By Chris Frost
Oxnard--As the City kicks off its fiscal year 2020-2021 budget season, the COVID-19 global pandemic means a sales tax increase in Oxnard if the voters approve the measure.
The city had its preliminary fiscal year 2020-2021 budget preview during the Finance and Governance Committee Meeting, Feb. 12, and the news was not good.
City Manager Alex Nguyen introduced the preview and said as estimates come in about the economy, the numbers may change.
During the fiscal year 2019-2020, the city plotted a course of action to make the city fiscally sustainable, but that will only happen when the city's revenue outperforms its expenses.
That includes having a fully staffed public safety department and keeps up with maintaining the city's medians strips and trees and maintain parks at a level people deserve.
"We will be assured that our 911 response times will be at national standards, our roads will be maintained quicker, and we'd have the ability to respond to disasters, whether man-made or natural," he said.
In the fiscal year 2019-2020, Oxnard faced a $9.2 million structural deficit but worked through the problem and made some difficult choices and cut $5.3 million from its regular budget. They were still in the hole, but Oxnard was starting to come back to fiscal sustainability.
At mid-year 2019-2020, the city was down to a $2.0 million operating deficit, he said, and the city was on target to have a status quo budget for the fiscal year 2020-2021 that assured no cuts to programs, services, or programs.
Then, COVID-19 happened, which added this to the city's existing problems and knocked the city off the ladder toward fiscal solvency.
"Frankly put, the coronavirus, this global pandemic, has knocked us on our ass," Nguyen said. "We are in the midst of a recession, and our revenues, just like everyone else, has cratered. A lot of the good progress we've been making has been halted. That applies to every sector across the economy."
During the fiscal year 2019-2020, Oxnard has seen its revenue decline, and Nguyen believes that means an $8.7 million revenue drop because of COVID-19. That comes from a drastic sales tax decline, hotel tax decline, and other revenues.
Nguyen said the city remains stuck in a "pancession" and Oxnard had underlying conditions before the pandemic.
"Most cities, not only in Calif but across the nation, are going to suffer severely from this pancession," he said. "A small handful of cities will be able to ride this out, especially if the recession ends sooner than later. A small handful of cities have built up a healthy reserve. Like most cities, Oxnard is not one of those cities."
The city will use its general fund reserve, most of it, and this is why Oxnard has a general fund reserve for emergencies like this.
Looking ahead to the fiscal year 2020-2021, Nguyen said the best estimate is that the city faces a $9 million revenue decrease, and the city must get back on the rope to climb out.
"We can't call a timeout; we can't forfeit, or suspend the season," Nguyen said. "We have to continue day-after-day. Now, we're further down in this hole than we were four or five months ago, and it's a long way back up."
Chief Financial Officer Kevin Riper outlined the tools Oxnard has to address the collapse of the general fund revenue and said the city would burn through $8.7 million of its general fund reserve in four months.
"That's an annual rate of $26 million in reserves per year if it was extended over 12 months," he said. "At that rate, the reserves could be essentially gone by the end of the 2020-2021 fiscal year. "We have asked the bargaining units to freeze all increases of previous compensation in the city's contribution to health insurance. If the bargaining units respond favorably to that, it means a savings of $3.5 million."
The city also froze hiring additional employees, but he noted they couldn't freeze every position.
"Some positions are mandated, and there is an urgent need to fill some positions," he said. "So, maybe we'll get $1 million per year from a hiring freeze. We already had substantial vacancies coming into this pandemic-induced recession, and we were counting on significant savings for the general fund because of the vacancies. This is a relatively small saving because of the hiring freeze."
The city already laid off all its part-time employees and canceled its fire academy, Riper said, which saved several hundreds of thousands of dollars.
Other cities have furloughed employees, but that means lower service levels, and the city already has a low workforce for its service level provision.
The city reduced a lot of programs a year ago, Riper said, and they don't want to do that again because there is "not much left to eliminate."
The finance department sits at a 50 percent confidence level, which Riper called a middle of the road estimate, which means the chances are 50 percent the forecast is too high and 50 percent the forecast is too low.
"In the finance department, we are deliberatively trying not to be over-conservative or overly liberal," he said. "It's a policy decision for the city manager to present to the council. It's not up to the finance department to be conservative or aggressive in forecasting revenues and expenditures."
During the current fiscal year, the city plans no change in spending as the city feels the fire department's relationship with FEMA will offset the COVID 19 response costs.
During the fiscal year 2020-2021, various operating divisions in the city has proposed reductions totaling $3.3 million.
