City receives good news, revenue shortfalls not as steep

by Steven Felschundneff |

At its October 27 meeting, the Claremont City Council received a rare bit of good financial news when Acting City Manager Adam Pirrie announced that expected city revenue shortfalls due to the COVID-19 pandemic were not as steep as previously anticipated.

Income was still far less than last year, however, the dire predictions that city staff presented back in May did not fully materialize due to certain revenue streams remaining surprisingly strong, while anticipated losses were less severe.

In its May 2020 presentation to the city council, city staff estimated that revenue loss across several categories would be $1,188,000 during the last part of fiscal year 2019-2020. In that same report staff identified revenue streams that were performing better than anticipated, including property taxes, franchise taxes from utility companies, and licensing and permits, for a total of $748,000.

Sales tax receipts came in much higher than anticipated with losses of $95,090 compared with the city’s estimated loss of $358,000, a difference of $262,910. The boon in sales tax is attributed to robust car sales and fewer businesses taking advantage of a sales tax deferral offered by the California Department of Tax and Fee Administration.

Transient occupancy taxes were also stronger than anticipated due to relatively stable occupancy rates at Claremont hotels. City staff had estimated TOT losses of $350,000, however, actual lost revenue was $190,166, a difference of $159,834.

Other areas where the city brings in money including business taxes, rent on city owned property, and fines and forfeitures, was estimated at $180,00—but actual losses were just $59,581.

The only area where losses were greater than expected was in charges for city services, where staff estimated $300,000, while the actual loss was $394,127. This result was not a surprise as the city had to cancel recreational and special events programs including the popular Fourth of July celebration. In particular, taking Camp Claremont online and cancelling all in-person youth classes had a significant impact on this revenue stream.

Of the three revenue streams that were projected to make up some of the losses, franchise taxes were pretty much on target, while property taxes missed its mark by about $72,000. However, fees for licenses and permits brought in $160,720 more than budgeted, for a net gain of $839,984 across all three revenue streams.

At the close of fiscal year 2019-2020, revenues were $27,356,511 and expenditures were $27,043,624, resulting in a net surplus of $312,887. On the recommendation of city staff, the city council voted unanimously to allocate the surplus to the city’s general fund emergency reserve.

“We anticipated a significant impact on our 2019-2020 budget from the COVID-19 pandemic. This surplus is a testament to the value of our businesses, the strength of our community, and the adaptability of our employees,” Mr. Pirrie said.

“Thanks to staff for all their conservative fiscal work here. I always appreciate coming out on the positive rather than the negative side of that,” Councilmember Ed Reece said before making the motion to accept staff recommendation to set the surplus aside for the reserve.

The boost to the reserve brings it to just over 20 percent of the total general fund budget, which is still short of the city’s goal to maintain a 25 percent reserve.

On June 9, the city council approved a balanced budget for fiscal year 2020-21, which included $49,397,808 in revenues and $48,913,613 in expenditures.

“Staff has worked meticulously to balance the 2020-21 budget through reductions to services and supplies, shifting salary and benefit costs from the General Fund, eliminating several vacant full-time and part-time positions, eliminating financial support of our community partners, and deferring the additional annual payment toward our PERS unfunded liability,” city staff wrote in June.

City officials began the budget process facing a structural deficit of $0.8 million in 2020-21, growing to $2.8 million in 2023-24. The officials, including then City Manager Tara Schultz and the city council, had hoped to raise additional money through Measure CR which would have raised sales taxes in Claremont. However, voters rejected the proposition during the primary election back in March.

During the October 27 city council meeting, Mr. Pirrie gave a presentation on the first quarter of 2020-2021 which seemed to bolster the likelihood that revenue loss would not be as great as projected during budgeting in June.

In his presentation, Mr. Pirrie said a decrease of about $1.1 million in revenue was budgeted for the fiscal year 2020-2021, including a $648,000 drop in sales tax receipts, a $150,000 loss in transit occupancy tax, $200,000 fewer charges for services and $100,000 in lower business tax.

As of September 30, sales tax receipts for 2020-2021 were only $5,725 less than during the same quarter last year. Auto sales remained strong, offsetting losses in the restaurant and retail sectors. Additionally, sales tax for online purchases was up significantly. Even though the city only receives .3 percent of the revenue collected by Los Angeles County, this still accounted for about $300,000 of the total $4 million sales tax revenue.

Because of the continued closure of almost all group activities, money coming in for charges for services may well be lower than budgeted. In addition, TOT tax losses could be greater than anticipated, although some hotels continue to show stable occupancy. 

Perhaps the best news in Mr. Pirrie’s report was the announcement that the city has received $442,000 in CARES Act funding, $221,000 of which was received after the end of the first quarter.

“I want to caution the community and the council. It’s very difficult to draw meaningful conclusions from the information that we have, based on year to date general revenue data,” Mr. Pirrie told the council. “The news that we have received about the 2019-2020 fiscal year and even to an extent the information that we have for the first quarter of 2020-2021, make me optimistic that the projections of revenue losses that we made and incorporated into the 20-21 budget are estimates that I think we can beat.”

Even though the city may be fortunate that revenue is coming in slightly higher than expected, Councilmember Corey Calaycay cautioned that the city also has to take into consideration the need to continue to build up its reserves.

“It’s certainly not a time to declare victory and think we are going to bring back a lot of programming, too. I just want to make sure that people are walking away with realistic expectations from what we are talking about tonight,” Mr. Calaycay said.

On that account Mr. Pirrie agrees.

“These kinds of economic circumstances highlight the importance of having reserves available. Going back to the Great Recession and during COVID-19, we have been fortunate that we have been able to respond fairly quickly and make budgetary adjustments that have allowed us not to dip into reserves,” Mr. Pirrie said.

He did comment that in the context of a big natural disaster such as a massive earthquake, the $5.3 million in the reserve would be emptied fairly quickly, and thus that it’s important to keep finding ways to add to the reserves even during difficult economic times.


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