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Written by: Elizabeth Larson

Published: 22 April 2020

CLEARLAKE, Calif. – While the full scope of the financial impact from the COVID-19 pandemic is yet to be fully seen or understood, Clearlake’s city manager gave his analysis to the council at its last meeting about what it could mean in the short-term.

City Manager Alan Flora offered the council his update on the situation at its meeting on Thursday.

In comparison with previous recessions, the pandemic is already having a quicker impact on the economy, Flora said, noting the dramatic rise in unemployment numbers nationwide.

California is in a better financial position than it was more than a decade ago when the Great Recession hit, but Flora pointed to economic factors that could impact not just local but state coffers.

He said transient occupancy tax, or bed tax, and sales tax are likely to see impacts, and noted a reduction in travel that will drop gas tax revenue.

In the current financial quarter, across California there has been a 30 to 37 percent decline in sales tax receipts, he said.

There are nuances to the overall picture, Flora explained, noting that online sales are up but fuel and auto sales are down.

At the same time, there is more activity at grocery stores. However, Flora said a lot of food at grocery stores is not taxable unless it’s processed or cooked.

“We’ll see how that plays out,” he said of sales tax.

Flora also reported an 80- to 90-percent decline in transient occupancy tax receipts, a result of closures of hotels and vacation rentals.

He said that, hopefully, that will be a more temporary decline, but it will depend on how long the pandemic and its effects continue. It could take a significant period of time for travelers to feel comfortable again.

There are other revenues as well, including business licenses, that are likely to see declines, Flora said.

The governor announced that small businesses have a 12-month deferral to pay sales taxes of up to $50,000, which will impact cities. While Flora said there are questions if the state has the authority to do it, state leaders and the League of California Cities believes it can.

In addition, collection of the city’s special taxes – including Measure P, which benefits police, and Measure V, which is for roads – also will be affected, Flora said.

Flora said there is hope that local governments will be able to get direct relief in a new stimulus bill. The last bill, the CARES Act, provided help primarily for municipalities with populations of 500,000 or more, which left out rural areas, although the city will get about $130,000 in Community Development Block Grant funding.

Looking ahead, Flora said he’s making some financial assumptions that include the expectation of a general fund impact in the current fiscal year of $538,000 in lost revenue due to a reduction in activity or deferral in taxes. For the next fiscal year, he’s estimating $500,000 in impact. Those figures total about 20 percent of the city’s general fund.

“Take those with a little bit of a grain of salt,” he said of his figures.

Flora said the city is likely to experience cash flow issues rather than a loss of revenue. The city doesn’t have a level of reserves to sustain it but it can use special revenue funds for cash flow as long as it doesn’t extend across fiscal years. Those sources include Series A and Series B funds, which have several million dollars in them.

With the situation continually developing, Flora said he’s now trying to pare down any expenditures the city doesn’t have to make.

He said they’ve stopped filling positions except for at the police department, which is down three officers with hiring in the process.

The city also is freezing Measure V road projects and working with contractors to see how long they will hold out on prices, he said.

He said the city’s dump truck and water truck no longer meet state requirements and rather than buying trucks he’s directed Public Works to find a lease, which may be brought to the council later this month.

Flora said the city needs to do everything it can to keep cash available and not make expenditures it doesn’t have to.

“This is something that worries me more than anything else right now,” Flora said of the city’s financial situation.

He added that he wants to make sure to maintain adequate service to the community during a difficult time for everyone.

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