City, businesses brace for budget hit

While businesses like The Old Town Junction restaurant in Newhall is finding new ways to operate online, the hit that most restaurants, hotels and retail locations are facing is also expected to create new challenges for city of Santa Clarita officials. PHOTO BY BOBBY BLOCK / THE SIGNAL
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As numerous businesses remain closed as a result of the “Safer at Home” directive for the coronavirus pandemic, SCV officials project the city’s revenue funds will suffer the consequences. 

“Currently, we estimate a loss of revenue reaching in the double digits of percentage drop, and that is without a doubt going to impact our city,” Mayor Cameron Smyth said during a live stream update Wednesday. 

This drop is expected to come primarily from sales tax revenue, where Smyth said Santa Clarita could see a loss of at least 10%, which The Signal projects could be at least $3.7 million, based on the sales tax revenue that was projected at a flat $37 million during the first look into the 2020-21 fiscal year budget back in February. 

In addition, the city expects to see a “significant decrease” in its transient occupancy tax revenue, which comes from taxes charged to transient guests in hotels and services, with another double-digit drop in revenue, meaning at least 10% — which The Signal projects would equate to about $330,000, based on projections. 

Even so, when city officials met in February to discuss the new budget, City Manager Ken Striplin said that Santa Clarita is “very well-positioned” to remain a strong economy should another recession occur in the coming years, as the city continues to follow a conservative budget philosophy: “The decisions made in good times are more important than the decisions made during bad times.”

“Early conservative budget practices, coupled with our healthy 20% operating reserve and AAA credit rating, are prime examples of how our organization is very well-positioned for correction in the economy should that occur,” Striplin added. “The conservative budget process and practices that we employee here in Santa Clarita … has positioned the city to thrive for years to come.” 

While talks of pandemic were almost certainly not on their minds, this 20% emergency operating reserve, which totaled $17.6 million for the current budget, has put Santa Clarita in a position to absorb the impact of this economic downturn, officials agree.

“We’re probably in a lot better shape than other cities in that we never spend more than we take,” Councilwoman Marsha McLean said. 

In addition, Santa Clarita is expected to receive $885,759 from the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, which Smyth said will be used to fill the gaps from the decline of revenue.

Although it may cushion the blow, officials agree that the city expects to see a significant impact to its budget, which is set to be completely redone in a “hold-the-line” form before it is adopted by the end of June, Smyth added. 

With this, the city does not expect to expand programs or projects, though key projects, such as the new sheriff’s station and Canyon Country Community Center, will not be impacted as they have already been funded, nor are a decline in services expected, according to Smyth.

“Certainly if the state or county chooses to extend the current orders, we will see a greater impact, and we know that even as Santa Clarita and other areas continue to slowly open, it’s not going to be an automatic return to normal … and revenues will not climb back to normal right away,” Smyth added. “So, while there will be additional revenue coming in, it will be decreased, but hopefully that will soften the impact.” 

While the city expects to release detailed loss projections with actual dollar figures in May, Smyth believes the numbers are going to continue to fluctuate as restrictions are lifted, which can be challenging when predicting a budget. 

“The challenge is what is accurate today may not be accurate a week from now because there’s still a discrepancy, and (the situation) is so fluid from day to day,” Smyth said. 

That being said, all agree that the longer this lasts, the more devastating it becomes.

“I really believe that what’s happening right now is absolutely tremendous. It is fundamentally shifting the way society and activities work,” said Holly Schroeder, president and CEO of the SCV Economic Development Corp. “We’re already seeing dramatic impacts in unemployment, (and) businesses that aren’t going to make it.” 

Councilman Bill Miranda agrees, adding, “All of a sudden, they’re going to have to be in business with one hand tied behind their back … It’s very tough to try and come back if you’re a small business person in this environment.” 

A survey conducted by the SCVEDC and SCV Chamber of Commerce with 230 participating SCV businesses found that there’s significant lack of disaster relief funding for local businesses. 

Of the 83% that had applied for the Paycheck Protection loan, 33% received notice of approval and only 10% have received funds. Most were businesses under 25 employees, and almost one third were micro businesses under five employees, while 73% were asking for $50,000 or less.

“Needless to say, it’s really taking its toll on the economy and will continue to do that for quite some time,” added Mark Schniepp, the SCVEDC’s economist, who also agreed that many businesses won’t come back.

These businesses shuttering starts a “painful” chain of events, leading to more unemployment, while opening partially won’t allow for much rehiring either, Schniepp said. 

Likewise, businesses considered large gatherings, like Six Flags Magic Mountain, are only going to reopen months from now as laid out by Gov. Gavin Newsom’s four-stages for easing the stay-at-home orders, which then caused ancillary business to suffer, Schniepp added.

“Because of the way in which they’re talking about restarting everything, that is what is going to be such a constraining factor on economic growth, recovery, and it will simply extend the pain and misery of this recession for quite some time,” he added. “The spacing and limitations are going to prevent a lot of restaurants from even trying to open because their costs are gonna be too great … then you lose all of that sales tax (revenue).”

Santa Clarita relies on sales tax to support local businesses, McLean said, adding, “and that is something that we’re going to (continue to) do in the best way that we can … (though) I will be looking for more help from the state and the county for our mom and pop businesses.” 

Councilwoman Laurene Weste agrees, adding, “I know we’re going to work really hard to do everything we can to help everybody get back on their feet … I’m hoping that little by little we can get things open where people can get back to work, which is really first and foremost on everyone’s mind, and figure out ways to be productive within the framework of keeping us safe.” 

Still, she remains proud of the SCV, who she said have done a remarkable job of supporting one another — a step that goes hand in hand with economic recovery. 

“We’re in a war and this enemy is invisible, but I think that the community is doing a great job at handling it well, and we will get through all of this together,” Weste added. 

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