What comes next for California cities? Deficits, bailouts and long recoveries

People play basketball at a San Francisco park behind a sign reminders park-goers to maintain social distancing on March 25, 2020. Photo by Anne Wernikoff for CalMatters. | 

By Jackie Botts, Ben Christopher, Elizabeth Castillo, Ana B. Ibarra and Matt Levin, CalMatters

Cities have been ground zero in California’s coronavirus response — with many initiating shelter-in-place orders, organizing emergency housing for homeless people and supporting health and essential workers. But even before restrictions get lifted, mayors, managers and city councils are being tested in a new way: pandemic-induced budget deficits. 

Already, unemployment is projected to be higher than it was during the Great Recession. Sales and property tax revenues have cratered. And while some of a $150 billion Coronavirus Relief Fund tucked into the federal stimulus CARES Act will go directly to large cities with a population of 500,000 or more, the League of California Cities has already declared it insufficient. 

Across California cities, the clamor for a federal bailout is growing. Whatever reserve they may have built up during the recovery is being wiped out and replaced by red ink. City hall leaders now face an unsavory menu of service cuts, furloughs and staff reductions. Public employee pension and health care obligations will only add to the pain. 

Here’s a look at California’s 10 largest cities and how they’re responding to the coronavirus fallout:

Los Angeles: Big promises in California’s biggest city

With just under a fifth of California’s confirmed cases in his city, Los Angeles Mayor Eric Garcetti has frequently acted like a governor, often steps ahead of Gov. Gavin Newsom.

Garcetti, a Democrat, halted all evictions in mid-March, weeks before California courts did the same statewide. The city has mounted 26 free testing sites, where anyone with symptoms can get tested within two days. Last week Garcetti ordered residents to cover their faces in public, a move the state has not yet taken. 

When the mayor announced a philanthropic fund to send cash cards to families, particularly those with undocumented immigrant members, 56,000 immediately applied. 

Despite his rising profile as “storyteller-in-chief,” Garcetti’s big plans have sometimes fallen short. He initially promised to set up 6,000 beds for homeless individuals, but it’s now more likely to be 2,000.

All these initiatives cost big money even as sales tax revenues dry up. In a recent address, Garcetti said he expected a 30% to 40% drop in the city’s hotel occupancy tax and significant decreases in sales tax revenue. Unemployment could soar to 20%. 

The mayor has moved $20 million from city reserves into an emergency COVID-19 response fund, but he said the city needs help.

“There’s no question though that we’re going to have cuts,” Garcetti said. “I’m imploring our Congress, I’m imploring our president to make sure the next round (of relief) also helps bail out cities.”

San Diego: Beach town facing budget deficit

Newsom praised San Diego for taking early and bold action to house the region’s 8,000 homeless people, including procuring more than 2,000 hotel rooms as emergency isolation units. Mayor Kevin Faulconer led an effort to turn the San Diego Convention Center into a massive homeless shelter, taking in more than 800 people without stable housing. 

But those extraordinary measures come with extraordinary bills for California’s second largest city. The repurposing of the convention center will cost $2.8 million per month; the hotel rooms, $6 million per month. 

While federal, state and county dollars will offset some of those costs, the city’s coffers will be strained at a time when hotel tax and sales tax receipts—two key revenue streams in the tourism-centric city—are plummeting. The city faces a $250 million deficit, and Faulconer has called for cuts to libraries, recreation centers and the arts to make up the shortfall. 

“Make no mistake, these are going to be some of the most significant cutbacks in San Diego history,” the Republican mayor said in late March. 

San Jose: A $100 million hit to Silicon Valley

San Jose’s budget will take at least a $100 million hit because of the coronavirus pandemic, according to Mayor Sam Liccardo. And that’s still an early projection. He wouldn’t be surprised if it will be worse. “This is going to be a rough ride,” said the Democrat.

Residents have seen it before: The city endured a painful pension battle in the aftermath of the last recession, eventually losing a third of its workforce due to a hiring freeze, pay cuts and employee attrition. 

Now, Silicon Valley is taking another blow as a viral hotspot. Last month, the fire department had to manage an outbreak of COVID-19 cases among its first responders. As one of the regions to be hit early, Santa Clara County was among six counties that initiated a shelter-in-place order on March 17, two days before a statewide order went into effect.

