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By Tim Hunt

Sacramento legislators are getting serious about an ugly budget

Uploaded: May 12, 2020

This most unusual May brings with it the requirement that the Legislature and the governor address the budget that must be approved by June 15. The numbers are dauntingly bad compared with an estimated $6 billion surplus in the January budget presented by Gov. Gavin Newsom.
Now, it’s as bad at $54 billion according the governor’s finance department looking at the budget proposed by Newsom in January. The Legislative Analyst put it at between $18 billion and $34 billion using the current budget. The non-partisan analyst built the $18 billion estimate based upon a rapid return to economic growth in a U-shaped recovery from the current deep recession. The report estimates that between 3 and 4 million Californians have lost their jobs since March. The higher budget deficit would result from an L-shaped slower recovery.
The office estimated current year revenue at $152 billion with about $16 billion in reserve.
The governor, while fighting the pandemic, consistently has, in recent weeks, talked about the need for the feds to step in and help state and local governments much more. Just how much stomach there is for that in Congress remains to be seen. Even with the quicker recovery, budget challenges could last for the next few years.
What is clear is that schools, in particular, need to brace for tough budgets in the fiscal year that starts July 1. The analyst’s report estimates that school funding, which has a voted-mandated minimum, would drop by $2.4 to $2.3 billion if the Legislature and the governor maintain spending at the current year’s level. That will be felt in districts across the state. State spending on k-12 schools has increased 60% since the low water mark in 2012.
Locally, the cities have significant reserves and likely can whether the slowdown. Tina Olson, Pleasanton’s finance director, told the City Council last month that it could cost the city $6.3 million in the current two-year budget. There will be a big hit in the hotel tax as well as the sales tax. Pleasanton, with its healthy property tax base, is among the cities statewide best positioned to ride out the recession and its long term impact.
Meanwhile in Livermore, the council will hear a similar report as it prepares for its next two-year budget. The report reduced sales tax projections by 11% ($4.1 million) for the current fiscal year and 18% ($6.8 million) for the upcoming fiscal year. The hotel tax is expected to be off 35% ($1.6 million).
The hotel tax is not a key factor for local revenues, which is not the case in other communities that are much more dependent upon tourism. The Sacramento Business Journal ran a story last week in which a South Lake Tahoe City Councilwoman was quoted saying “stay away” to potential visitors. The hotel tax makes up 37% of the city’s general fund revenue. Sales tax, again driven by visitors, also has plunged.
The counties surrounding Lake Tahoe have health orders in place forbidding non-essential travel to the lake. If the order remains in effect into the summer months, the hotel tax impact is estimated at $2.3 million per month. Thanks to prudent spending and the previously roaring economy, the city has a 25% reserve that will help it ride out the summer.
It’s the same in the Coachella Valley where golf courses have re-opened with COVID-19 required changes, but tourism is shutdown at least through this month.