Director of Finance
City councilmembers aired skepticism at what they deemed to be a relatively upbeat outlook for the upcoming fiscal year, which will assuredly be marred by the continuing market slide and volatility as a result of the pandemic.
Uncertainty, city officials asserted, ultimately plagued any previously reliable projection techniques, which means that the City Council and city administrators are going to have to be much more hands-on in adjusting the bottom line throughout the year once they agree on a budget. The City Council took its first look at what the soon-to-come budget proposal will be at a special meeting Tuesday morning.
“We have to be responsive, most definitely, but not reactive to the many, many disruptions that we may see around us,” City Manager Yasmin Beers said Tuesday, later adding, “Past June, it’s very fuzzy, and there’s lots of information out there and differing opinions, as well.”
Projected sales tax revenue for next year — now at $42.5 million — took the most dramatic COVID-19 adjustment, with Finance Director Michele Flynn shearing off $5.58 million, or 11.6%, from her initial projection. This would follow what Flynn is projecting to be a sales tax shortfall of $2.9 million, or 6.3%, from the current fiscal years thanks largely to closures mandated by the county’s “Safer at Home” order first levied in March; for the current year, that makes up the largest piece of what ultimately looks like nearly $8 million in lost revenue.
“The good news,” Flynn added, “is that before all of this had occurred, we had nearly nine months of very good sales tax activity for the city of Glendale, and we were actually trending higher than what we had anticipated when we adopted the budget last year.
“The bad news is,” she continued, “this was an immediate impact. When businesses closed, basically their sales go away, or if they have to alter their businesses — as some restaurants have done, with only takeout and curbside pickup — that definitely is an immediate impact.”
Further complicating things is that more than 2,000 of Glendale’s small businesses qualify with the state’s permission to defer upcoming sales tax payments, which would disrupt cash flow for the city by about $1.5 million if they all took that deferral. Flynn conceded, perhaps hopefully, that maybe not all businesses would take the deferment. Sales taxes make up around 19% of the city’s revenue stream.
User utility taxes — which draw from water, electricity, cable and cellular bills, and make up around 11% of revenue — were revised to subtract $1.24 million, or 4.9%, from next year’s projections, and transient occupancy taxes — 3% of revenue — will be projected $995,000, or 5.2% lower.
Property taxes — far and away the city’s largest income stream — are expected to remain steady at $69.81 million. Even if the pandemic adversely affects assessed values, it would be at least one fiscal year before that registers because of when new valuations take effect.
Overall, projected General Fund revenues for the 2020-21 fiscal year were revised to be $233.37 million, a reduction of 4.6% from earlier figures. With projected appropriations at $238.8 million, the city is expected to close the gap with more than $4 million from reserves.
Freshman Councilman Dan Brotman took issue that even with the more modest projections, Flynn’s budget still called for $2.6 million more in transient occupancy tax, or TOT, revenue next year than what is projected for this year, particularly when canceled events and discouraged air travel are expected to leave hotels largely vacant through at least summer.
“Year-over-year, we’re looking at a 17% increase in occupancy and other taxes,” he said. “To me, that’s hard to get my head around.”
Flynn pointed out that franchise taxes, property transfer taxes and landfill taxes are also collected under the TOT umbrella, and added that her department’s projections are based on two new hotels opening early into the year and off of conversations with how existing hoteliers expect their futures to be.
“This is the best information that we have at hand based on a number of variables that are in place along with our consultants and reaching out, in this particular case, to all of the hotels in the community to get an understanding of where they may be,” Beers, the city manager, added.
Brotman’s skepticism wasn’t tempered, not least because according to his reading, the consulting firm HdL Companies — which the city contracts with — was making estimates based on an assumption that the pandemic would largely be behind us by September. Health experts worldwide, by contrast, are warning of a second wave of the coronavirus that causes COVID-19, especially when the typical flu season begins in October.
“The fact that HdL is providing this to us on the basis of an assumption that we’ll be out of the woods by September really concerns me,” he said.
Still, Brotman was careful to not target Flynn specifically, acknowledging that the ongoing crisis is unprecedented and that normally useful tools are only so useful right now. Rather, he opined that a “doomsday” scenario might be more realistic and, at the very least, it’s better to hope for the best while preparing for the worst.
“It’s like you’re driving blind,” he told Flynn. “This has nothing to do with the work you’ve done.”
Mayor Vrej Agajanian echoed his new colleague, hoping that these projections would pan out while harboring a gut feeling it was unlikely. Councilwoman Paula Devine similarly urged cautious planning for the fiscal year.
“It just seems to me like it’s a more positive outlook, but I’d like to know if this is conservatively speaking, because that’s what we have to be right now, is very conservative,” she said.
Flynn explained that she is projecting no full openings of businesses for three to six months into the fiscal year and a protracted return to normal even after December. Additionally, she noted in her five-year forecast that the soonest she expects sales taxes to return to normal is by the fifth year, and also that she has not considered any possible reimbursements from state or federal emergency agencies for pandemic response.
This meeting occurred prior to a county announcement about beginning to ease restrictions on businesses this weekend.
“I would say we are trying to be as conservative as possible with the information available to us and measuring that with what we know,” Flynn said. “Every day, things change. What we knew a month ago had changed two weeks later, [and then] one week later, and it’s very difficult because we are dealing with somewhat of a moving target.
“I will say right now that it is conservative,” she reiterated, “but also that it can change.”
The City Council will take its second dive into the budget forecast in a workshop at 9 a.m. Tuesday, May 12, before it formally considers the budget for adoption at a meeting that begins at 6 p.m. Tuesday, May 19.
