Half Moon Bay city officials expect turmoil caused by COVID-19 to cut into tax revenues and ultimately to impact city services and projects.
By law, the city must create a balanced budget each fiscal year. But for the last few years, the city’s revenues were slightly lower than expenses, Nisbet said.
“We are not going into the red at an alarming rate, but the statistics show that our revenues were slightly less than our expenses,” Nisbet said. “However, we have money in our reserves to make a balanced budget. It is a trend to watch because in the short term it is sustainable, but, long term, you cannot go on forever like this.”
So far, this fiscal year the city’s revenue from transient occupancy taxes is on par with expectations, but that will change due to canceled hotel reservations and large conferences as a result of the coronavirus.
“The fourth quarter is going to be critical,” Nisbet said.
Transient occupancy tax makes up about 40 percent of the city’s revenue. In the last three years TOT revenue has increased about 5 percent. Administrative Services Director Lisa Lopez said that isn’t likely to continue. Staff anticipates by May to have a better idea of how much revenue will be lost.
After the 2008 financial crisis, Half Moon Bay saw a 12 percent loss in TOT, which meant the loss of about $2 million, according to Lopez. This crisis could be much worse after the San Mateo County Health Officer ordered an end to all nonessential travel.
“Could this happen? Yes, this could happen,” City Manager Bob Nisbet said. “We have to start thinking now about how staff would go about making cuts.”
The city has two reserve funds, one is for disasters such as a major earthquake or wildfire. The other is for a recession.
“Given how conservative we’ve been, I think we will be able to weather next year, but then we have to look at the year after that and if this forces us into a recession this might be our last year of protecting ourselves,” Nisbet said. “It’s an optimistic outlook.”
Lopez said staff is in the process of setting the budget for fiscal year 2021-2022.
“This allows us to be more conservative as we plan ahead for the next year and be proactive,” she said.
While it’s still too early to predict the total loss of transient occupancy tax, Half Moon Bay Coastside Chamber of Commerce and Visitors’ Bureau CEO Krystlyn Giedt said the downturn is immediate and obvious. Giedt sent out a survey to businesses asking how they were fairing during the situation, but that was before San Mateo County issued a shelter-in-place order.
Other cities, such as San Francisco, are proposing to delay the collection of sales taxes from businesses and waiving business fees.
“I’d like to get the ball rolling and thinking about an economic impact recovery fund,” Giedt said. “Small businesses are on a shoestring budget and if they have one bad month that could be the end for them.”
Giedt met with city officials earlier this week to begin discussing how to assist struggling businesses. Giedt is considering asking the city if there is funding set aside that could be used for economic stimulus. She also is talking with some of the nonprofit organizations that were forced to postpone or cancel fundraisers to see if a joint event later this year is possible.
Staff intends to ask the Half Moon Bay City Council how to use the city’s rainy-day fund.
“The economic uncertainty fund is to help us move through a recession,” Lopez said. “So, we need to know the difference between what is truly just a bump in the road versus a true recession.”