Draft budget projects $7 million revenue decline for Elk Grove in fiscal year 2021

With no public comment and no meaningful city council inquiries, at last night's Elk Grove City Council meeting, a draft budget for the next fiscal year, which starts July 1, reveals the city expects a $7 million revenue or 10-percent decline for the general fund. While the drop induced by the COVID-19 shutdown is significant, it is not as severe as Elk Grove city manager Jason Behrmann forecasted in late April.

During his presentation, Behrnamm said the decline for fiscal year 2021 is expected across most revenue categories. The most significant reductions will come in the sales tax revenue and hotel occupancy taxes.

Behrmann said the projected shortfall is from the analysis by the city staff and statewide estimates by Elk Grove's outside sales tax consultant. The revenue decline is expected to continue through calendar years 2020 and 2021.  

"What we are certain off is there is going to be a decline, we think it is going to be substantial," Behrmann said. 

Sales tax revenue, which is the city's largest single source of income at 34-percent, are forecast to drop $4.7 million or about 16-percent according to a two-year budget prepared last year by the city. Of the sales tax revenue, the largest share comes from car sales at the Elk Grove Auto Mall.  

Nationally, in May, new vehicle sales declined 21-percent, which does not include fleet sales. If fleet sales are included, the decline is 32-percent from one year ago.

Percentage-wise, the biggest decline is the hotel room tax, which is expected to decline 37-percent. Those revenues are forecast to decrease from $2.7 million to $1.7 million.  

"Our occupancy rate right now at our hotels has really declined precipitously," Behrmann said. "And we expect that to continue into the coming months, we hope for a quick rebound." 

"We hope for the best but prepare for the worst.

To offset the revenue loss, Behrmann said several steps are planned to balance the budget by reducing $5.7 million in expenditures. Among other things, there will be an across the board hiring freeze, and except police officers, who have a collective bargaining agreement, there will be no pay increases.

While there will be a hiring freeze on previously planned positions, there are currently no planned layoffs or furloughs. Other steps to balance the budget include eliminating extra payments to CALPERS for employee pensions, reductions in road maintenance, consulting services, elimination of most travel and training, and the transfer of the recycling and waste franchise fee to the capital reserve fund. 

The city's total budget for 2021 is $305 million, which Behrmann noted is an increase of $5 million. The increase in the total budget is due to pre-funded capital projects. 

In his presentation, Behrmann also said the city's transportation funding will be adversely affected by the COVID19 revenue declines. Notably, funding from the local and countywide sales taxes, as well as statewide SB 1 funding will decline because of the reduced gasoline consumption during the shelter-in-place order.  

"We are expecting a decline of two and a half million dollars next year, which is a pretty significant decline," he said. "It does affect in the short term our ability to grow our roadway maintenance projects, trails, and things of that nature."

Additionally, Behrmann warned the city council that development impact fees - funds paid by new home developers - will diminish by about $6 million to the total budget.  

"We are expecting the developing will slow in the next fiscal year," Behrmann said.

The proposed budget is not yet available for review. It should be available by the June 10 Elk Grove City Council meeting. 
Copyright by Elk Grove News © 2020. All right reserved.


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D.J. Blutarsky said...

City Hall must be sweating it out right now, hoping that trimming fat from the fat cow will suffice and the bounce back from COVID-19 will be rapid.

Freezing hiring and cutting almost a million dollars from their travel budget might get them through next year without pay freezes, furloughs, or gasp...layoffs! But then again, maybe it wont.

Behrmann noted that auto sales make up most of the City's sales tax revenue and they are currently as flat as a pancake (my description). Car sales were dropping even before the pandemic, and I suspect the residents financially capable of a new car purchase have already bought within the past couple years.

One thing is sure from last night's presentation--put on a happy face on a potentially dire situation; hope for the best; and wait until after the election before rechecking your numbers.

Neo Elk Grove said...

I think the city will be in for a hard time next year. It will be interesting to watch car sales. If car sales fall off the cliff like they did several years ago and one of the lots at the auto mall closes, the city is going to have a rough few years.

Eye on Elk Grove said...

No mention of all the taxpayer money going to the "outside" law firm when the city attorney's office has a budget of 1.4 million dollars a year. Four city attorneys to "save money" . . .and yet.

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