COVID-19 has decimated economies around the country, but officials said cities like Santa Monica, which typically relies on tourism to generate a large part of its revenues, have been forced to bear the brunt of the pandemic and resulting safer-at-home orders.
When governments halted all non-essential travel in early 2020, tourists and consumers were forced to stay away from Westside shopping areas like the Third Street Promenade and Main Street. As a result, city leaders said last week they witnessed a dramatic drop-off in hotel, motel and short-term rental taxes, as well as parking-related revenues and sales taxes.
Finance Department Director Gigi Decavalles-Hughes attributed the “huge declines” in Santa Monica’s hospitality and retail sectors to a lack of international and domestic travel and the COVID-19 pandemic.
In years prior to 2020, the money generated from the Transient Occupancy Taxes, parking-related revenues and sales taxes were responsible for nearly 50% of the city’s annual general fund revenues, but the City is now anticipating a 44% reduction in these revenue streams alone, Decavalles-Hughes said.
“We now know that multiple surges resulted in pulling back reopening (and) ultimately resulted in the shutdown we’re in now… This is felt especially, as I mentioned before, on hotel tax and operating revenues and also in lease revenues. But the good news is that our sales taxes have not been impacted quite as much as we thought,” Decavalles-Hughes added.
“They’ve gone down but not as much as we thought, and this is thanks to strong online shopping and a better collection of sales tax from online sales since the Supreme Court’s Wayfair decision has taken effect.”
The Wayfair decision allows cities to collect sales tax from companies that make online sales in a state, regardless of their physical presence.
She said a lack of stimulus funds, curtailed operations in the City’s youth programs and a decreasing number of inspections have all resulted in less revenues than usual,
She said things will get better but continued uncertainty, including widespread vaccine rollouts, failing businesses and changes in how people live, work and travel, make it very important to keep in mind that the adopted budget could look very different from last week’s Mid-Year Budget Report.
In June 2020, city officials anticipated that Stay at Home Orders would lift by July 1, 2020, and that the economy would have already begun a recovery process by January 2021. Instead, restrictions and closures have persisted and Santa Monica’s finance department has been forced to adapt.
The city’s adopted budget eliminated almost 300 permanent positions and 122 temporary positions last June to handle the crisis.
“These significant actions have allowed the City to maintain essential operations and services in the midst of what we project to be the worst part of the economic crisis through June 30, 2022,” staff said in a report, which also addressed the more recent projections of negative fund balances in the Pier Fund and Beach Fund.
The City will use $20 million in shutdown reserves to cover the two funds’ negative balances as well as the $14.6 million in unrealized revenue the City is projecting this year, Decavalles-Hughes said.
“As I mentioned, we’ll come back with these decisions as part of the biannual process when we have better information,” she said.