Still, the area is resilient. To help people impacted by the pandemic, the community created Silicon Valley Strong, which has raised more than $20 million to help the area’s most vulnerable residents, small businesses and nonprofits.

The current relief bill should help reimburse the city’s emergency response efforts but Liccardo hopes to see more financial help from Washington, D.C. 

San Francisco: First to lockdown yet homeless remain unsheltered 

San Francisco has been upheld as a model for how to deal with the pandemic but Mayor London Breed isn’t resting on her laurels. During the 1918 Spanish Flu, San Francisco introduced aggressive social distancing in the fall, tamping down the initial outbreak, only to open back up prematurely, with lethal consequences.

This year’s positive gains to date have — like all of San Francisco’s achievements — been marred by its most conspicuous failing: the city’s massive unsheltered homeless population.  

So far more than 90 residents and 10 staff at San Francisco’s largest shelter have tested positive for coronavirus, the largest single cluster of cases in the city. It’s fueled criticism that the city has failed to protect its most vulnerable.  

Earlier this week, San Francisco’s board of supervisors passed an ordinance demanding that Breed’s administration lease 8,250 hotel rooms, to get the estimated 8,000 people living on the street in doors by April 26. So far, the city has leased about 2,000 and sheltered nearly 800 people.

“There is no way we’re going to be able to accomplish the goals of the ordinance,” said Breed, a Democrat. Supervisors hope she rises to the challenge.

San Francisco is trying to ramp up services just as its finances are being gutted. The city’s controller recently estimated the pandemic will push the city between $1.1 and $1.7 billion into the red over the next two years — wiping out the city’s $800 million in reserves. 

But those estimates are preliminary and depend on just how hard this all hits the economy — one with plenty of stay-at-home-ready tech workers, but also a disproportionate number of tourism, hospitality and restaurant workers. 

“We’re in the middle of an unprecedented economic shock and we’re in the middle of a bit of data vacuum,” said Ted Egan, chief economist for the city. “There’s not a lot we do know at this point.”

Fresno: ‘Want our economy to come back’

Fresno Mayor Lee Brand first issued a shelter-in-place order for his city of more than 500,000 people on March 18, one day before the governor asked all Californians to stay at home. For the most part, the order is working, he said. 

“People in Fresno get it, they’re staying at home, they want our economy to come back,” Brand said.

Prior to coronavirus, Fresno’s economy was in one of the best shapes it had been in a long time. After struggling for years to jump back from the last recession, the city’s 2020 budget boasted $34 million in reserves, the biggest in the city’s history, he said. In recent years, the city hired more police officers and boosted city services. 

“We are the only city in California with a fully funded pension,” said the Republican mayor. 

Last May, the city even hit a new mark: an unemployment rate under 5%. More often, Fresno’s unemployment rate is typically higher than state and national averages.  

Now those gains are threatened. People are losing jobs and sales tax, a big source of city revenue, is being significantly impacted. Brand said he’d like to see cities included in another round of relief funding from the federal government. 

Locally, the city set up a $750,000 fund to help small businesses. The relief program allows owners to apply for a zero-interest loan that will be forgiven after one year if their business is still operating. 

Sacramento: Capital city seeks assistance

A recent influx of Bay Area transplants will help the sixth-largest city in California qualify for nearly $90 million in federal assistance from the Coronavirus Relief Fund.

Sacramento Mayor Darrell Steinberg hopes that money can buoy city coffers as California’s capital braces for a prolonged downturn. The budget for the remainder of this fiscal year, which ends June 30, should hold — but cuts loom.

“We’re going to have to figure out how to make it up,” said Steinberg spokeswoman Mary Lynne Vellinga. “We’re hoping there will be some more assistance coming down the pike.”

Sacramento will also be tested in its response to a growing population of people experiencing homelessness. Steinberg, a Democrat and co-chair of a statewide homelessness task force, has instructed staff to come up with longer-term housing strategies for people placed in temporary hotels or trailers.

Long Beach: Burning through overtime

Long Beach projects revenue losses and increased expenses brought on by the coronavirus pandemic will cost the city between $38 million and $44 million during the current fiscal year ending in September. And that’s optimistic.

