Planning Departments Feel COVID-19's Fiscal Pain
- William Fulton
- Apr 7, 2020
- 5 min read
California’s local governments have already been struggling to move their planning processes online – a difficult trick given that many planning projects require approval of appointed or elected officials at in-person meetings. But now, cities and counties are about to face an even greater challenge – a financial meltdown that could decimate their ability to even keep their planners and other development specialists employed. With retail businesses closed and travel greatly restricted, it’s clear that, at a minimum, local governments will suffer steep losses in sales tax and hotel/bed tax revenue for the rest of this fiscal year and into the next. Cities, which are more dependent on sales and bed tax, are likely to suffer more severely than counties, which are more dependent on property tax. Making matters worse is the fact that Gov. Gavin Newsom has given all businesses that pay less than $1 million a year in taxes– an extra 90 days to pay second-quarter sales tax. No estimates yet exist – at least not publicly – about the severity of the drop but it’s likely to be at least equivalent to the 15-20% drop that the locals saw in the 2008-2010 recession. That recession – which was touched off by a meltdown in the mortgage market – saw virtually all cities reduce their planning and development departments. “With retail shut down, this probably will be a bigger hit for local government tax revenue than ‘08-’09,” said David Shulman, senior economist at the UCLA Ziman Center for Real Estate. “Local government is in real trouble right now, especially those that sold their soul for sales taxes.” After the 2008 recession, many cities, especially in the Central Valley, wound up with no staff planners at all for several years. For most local governments, it took a decade to return to pre-2008 levels of tax revenue. Some revenue will be coming from the state and federal governments – especially for big cities – but these funds are not likely to make up for the lost revenue. Although it’s early, indications are that local governments will move aggressively to try to get ahead of the curve on the fiscal crisis, in part because they don’t know how severe their drop in revenue will be. The City of Santa Barbara, expecting a 25% drop in revenue, laid off 400 employees at the end of March. According to the State Controller’s office, Santa Barbara receives almost half of its $100 million a year in tax revenue from sales and bed tax. Meanwhile, the City of San Diego – which had already ordered most employees to work from home – ordered non-essential workers to start taking paid leave as of April 6, though it was not clear whether the order constituted a furlough. The State Controller estimates that San Diego gets about 40% of its $1.3 billion in annual tax revenue from sales and hotel bed tax. And San Francisco is estimating a revenue drop of at least $1 billion. The Controller’s figures for FY 2017-18 – the most recent year for which figures are available – suggest that smaller tourist and resort towns and cities that have chased retail sales might be the hardest hit by the downtown. For example, Cerritos – famous for aggressively building up its auto mall – receives 65% of its tax revenue from retail sales. California Cities Most Dependent on Sales Tax
