieving 35%.
Councilman Dan Brotman suggested he would advocate for additional cuts to expenses if changes in revenue made it likely that reserve would have to fall below 32%.
“Hopefully it won’t happen,” he added.