The city of Healdsburg is seeing higher General Fund revenues than anticipated as well as an unexpected increase in transaction tax revenue from building and construction and from an increase in general consumer online purchases, specifically in wine.
Despite the slight increases and related changes to city budgets, services previously cut from the community services department in an effort to save money will not yet return, and the city is not quite out of the woods yet, according to Interim City Manager David Kiff.
On June 29, the city council adopted a biennial budget covering a two-year period ending on June 30, 2022. In passage of that budget the city implemented several budget reduction strategies in response to uncertain economic times brought on by the COVID-19 pandemic.
These included eliminating several vacant positions — including the assistant city manager position — expenditure reductions, cutting part-time staff hours and cutting or reducing several community services offerings.
At the time, council asked if city staff could return to council with updated Transient Occupancy Tax (TOT) numbers and provide a mid-year budget review.
Budget review, some changes afoot
The city’s fiscal year 2019-20 General Fund ended with a fund balance of a little over $8 million, according to the city’s administrative services director, Heather Ippoliti.
“It’s a little over $700,000 more of the year end estimates,” Ippoliti said.
Revenues came in almost $800,000 more than anticipated. For sales tax revenue, the city received 11.6% more than what was estimated to be the final figure.
“The unexpected increase was related to increased online wine purchases, auto purchases, building and construction and the Sonoma County Sales Tax pool allocation,” Ippoliti said.
When taxable purchases, online or in-person, are made in the county the sales tax related to that purchase is allocated to all cities. Ippoliti said that the city is seeing more of this revenue from the pool allocation because there’s been an increase in online purchases and out of state purchase as well.
Additionally, since the city received a revised sales tax revenue estimate last month, staff proposed and implemented a budget amendment that will increase the budget for the current fiscal year as well as next fiscal year.
Other General Fund amendments include a $146,000 increase in grant revenue from the Coronavirus Relief Fund, and a reduction in the $500,000 transfer in Measure V funds to the General Fund. $500,000 will be transferred from Measure V this year, but next year only $100,000 will be transferred instead of the original figure of $500,000.
The TOT tax revenue received was also more than anticipated. The TOT revenue projection for April, May and June assumed very little revenue, 99% less than fiscal year 2018-19.
“Because we were open a little bit during that time period the city actually received 7.7% more than the estimated amount,” Ippoliti said.
TOT revenue for 2018-19 came in at $735,857. The estimated figure for 2019-20 was at $504,777. The unaudited revenue amount for 2019-20 is $543,829.
TOT tax revenue is vital to the city since it provides funding for several different city funds including the community services fund.
With all of these factors in mind, the General Fund will have a reserve of 20.2%. The council reserve policy is set at 30%.
“I’d love to see that (30% reserve), but I think in times like this as proposed, the 20.2% is a good number,” Ippoliti said.
Community services fund
With reduced revenue from TOT tax the community services fund was hit hard and several programs were either cut or reduced to save on costs. The swim center was cut along with Tuesday’s in the Plaza and services such as park maintenance, senior center activities and holiday decorations, were reduced.
Community services ended fiscal year 2019-20 with a remaining fund balance of $566,333, about $83,000 more than what was originally estimated.
According to the agenda item packet, “Just like the General Fund, the TOT revenue projection for April, May and June assumed very little revenue (99% less than fiscal year 2018-19) and the community services fund received over 7% more than the estimate.”
As of June 30, 2020, the fund reserves were $164,826, 3.4% of annual expenditures and 1.8% higher than what was expected.
Budget changes for this fund include a $250,000 loan from the Measure V fund and a $60,000 transfer from the General Fund.
Ippoliti noted that these changes will not return community services to its normal programming since sufficient funds are still not available, and since some of the activities are still not allowed per COVID safety protocols.
Measure V is a half-cent sales tax for the city of Healdsburg that was approved by voters in 2012. The tax funds maintenance of essential city infrastructure, city facilities, public safety and economic development.
To date, the city has received over $14.2 million in Measure V revenue and has funded $14 million in projects and public safety positions with another $1.7 million in progress.
The Measure V estimated ending fund balance as of June 30, 2020, is $54,635.
The measure is currently on the ballot for the Nov. 3 General Election as Measure T, an initiative that if approved by voters, will extend the tax with no sunset date unless repealed by voters.
There are two budget changes, which include two budget increases from funding that are being carried over from the last fiscal year.
Outlook for the city
The council unanimously approved all of the proposed budget amendments and will likely receive another budget update before the end of the year. They also approved the resolution that reestablishes the list of authorized positions, which simply adds the allowance of considering city positions. New city positions cannot be added though unless approved by the city manager and OK’d by Ippoliti in terms of the budget. Positions can also always be recalled.
Kiff said of the city’s overall budget situation, “I would call the city’s position certainly not out of the woods and I think there is good reason to be cautious about what’s next in the coming months, especially as the pandemic continues on. This is not optimistic, but nor is it a pessimistic approach.”