A report released last week from the Southern California Association of Governments anticipates that the region will face “severe and long-lasting” economic impacts from COVID-19.
The SCAG report estimates that Los Angeles County’s unemployment rate has risen to nearly 20% and more than 760,000 people will lose their jobs in 2020. In 2021, unemployment is expected to fall to 12% — almost three times the county’s 2019 unemployment rate of 4.4%.
According to the report, 17% of Santa Monica residents and 25% of the city’s workforce are employed in sectors deeply impacted by the pandemic. One in 10 residents live below the poverty level, and 44% spend more than half their income on housing.
The report projects Southern California restaurants will take the hardest hit in 2020 and 2021 with a 53% to 65% drop in total taxable sales.
Significant impacts will also be felt by clothing stores (down a projected 43% to 57%), car dealers and parts stores (down 38% to 48%) and home furnishing and appliance stores (down 34% to 43%).
Supply chain interruptions are another cause for concern in Southern California, where one-third of all jobs and economic activity are tied – directly or indirectly – to imports and exports.
The report notes that although there has been a surge in consumption of essential items since the pandemic began, demand for other goods has plummeted and the Ports of Los Angeles and Long Beach have recorded a decline in imports and exports.
Industries that are expected to suffer less catastrophic impacts include telework-friendly business and professional services and some retailers. Grocery stores are expected to see a 26% to 33% boost in total taxable sales.
Housing sales and construction have slowed, and the supply of housing remains well below demand, according to the report. Buyers and sellers are stalling rather than canceling transactions.
The recession will slash revenues for local governments in Southern California, especially cities such as Santa Monica that are especially reliant on revenue from sales and hotel taxes. Santa Monica officials have already initiated sweeping cuts to city services and laid off or bought out hundreds of workers to bridge a $224 million budget gap through June 2022.
According to the report, there is little to suggest a quick return to normal tax revenues for local governments. In the most likely economic scenario over the next two years, $220 billion — 32% of Southern California’s taxable sales — would evaporate.
The city of Santa Monica’s projections show a 14% decrease in sales tax revenue next fiscal year and a similar decrease in the current fiscal year. Hotel taxes are down 21% this fiscal year and are projected to drop 42% next fiscal year.
The report predicts that Southern California’s economy will reach a low point June 1 and recover slowly over the next year and a half. SCAG officials said the pace of recovery will be dependent on when and how businesses are allowed to reopen and how quickly a vaccine becomes widely available.
In Los Angeles County, officials will track five indicators to determine when and how businesses reopen. The county has allowed restaurants and retailers to offer pickup and delivery. Officials have also permitted manufacturing and logistics companies that supply those businesses to resume operations.
The indicators include the number of ICU beds, ventilators and personal protective equipment in county hospitals, the number of referred coronavirus cases that receive follow-ups within one day of reporting and the ability to test 15,000 people per day.
madeleine@smdp.com