In the current fiscal year, the city expects to spend $11 million more than it takes in, which represents the hit on the city's reserves.
"We're already going to spend $2 million more than we projected we are going to take in as the city manager showed in his pandemic timeline graph," he said. "If you add the $8.7 million in lost revenue, you get the 10.8 million operating deficit this fiscal year.
With a projected $9 million revenue loss in the fiscal year 2020-2021, minus using $3.3 less because the operating departments reduced its spending, the city will use $5.8 million of its reserves.
For the fiscal year 2019-2020, the general fund reserves sit at $8.9 million, or 6.2 percent of expenditures. The city council's policy target is 12 percent. Before the fiscal year 2019-2020, the target was 18 percent.
After the fiscal year 2020-2021, the reserve will be down to $3 million, or 2 percent of expenditures.
During public comments, Ray Blattel asked why the city hired 56 new employees after making so many budget cuts?
He discounted the city's aversion to furloughs because it is already running lean.
"Really," he said. "How so, when the city has hired 56 more people as of mid-year 2019-2020," he said. "Some options not included are to request the unions to relinquish their recent MOU (Memorandum of Understanding) for health benefits. The concessions for public safety will cost the taxpayers of $20 million alone over the next three years, and the cost will continue beyond the third year."
He also proposed eliminating some deputy and assistant positions in the city.
"Some senior staff members have assistants and deputies," he said. "Senior staff is already handsomely compensated and should be able to do without one or the other. Yes, some senior staff has already accepted pay cuts, but there are more layers to peel on that onion."
Jim Lavery appreciates all the work the staff did, but he doesn't understand the schedules and feels the numbers were taken out of context.
"We need to see schedules that have fund balances, revenues, and expenditures, so we can see the different components of what the changes are," he said. "That's what's missing. Another thing is that we need to know what assumptions are in the budget. What are the salary savings?"
Nguyen addressed the new hires in the city and said once they settled on the cuts for the current budget, it didn't mean the city froze in time.
"We still have work to do, and things still occur," he said. "During that budget, although it seemed counter-intuitive, while we were forced to cut positions, we needed to add some positions, and indeed we did add some of those positions," he said. "One example is in the finance department, and it contributed greatly to what was lacking and needed, and in our audit this year, we ended up for the first time since 2015 with no findings of material weakness."
Blattel also suggested getting rid of certain assistants and deputies, and Nguyen said, "in a city this size, it needs an appropriate number of managers.
"That's one of the reasons why this city got in a lot of trouble in the past because it was not properly managed," he said. "You're not going to have an organization without management. To think the managers can do all the work up and down the organization is not sensible."
Nguyen reminded Lavery that the details about the budget are coming, and this meeting just gave a preview.
During committee comments, Vianey Lopez said she appreciates seeing the information so they can understand and process what is ahead.
She wanted to know how much the city will collect from the delayed sales tax?
"The governor's sales tax deferral will defer millions of dollars in sales tax we would have received," Riper said. "If every business that has sales tax-deferred under the governors' order can pay it, then we will get all that money. However, those businesses whose sales tax is deferred, and they don't make it; we won't get that revenue."
Committee Member Bert Perello said the numbers are staggering, but he appreciates the middle of the road budget.
"I'm getting calls from people saying why aren't these cuts made, and they must have been hiding under a rock," he said. "Mr. Riper, you bring a lot to the table as far as putting information out, making it understandable, and I appreciate it."
Committee Chairman Tim Flynn commented that the general fund projected a $2 million loss before the pandemic hit, and there is a revenue loss of $8.7 million in revenue loss in the current year. If you combine those two, that means an $11 million loss.
"How are we dealing with that shortfall just in this current fiscal year," he asked.
"We're dealing with that by eating through our reserves," Riper said.
From there, Flynn brought up the fiscal year 2020-2021 and went through the projected cuts to make up the $9 million revenue loss because of the virus.
"There will be $3.5 million by freezing the increases and freezing most hiring positions, that will be $4.5 million, so that's half of the $9 million shortfall for next year," he said. "How, Mr. Riper, are we making up the other half for the next fiscal year?"
Riper said there is $3.3 million in department revenue reductions, and the unions haven't agreed to their portion of the reduction.
Nguyen interjected that none of the scenarios are good.
"We're doing our best to minimize this, but all of those scenarios still leave us in a big hole," he said. "To get out of this hole, we need to increase our sales tax revenue. I am going to present to you, along with the budget, a sales tax increase initiative."
The next budget meeting update will be in two weeks.