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Modesto, area cities brace for major budget shortfalls due to coronavirus crisis


The new coronavirus crisis hit while Turlock officials, facing budget troubles, considered a sales tax measure to maintain public services.

Now, Turlock and Stanislaus County’s other cities are bracing for the pandemic to reduce their general fund budgets, which pay for basic services, from police and fire to parks and recreation. And they are working hard to determine what the pandemic will mean for their new budget year, which starts July 1.

While the fallout will vary among the cities, their general funds depend on revenue hit hard by business closures and the stay-at-home mandate, including sales taxes and transient occupancy taxes, which is what guests pay when they rent a motel or hotel room.

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How the shortfalls will affect the services cities provide depends on several unknowns, city managers said, including how long it will take before businesses can reopen and how much financial help California’s cities will get from the state and federal governments.

The shortfalls are across the state. The League of California Cities is projecting cities collectively will take a nearly $7 billion hit to their general funds over the next 2 1/2 years. That projection is based on the state lifting its stay-at-home order by June 1.

The League said the nearly $7 billion represents about a 7 percent reduction statewide but said the decline could be as much as 20 percent for some cities. The League is calling upon the state to set up a fund to offset the revenue losses.

Big declines for Turlock, Modesto

Turlock already was not generating enough money to provide services its community expects, City Manager Toby Wells said. “At some point something has to give,” he said. “We provide less services or find additional revenue.”

Wells said Turlock had been reducing expenses before the pandemic, but that did not make it immune from the economic fallout. The pandemic has cost Turlock about $1.4 million through March 31, according to a finance department report.

To compensate, the city laid off part-time employees in after-school programs and recreation and froze hiring except for police officers and emergency dispatchers. Other local cities have taken such actions as freezing hiring, postponing big projects and curtailing spending.

Whether the City Council pursues a sales tax has yet to be determined, Wells said. To put a measure before voters on the November ballot, officials will need to vote in June after talking with the community.

All four council members previously spoke in favor of a tax measure, saying in February that the budget was “unsustainable.” Mayor Amy Bublak, who opposed the measure then, maintains her position now. “It will be difficult to ask people for money when so many are becoming desperate,” she said in a text to The Bee.

Modesto City Manager Joe Lopez declined to give specifics because he does not yet have hard numbers and data. But he knows the news will be bad for his city’s roughly $138 million general fund.

“There is no doubt it’s having an impact,” he said. “We are seeing major decreases in major revenues, transient occupancy tax, sales tax, the mil tax (which businesses pay). These are major. ... We know it will be profound. We are still going to be providing essential and quality-of-life services to our residents. But it may look different than what it looks like today.”

Lopez and Riverbank City Manager Sean Scully also noted that, unlike the Bay Area, this region has just recovered from the Great Recession of a decade ago. Valley cities now face spending years climbing out of another financial hole.

“The Central Valley recovered so much slower than the Bay Area after the Great Recession,” Scully said. “It’s only in the last couple of years that we’ve seen the recovery.”

Riverbank, Oakdale see sales tax losses

The pandemic’s effect on Riverbank could range from “potentially devastating” to a “significant setback,” Scully said. Riverbank’s roughly $10 million general fund relies heavily on sales tax revenue, including from its Crossroads shopping center, which draws shoppers from throughout the region.

Scully said Riverbank is “freezing most discretionary spending and pausing a number of capital projects that were due to move forward. In terms of services, we are not anticipating service reductions at this time except those services that are not allowed under the various stay-at-home orders (state and local) such as events, large gatherings, classes etc. But even that remains to be seen.”

Still, the coronavirus could wipe out its efforts to right the city’s finances in the past couple years.

“(Riverbank) had been operating with structural deficits,” Scully said. “The council worked really hard to turn that around. It would be super disappointing to see that evaporate in a matter of months.”

Oakdale is projecting a nearly 10 percent reduction to its $12 million general fund in the new budget year because of big reductions in sales and hotel tax revenue. The eastern Stanislaus County city gets a big share of its taxes from its auto dealerships and the gas stations, restaurants, motels and hotels and other businesses that serve the visitors traveling to and from Yosemite National Park and other Sierra Nevada attractions.

“It is safe to say there are not as many people driving through town,” City Manager Bryan Whitemyer said.

Whitemyer said he expects no layoffs or service reductions in the coming budget year because of the city’s healthy reserves and by holding off on major expenditures unless they are necessary. He said Oakdale could get by like this for 12 to 24 months as long as the revenue reductions are not greater than expected.

Hughson expects to ‘weather the storm’

Stanislaus County’s three smallest cities — Waterford, Hughson and Newman — also expect less general fund revenue, but the cities have healthy reserves.

Hughson City Manager Raul Mendez said in an email the city will assess the pandemic’s impact on the 2020-21 budget, but noted his city has a strong reserve, and it may be in “a better position to weather the COVID-19 storm” than other cities.

Waterford’s roughly $3.5 million general fund may see a 6.5 percent decline in the new budget year, City Manager Michael Pitcock said in an email. “We are planning to live within our means and maintain all current staff,” he wrote.

Sales tax revenues may decline 10 percent to 15 percent in Newman, City Manager Michael Holland said. In a city without new car dealers or big box retailers, sales tax is not a big revenue source, however. The projected reduction will have a smaller impact on the city’s $6 million general fund, he said.

“As compared to some of the other cities, I don’t think the hit on us will be as significant as it will be on larger cities,” he said.

Ceres, Patterson say ‘it’s still too early to tell’

The city managers for Ceres and Patterson, Tom Westbrook and Ken Irwin, respectively, said they will know more about their cities’ financial situations after May 1, when they receive reports and data. Ceres expects to lose sales and hotel tax revenue, Westbrook said, which may alter budget plans for the upcoming fiscal year.

And any increased business at Patterson’s distribution centers will not give the city an exclusive boon, Irwin said. That is because the sale tax from the Amazon, Restoration Hardware and the other centers is divided among the county and its nine cities.

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