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Aerial view of a condo community in Solana Beach. Courtesy photo
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Lack of tourism, taxes impact North County coastal cities

REGION — The COVID-19 pandemic is hitting coastal cities hard – leaving businesses without customers, and many residents furloughed or simply without jobs.

But city coffers are also seeing significant losses.

For Del Mar, Solana Beach and Encinitas, a large portion of their general fund revenues are generated through sales tax and transient occupancy tax (“hotel tax”). With tourism stagnant and restaurants closed to dine-in service, these numbers are seeing substantial declines – both in this fiscal year and the following.

The pandemic’s impact on property tax revenue remains a question mark for now, though some city staff anticipates these numbers may take a hit much further down the road.

Encinitas

At an April 1 city council meeting, City of Encinitas Finance Director Teresa S. McBroome presented potential losses from general fund revenues for the next few fiscal years: $2 million this fiscal year; $4.4 million the following; and a $1.9 million loss as far out as Fiscal Year 2022.

“The feedback that I’m receiving from our tax consultants is that this recession is unlike any of the last three recessions that we’ve experienced,” McBroome said, adding that projections are fluid, due to the arbitrary timeline of the COVID-19 crisis.

According to McBroome, declines in sales tax and hotel tax revenue have been immediate, as well as gas tax revenue. The city isn’t projecting an immediate dive in property tax revenue, assuming families that cannot afford their mortgage payments opt to sell their homes at lower values, “(putting) a drag on assessed values.”

Property tax revenues make up 63% of the city’s total general fund revenues, with sales tax at 18% and the hotel tax at 3%. The city council did not take any actions related to the budget at the meeting.

Del Mar

Del Mar is already taking steps to soften the blow, now having anticipated an estimated loss of $2.9 million just between March and June, from the start of the crisis through the end of the current fiscal year.

City Clerk Ashley Jones called the financial implications of the COVID-19 crisis “far-reaching.”

“This is particularly true for cities like Del Mar, that generate a significant amount of revenue from visitor-serving businesses such as hotels, restaurants…” she said, adding that Del Mar will lose significant sales tax revenue due to the closure of the Del Mar Fairgrounds and the cancellation of their events.

Jones added that after three months of reduced revenues, Del Mar’s general fund reserves would be depleted.

The biggest loss came from the city’s transient occupancy tax revenue, with about $1 million in lost revenue in this fiscal year alone. The hotel tax comprises 5.4% of the city’s revenue. These projected losses assume there will be no hotel taxes collected for the months of April, May and June.

The city also identified losses to sales tax, and tangentially, the Measure Q fund – which draws from a voter-approved 1% sales tax hike in order to fund special projects. The city will see a $250,000 loss in sales tax revenue from June alone, in large part due to the Del Mar Fairground’s closure and the cancellation of the annual San Diego County Fair.

On April 6, the council approved budget adjustments of about $1.13 million in savings for FY2019-2020.

Staff applied the cuts to a large swath of items – identifying $455,000 of savings related to general operations, capital improvement projects and operational expenditures, with another $670,000 of savings related to Measure Q-dependent projects.

Solana Beach

Solana Beach is also projecting significant impacts – foreseeing a total reduction to the general fund budget of $1.35 million, from the end of this fiscal year through FY 2020-2021.

The city is projecting a $116,000 shortfall in sales tax revenue through the end of FY 2020, and a loss of $56,800 in FY 2021, assuming that restaurants will be open and bringing in revenue by the end of said fiscal year.

Transient occupancy tax revenue is seeing a $321,000 loss this fiscal year, or a 22.6% reduction. For the next fiscal year staff anticipating a loss of $415,600. City staff said hotels are seeing a hefty drop in their bookings, and they are expecting a slow recovery to tourist activity.

Revenues related to development needs are dropping, due to city hall being closed, and only offering essential services. In this fiscal year, the city is seeing a $300,900 drop-in revenue related to permitting needs.

Like Encinitas, Solana Beach isn’t anticipating an impact on property taxes for this fiscal year – although it’s plausible that assessed valuations of properties will decrease down the road.

At the city’s April 8 city council meeting, City Manager Greg Wade said city staff are looking to bring potential “belt-tightening” measures to the council in the near future, in order to make up for the expected deficit.

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