City finance director John Gross noted his projections assume the city will enter a recovery period soon after May. Otherwise, he warns, the city “should be prepared for more adverse impacts.”

Long Beach is being hit by the loss of sales tax, oil revenue and a transient occupancy tax, which is paid by hotel guests. The city is also burning through staff overtime and other costs associated with its response. 

The city closed down on March 19, following Los Angeles County’s “safer at home” order. So far, the majority of the city’s deaths have been linked to nursing homes and long-term care facilities.

The city has opened a free clinic at Long Beach City College, where people can be assessed and referred to testing for COVID-19. Near the clinic, the city also opened a drive-thru testing site. The centers are staffed by the city’s own Long Beach Medical Reserve Corps, a program that was in place years before the state’s recently launched Health Corps. 

Oakland: Exacerbating economic and racial inequalities

On March 9, long before most mayors had to contend with the possibility of a pandemic, the Grand Princess, a ship full of contagious cruise takers, docked in the Port of Oakland. 

“That’s the moment it went from being a problem in the world to a problem right here at home,” said Mayor Libby Schaaf, a Democrat. 

Since then the city, like much of the Bay Area, has — so far — not seen the massive death tolls and overcrowded hospitals that were once forecast. But the pandemic has exacerbated the city’s long-standing economic and racial inequalities, said Schaaf. 

Even with San Francisco across the bay, 15-percent of Oakland households do not have Internet access. Of the 1,100 small business owners who applied for emergency relief from a city-sponsored charity fund, seven out of 10 made less than 35-percent of the area’s median income. 

The municipal budget has been “decimated,” Schaaf said. The city has already laid off hundreds of temporary workers.

Some of Oakland’s pre-pandemic responses to homelessness are helping. The creation of one-person shed camps and sanctioned RV parks for the homeless has reduced shelter crowding — a potential contagion cluster. 

Schaaf said the city is planning to move 50 people from those group shelters into hotels. She said she hopes to convert many into permanent housing though funding is now scarce.

Bakersfield: Missed out on stimulus funding

The city of nearly 400,000 residents failed to qualify for direct federal aid under the Coronavirus Relief Fund because of the population cutoff. But Bakersfield will be able to cushion the blow thanks to a local sales tax measure passed two years ago to bolster the economy and reduce homelessness.

The tax increase has generated more than $50 million. While about half has already been allocated, money can still be tapped to help deal with the local downturn, said City Manager Christian Clegg.

“It is a saving grace,” he said. “We’ll have to be really strategic, but we’ll actually have some ability to do a few new things next year when most cities will be cutting back.”

Still, Clegg is expecting a double-digit reduction in sales tax revenue and hopes Congress will reduce the population threshold in the next round of stimulus spending.  

Meanwhile, the county continues to battle the virus as the number of confirmed cases rises in Kern County. As of this week, the county reported nearly 500 COVID-19 cases with more than 300 in patients between the ages of 18 and 49.

Anaheim: An economy built on crowds

Anaheim made international headlines when Disneyland closed for the third time in history in early March, sputtering the local economy to a halt.

The pandemic has hit the city’s workforce and budget hard — both depend heavily on large groups of people bumping up against each other in the city’s theme parks, hotels and convention centers. The city believes that at least 10,000 workers in the tourism industry have lost jobs and predicts a minimum revenue loss of at least $10 million, mostly from hotel and sales tax, said city spokesman Mike Lyster.

While the city has left public health management to Orange County, it has used $1.4 million in state funds to open a third homeless shelter and has repurposed the Honda Center, usually home to the Anaheim Ducks ice hockey team, to house food bank distributions for thousands of people at a time.

Already Republican Mayor Harry Sidhu, himself the owner of several El Pollo Loco franchises, says he has a $15 million plan to restart the economy. It includes $8 million to support seniors, workers who have lost jobs and people who are struggling with rent. Nearly all of the rest would go to VisitAnaheim.org, the city’s main driver of tourism, which has laid off half of its staff. City leaders are cautiously optimistic that some restaurants could open for dine-in business again in May or June.

“The challenge for finances is getting our economy moving again as soon as it’s safe to do so,” Sidhu said. “But we know economic recovery will be gradual.”

CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.