Is the Economy Diving into a Recession? Glendale City Staff Doesn’t Think So
By Frank Gallo
In the past three months the Country has lost jobs at a tremendously fast pace. Almost 20% of the population had filled unemployment claims by the end of May, a number unheard since the depression. Now that the economy starts reopening, many people are finding that their jobs are no longer there. Sales are down and retailers are struggling to remain in business, the hospitality industry is in shambles and the entertainment industry might not get back into the black until next year. Almost every industry suffered as a consequence of the pandemic, even the health care industry. Why would the City’s sources of revenue not suffer? Why would the City’s funding and resulting budget be untouched?
Three of City’s main sources of revenue will be highly impacted in the next 12-30 months; sales tax, transit occupancy tax (TOT), and fees. These three sources of revenue together with property taxes comprise the main stream of revenue for the General Fund (the fund that pays for City’s essential services from public safety to libraries and public works).
Sales tax revenue comes from all retailers, but the biggest producers of sales tax revenue are the Brand car dealer and some major retailers such as Target, Macys. JC Penny, Sears, Home Depot and others. Car sales might not recover immediately due to persistent unemployment. Retailers that had been struggling to compete with online sellers before the pandemic are now in a worse position to compete. The three-month closure has pushed some of them to re-structure and file for bankruptcy. City staff seem to be aware of the retailer’s problems, but has not accounted for the lost revenue in the budget.
The Transit Occupancy Tax (TOT) has become an important source of City revenue in the past five years as more hotels were built in town. Unfortunately, hotels and restaurant are some of the businesses that have suffered the most. Some hotels have reported a 97% loss of revenue during the quarantine and they don’t seem to see relief in sight. Business travel is down and pleasure travel might not get re-started until the fall, a slow time for hotels. Cities like Santa Monica are projecting a TOT reduction of 40% for the next fiscal year. Glendale has not projected any reductions in the TOT.
The City has about 2400 fees that include construction permits, filming fees, parks, community room rentals and many others. With many individuals losing their jobs, a slowdown in the construction industry is expected and consequently construction permits are likely to slow-down. Separately, filming activity, medium gatherings and large entertainment activities are likely to stay down for the foreseeable future. The City has projected that the slowdown in those activities would result only in a minor reduction in fees revenue.
In spite of the likely reduction in City’s revenue, Glendale staff decided to present to City Council a budget that mirrors last year’s budget. After repeated request by some Council members to review the budget the City Manager replied: “The City’s budget is a working document that would be reviewed every month.” It seems the City Manager thinks that it is all good, the budget is only a bold estimate and any cuts can be done later. On June 2nd 2020, the City Council approved the 2020-2021 budget by a narrow majority with Council members Devine and Brotman voting against it. Both of these Council members opposed the budget hoping to see a different one presented to them in the near future. It is worth mentioning that Council member Devine considers the $17 million transfer of Electric revenue to the General Fund (GFT) a fee that has been illegally built into the cost of providing Electric service, and it is actually used for paying other City costs. The illegal transfer has been contested by the Glendale Coalition for Better Government and it is still in the Courts.