The long road back will clearly affect SLO City budgets

June 17, 2020

By Stephen Barasch and Leslie Halls

According to the chairman of the U.S. Federal Reserve Board, Jerome H. Powell, the domestic labor markets and the overall national economic recovery from the Covid-19 pandemic will be an expensive, long, and slow process that will last most of this decade.

The Fed is projecting a particularly sharp hit in 2020, with federal officials expecting national output to contract by 6.5 percent at the end of this year compared to the final quarter of 2019, before rebounding by about 5 percent in 2021.

Unemployment rocketed to about 15 percent in April 2020 before easing to 13.3 percent in May. In fact, economic activity tanked so sharply in March and April that the National Bureau of Economic Research announced this week that the United State had entered into an “overall recession” after the recovery peaked in Feb. 2020.

Locally, Mindbody, a major technology firm, has laid off over half its total workforce, Cal Poly had to convert to virtual hybrid classes for the spring quarter and beyond, the Diablo Canyon Nuclear Power Plant (the last surviving nuclear plant on the west coast) is scheduled to close within three years, thereby reducing the local tax base even further. Restaurants, bars and theaters that survived the mandatory closure are losing money each month with fewer employees. The layoffs include local dishwashers, landscapers, web designers and numerous technical support personnel, to name a few. In short, the major underpinning of our local economy has been shattered, and no one knows what will emerge, and how long it will last, and the lingering effects of this major economic sea change.

The City of San Luis Obispo has recently responded to this new reality with a 516-page 2019 – 2021 City Budget Document, which summarizes the City’s overall goals and economic health and how the City is planning to attain its goals through its state-mandated balanced budget required of all California cities.

It’s disappointing (unbelievably shocking) that the city’s budget document, the blueprint for our immediate and long term future, has underestimated our new economic reality. It is generally “business as usual” at City Hall, as the total number of full-time city employees has remained predominantly unchanged.

Our priorities in the post-coronavirus era have remained the same as we continue to build more compact housing as fast as possible to be eligible for state housing grants for the production of on-the-ground housing units. The city has also chosen to implement its costly climate action plan to make the city carbon-neutral by 2035, which is a luxury the city may not be able to afford at this time.

In other words, the “new economic reality” of the post-coronavirus era while now being better defined has not been fully felt at city hall. The council made an iron clad commitment to radically change SLO town into its own image. Severe drops in city revenues, changes in lifestyles and work habits, and collapse of the worldwide economy has not altered major city goals while residents struggle to pay their rent and/or their mortgages and attempt to feed their families, thereby limiting local discretionary spending severely!

Regardless of what the city council and staff believe, the new economic and social reality of life after coronavirus demands our immediate attention. The still-employed workforce has predominantly been working from home for the past three months.

Those workers have not been eating out, paying for parking, or attending onsite meetings in person. Many local-grown businesses and national chain stores may not reopen in the near future, or ever.

Even as the economy reopens, there is anecdotal evidence that local residents are hoarding their cash in light of perceived uncertainty about the future. These factors reinforce the fact that there will be far less tax revenue from the retail sales tax, Transient Occupancy Tax (TOT), business licenses and local paid property taxes, etc. The continuation of “business as usual” in our community may well not occur for quite some time.

How is this economic downturn being addressed in the recently adopted two-year city budget? The adopted two year city budget calls for a net reduction of expenses of $8.6 million through the 2019-2021 Fiscal Health Response Plan, which includes “operating reductions/new ways of doing business “ (a projected $.2.8 million savings), “new sources of revenue” (another projected $2.8 million savings), and projected concessions from current employees (another estimated $2.8 million savings).

These projected expenditure reductions are nowhere near the projected losses of multiple sources of city revenues in the foreseeable future.

The time to confront this fiscal crisis is now. Many of the city’s current goals may need to be deferred and/or redefined until actual revenues allow them to be implemented properly.

The City of San Luis Obispo, like so many other similar California cities of approximately 50,000 or fewer full-time residents, is going to have to adjust its expectations for delivering “essential services” to its citizens. Current staff size, pay scales and benefits must reflect diminished revenues now and in the future.

Clearly the city will be forced to take significant and immediate actions to past and current city budget assumptions to respond to many of the yet-to-be-determined post coronavirus era economic realities that the private sector is now having to deal with.

The sooner our city adjusts and reacts to the new economic environment, the more effective the response will clearly be. Similar to the “stay at home” state-mandated orders which resulted in flattening the virus curve (prior to many local citizens contracting the disease), the potential local “economic pain” will certainly result in new and higher taxes and fees at a time least attractive to our city’s current residents and visitors.

Stephen Barasch and Leslie Halls are members of the San Luis Obispo Property and Business Owners Association.