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Receive and File — Budget Update — Preliminary Financial Impact related to COVID-19
<br />April 21, 2020
<br />Page 2
<br />businesses will have a significant impact on sales tax revenue. The state's decision to allow small
<br />business to keep sales tax in the short term as a bridge loan will also affect sales tax revenue.
<br />With the Mid -Year Budget report, staff reported that the City's sales tax consultant had prepared a
<br />recession scenario indicating a $7 million loss of revenue. The consultant based the scenario upon
<br />data from the Great Recession of 2008-2009. During the Great Recession, GDP decreased by
<br />4.3% and unemployment hit a high of 12.2% in California.
<br />The COVID-19 pandemic could have a greater impact on sales tax than the Great Recession.
<br />UCLA Anderson Forecast is projecting a 6.5% loss of GDP through June, and another 1.9%
<br />through September. Fitch Ratings assumes that for every 1 % loss of GDP, local municipal revenue
<br />decreases by 2.5%. If UCLA Anderson Forecast and Fitch Ratings are both correct, the City could
<br />lose $50+ million of revenue by the end of 2020.
<br />At this time, based upon the best information the City has received, staff is projecting a $12.4 million
<br />loss of revenue in FY 2019-20 and a $15.1 million loss of revenue in FY 2020-21. As the City
<br />receives more information, the projection may worsen and revised estimates will be prepared for
<br />City Council consideration.
<br />The following revenue sources are those the City believes will be most impacted by the pandemic
<br />during the current and next fiscal year.
<br />Potential Impacted
<br />FY19-20
<br />FY19-20
<br />FY19-20
<br />FY20-21
<br />FY20-21
<br />Revenue Sources
<br />Budget
<br />NEW
<br />Estimated
<br />Potential
<br />Estimated
<br />Estimate
<br />Loss
<br />Loss
<br />Sales Tax
<br />$111,509,900
<br />$108,550,600
<br />$2,959,300
<br />$107,132,000
<br />$4,377,900
<br />Hotel Visitors' Tax
<br />$9,500,000
<br />$6,700,000
<br />$2,800,000
<br />$6,500,000
<br />$3,000,000
<br />Business License
<br />$13,000,000
<br />$11,000,000
<br />$2,000,000
<br />$9,750,000
<br />$3,250,000
<br />Tax
<br />Permit & Plan
<br />$7,881,000
<br />$5,381,000
<br />$2,500,000
<br />$5,381,000
<br />$2,500,000
<br />Check Fees
<br />Zoo, Recreation &
<br />$2,691,000
<br />$1,900,000
<br />$791,000
<br />$2,000,000
<br />$691,000
<br />Library Fees
<br />Parking Fines
<br />$5,245,700
<br />$3,945,700
<br />$1,300,000
<br />$4,000,000
<br />$1,245,700
<br />Total Estimated
<br />$12,350,300
<br />$15,064,600
<br />Loss
<br />The pandemic could affect Property Tax collections this year, which results in a timing issue, not a
<br />budget impact. The impact of reduced property values and property owner appeals will likely affect
<br />Property Tax revenue in FY 2021-22. In the year following the Great Recession, Santa Ana
<br />property assessments decreased by 9.8%. Considering the UCLA Anderson Forecast noted
<br />above, the City may expect FY 2021-22 assessments to decrease by 20%, an impact of $15+
<br />million.
<br />65A-2
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