The Fiscal Impact of the COVID-19 Pandemic on Colma
Pak Lin, Administrative Services Director & Brian Dossey, City Manager
The COVID-19 pandemic has gripped the Bay Area since March 2020. As residents and businesses are struggling to survive, we should also understand how the pandemic financially impacts the Town and its future operations.
The Negative Impact of COVID-19 on Revenues
On March 17, 2020, San Mateo County issued a “Shelter-in-place” (SIP) order to slow the spread of COVID-19. The SIP order immediately forced many businesses to close leading to an immediate reduction in sales and cardroom tax revenues. From March through June 2020, the Town received $1.83 million less in sales and cardroom tax revenues than expected. With the ongoing pandemic, the Town is expecting to receive $4.0 million less in general fund revenues in the coming fiscal year than the FY 2019‑20 pre-COVID revenue budget.
With the availability of two COVID vaccines in the market, the Town is hopeful that cardroom tax revenue will rebound to pre-COVID levels by June or July of 2022. As for sales tax, it is unclear how much of a rebound the Town will experience. Sales tax revenues are made of two components – tax from in store transactions (transaction tax) and online/out-of-state purchases (use tax). The transaction tax is distributed back to the Town. The use tax is distributed proportionately to each agency based on the actual taxable transactions compared to the county’s total. This means, as consumers visit Colma less, the Town will get a smaller proportion of the use tax.
The SIP order also impacted the Town’s property tax. Property tax revenues have a two-to-three-year delayed reaction to market conditions. During the COVID-19 pandemic, less residential homes were shown and exchanged in 2020 and 2021. The result of that will mean less property tax revenues in FY 2022-23. Additionally, many commercial businesses are planning to have employees work from home post-COVID, which will also impact the property tax revenues beginning FY 2022-23 and thereafter.
The Town’s Response Through Expenditures Reduction
In response to the pandemic, the Town began shifting operational priorities and postponing spending. Collectively, the departments cut $1.23 million in expenditures through deferring maintenance, reducing
Part-Time staff hours, halting recruitment for two vacant positions, and reallocating unused capital project funds to higher priority projects.
While cutting cost, the Town kept its commitment to the community through partnering with Second Harvest to deliver food to residents. The Recreation and Police departments found creative ways to connect with the community through birthday parades, virtual activities and online engagements.
As we are entering the second half of FY 2020-21, the Town is preparing for continued increased pension and medical costs and reduction in tax revenues. At this point, the Town expects a minimum of $500,000 increase in unfunded liabilities to be added to the Town’s Financial Statements in FY 2022-23. As part of the FY 2021-22 budget, the Town will begin updating the 2018 Unfunded Liabilities Strategy.
Council’s Action to Preserve Reserves
Under the City Council’s strong fiscal leadership, the Town has close to $23.8 million in General Fund reserves as of June 30, 2019. The $23.8 million in General Fund reserves is comprised of the following:
Committed GF Reserves
Budget Stabilization – $12.00 million
Accrued Leave Reserve – $0.72 million
Debt Service – $0.60 million
Assigned GF Reserves
Litigation Reserve – $0.10 million
Insurance Reserve – $0.10 million
Disaster Reserve – $0.75 million
|Unassigned GF Reserve – $9.57 million|
In May 2020, the City Council cautiously approved the use of the unassigned General Fund reserves to offset the operating deficit in FY 2019-20 and FY 2020-21. It is essential for the Town to maintain a healthy reserve. Having a healthy reserve will allow the Town to prepare for future challenges.