With San Mateo facing significant future revenue losses due to COVID-19 in its future budget projections despite federal funding assistance, the City Council is facing halts on staff raises amid an uncertain financial future.
“It doesn’t feel like we are going to be able to give the normal raises to any of our employees that we are used to giving without dipping into the negative. There’s a lot of money that we still owe out there, and revenues are going to be down for the foreseeable future,” Councilmember Joe Goethals said.
Mayor Eric Rodriguez said the city is currently in a challenging financial position but not as bad as initially predicted due to funding from the American Rescue Plan, a $1.9 trillion federal package signed into law March 11. The city currently has a hiring freeze and is holding off on employee raises negotiations. However, Rodriguez said the city is committed to keeping city services running as normal.
“I don’t foresee having to make any cuts to our service, and I think we are going to make it through,” Rodriguez said.
Despite the reduced projections, the city said this year’s general fund revenue is $9 million higher than expected due to the American Rescue Plan, with the city forecasting a general fund net gain of $1.3 million this year due to the funding. According to a staff report, San Mateo will receive $18.64 million in total relief funds with $9.32 million given this current fiscal year and the remaining $9.32 million the next fiscal year. The American Rescue Plan funds can be used for revenue losses from COVID-19, economic recovery, hazard pay for essential workers or investments in water, sewer and broadband infrastructure.
The federal funding is only a temporary solution to revenue shortfalls, as the city expects a loss of $58 million in revenue from the 2019-20 fiscal year to 2023-24. The city will likely draw down around $30 million in the coming years from its financial reserves, with reserve numbers estimated to be $25 million in the 2026-27 year. The city in the 2018-19 year had $54 million in reserve. Finance Director Rich Lee said the city is still looking at an ongoing structural deficit even with the American Rescue Plan.
“The American Rescue Plan money does not resolve the city’s long-term structural deficit. The American Rescue Plan money is one-time money. The city’s requirements and demands for resources are ongoing,” Lee said.
Councilmember Diane Papan noted some of the American Rescue Plan money could be used to stay closer to budget.
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“I think I’ve got the big picture. I appreciate Councilmember Goethals’ remarks as well as to what it’s looking like for us,” Papan said.
Rodriguez said the budget remained a top priority for the council and told Lee the council would help the city reach its budgetary goals.
“I just want to make sure you are asking us, and we are supporting you as much as possible,” Rodriguez said.
Total revenue for the 2020-21 general fund will be $135.8 million, originally estimated at $126.8 million. Total expenditure for this year is $132.6 million, leaving $3.2 million extra, but debt service and funding for city projects will leave the city with $1.3 million.
San Mateo saw revenue losses for the 2020-21 fiscal year for vehicle license fees, parking fees and transient occupancy tax, or TOT. The city will only receive $7.5 million from vehicle license fees instead of its original revenue estimate of $10 million due to a countywide shortfall of property tax in lieu of vehicle license fees of $96.2 million. The shortfall will hurt the city’s property tax revenue without any state legislative change. San Mateo County will file a claim with the state to address the shortfall in California’s 2022-23 budget. The city is forecasting a drop in hotel tax revenue, with prepandemic transient occupancy tax revenue at $1.2 million and current estimates at $200,000.
San Mateo also released its 2021-22 total revenue expectations, with around $144.2 million in revenue and $149.1 million in expenditures, for a net loss of $4.9 million. The city expects its sales tax base to partially recover with $19.4 million revenue, a 7.2% increase from this year but still below prepandemic levels. Property transfer tax revenues remain steady due to a $1.6 million median sales price for San Mateo homes. The $9.32 million in American Rescue Plan funds will be the majority of the estimated $12.3 million in intergovernmental revenue.
Of the $149.1 million in the 2021-22 expenditures, $67.2 million will be for salaries, wages and benefits, an increase from $63.8 million this year. Pension contribution costs will increase and be $10.3 million.
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