REGION — Some of the financial lessons learned from the Great Recession in 2008 are paying dividends for the cities of Carlsbad and Vista during the COVID-19 pandemic.
Strategy, discipline and a conscious effort by each city council and senior staff to build reserves are keeping each city’s budget afloat as the current health crisis continues with no foreseeable end date. Both municipalities were able to dip into specific reserve accounts to help sustain the financial blow levied by the pandemic.
Vista City Manager Patrick Johnson said the city took heavy hits in 2008-09. In 2011-12, the Vista City Council was able to use surplus funds to start building reserve accounts. By the beginning of this year, Vista had amassed an Emergency Reserve account of 31% of its General Fund ($23.65 million) operating budget and $9.3 million for its Structural Deficit Reserve.
Carlsbad, meanwhile, has the advantage of being a coastal city, so revenues and surpluses are more abundant. Laura Rocha, deputy city manager, said Carlsbad’s reserves are at 40% of General Fund expenditures, which totals $65 million, plus $19 million in the Economic Contingency Fund before COVID hit. The city has spent about $8 million from the ECF since the downturn.
“We see the COVID downturn in the economy is probably going to last two to three years, and this is exactly what this money was intended for,” Johnson said.
As a result, each city has been able to hold off on cutting staff and maintaining balanced budgets. Carlsbad is projecting a $1.2 million surplus for Fiscal Year 2020-21 and its actual surplus for FY 2019-2020 is about $4 million, Rocha said.
She said Carlsbad has long been strategic about its fiscal policies, noting many have been in place for more than 20 years. Others came about after 2008 and the city adding a third, lower-cost tier for its pension obligations was instituted last year.
Additionally, the city has cut back from its 6% of projected General Fund revenues for infrastructure replacement projects to 3%, said Roxanne Muhlmeister, Carlsbad’s finance manager.
“We’ve been able to weather this by delivering core services and retain employees. That was our No. 1 goal,” Rocha said. “Carlsbad’s been doing 10-year forecasts for many, many years. It certainly puts you in a position to do ‘what ifs,’ strategical plan to know what’s coming.”
Another saving grace for both cities has been an ever-watchful eye over their budgets and tax revenue projections. In fact, the city has not had to lay off any employees and the only program cut was the Carlsbad Connector. Vista has not cut staffing either.
Rocha said in January staff began a hard look at its budget, knowing the coronavirus would reach the U.S. sooner rather than later. On pace for record tax revenue, including $28 million in transient occupancy taxes (TOT), she said the staff included a “worst-case” scenario with a shutdown through June.
But one thing Carlsbad didn’t anticipate was additional sales tax revenue from the internet, the result of the 2018 U.S. Supreme Court decision in South Dakota vs. Wayfair.com. The ruling allows local municipalities to collect sales tax from internet sales, even if the business is not located in that state.
“The key to a solid financial base is your policies,” Rocha said. “Policies that cities like Carlsbad set many, many years ago and even tightened up.”
In Vista, Johnson said actions by the council, along with staff’s strategic planning, have helped balance the budget for FY 2020-21. Also, he said their initial forecasting in March and April were much worse, but sales tax estimates turned out to be a loss of $1.8 million rather than $2.5 million.
For the past eight or nine years, he said the focus has been to set aside surplus funds into reserve accounts. As for the SDR account, the city has spent $3.1 million to ensure city services are still intact.
But Vista has a revenue source Carlsbad doesn’t — medicinal marijuana. Originally, the seven dispensaries were projected to add $1.3 million in tax revenue, but the adjusted numbers come out to an additional $1.7 million for a total of $3 million.
But once the pandemic recedes, Johnson said the first call to action is for the council to start replenishing those reserve accounts. He noted in 2008 the reserve account was at just 10% and 25% of the employees were laid off.
The Emergency Reserve is more for natural disasters, while the SDR is for economic downturns, Johnson explained. The goal for the Emergency Reserve, he added, is to reach 35%.
“We raided almost every pot of money … and did what we could to scramble funds together to lessen the impact of the services provided to the public,” he said. “When we close out our year, we have ending fund balance. The councils the last eight years have been very diligent in setting aside funds in a rainy-day fund … so we’re protected.”