City planning to meet financial crisis

Struck by an unprecedented event, Garden Grove – like many cities – will struggle to maintain strong city finances amidst uncertainty about the course and length of the coronavirus pandemic.

At Tuesday’s meeting of the City Council, a potentially grim picture of the municipal budget was presented.

According to Finance Director Patricia Song, the state of the city’s bankbook will depend on how long and where the pandemic, and its economic impact, continue.

“Uncertainty requires both caution and action,” she told the council.

Nearly half of the city’s operating revenue come from two sources: the sales tax and the transient occupancy tax (also known as the “bed tax” paid by guests at motels and hotels).

Her report cited a prediction from UCLA economists that the recovery period would last 18 months, to the end of the 2021 calendar year.

City staff predicts a budget surplus for fiscal year 2019-20 of $3.2 million, but significant red ink for 2020-21, which begins in July. A city projection reached in April predicted a $5.2 million deficit for that period, but the situation could be more serious.

Two potential scenarios were laid out.

• If sales tax revenue is 80 percent of 2018-19’s actual results, and “bed tax” is at 70 percent of this year, the city budget “bottom line” could go as deep as $9,951,000 in the red.
• If sales tax revenue is about 75 percent and the bed tax at 60 percent, the balance could be as red as $14,512,000.

In California, cities are not allowed to engage in deficit spending, so cuts in city services and staffing may be considered, and/or drawing down on reserves, depending also on how much financial assistance may come to communities from the federal government.

“This crisis is not a typical financial crisis,” said Song, adding that “no expert can predict” how long or deep it will turn out to be.

Also on Tuesday night, the council approved on a 5-2 vote the 12-month deferment of rent on the lease of city-owned land on Euclid Street now occupied by the SteelCraft food hall, along with a five-year repayment schedule.

Councilmembers voting against the measure were Phat Bui and George Brietigam, each of which wanted to postpone a decision until the next council meeting on May 26 to get more information.

Additionally, the council approved on a 6-0 vote – with Brietigam abstaining – a community workforce agreement with regional and local labor unions to promote the use of workers from Garden Grove and surrounding cities.