City Braces for ‘Economic Implosion’ Amid Expected $15.2M Budget Shortfall

Published On May 22, 2020 | By Rob Arias | Coronavirus, Local Government, News & Commentary

The Budget Advisory Committee and City Council were both recently presented with the bleak economic realities the city is facing. Emeryville, like many cities, has seen a sharp decline in revenues caused by the pandemic-induced economic shutdown. Revenues used to support city services like police, fire, public works, recreational programs and capital improvement projects.

City Manager Christine Daniel led off the meeting with her own dire assessment. “The pandemic has created an economic shock and unfortunately The City of Emeryville’s primary revenue sources are most vulnerable to the type of economic shock we are experiencing,” Daniel explained. Daniel pointed out our city’s reliance on more volatile revenue streams like Sales Tax, Hotel Occupancy Tax, Business License Tax and a Card Room tax that have all plummeted.

City Finance Director Susan Hsieh reviewed the outlook in the above presentation deck that showed a nearly $7M expected shortfall for this budget cycle and a projected $8M for FY 20-21. These shortfalls represent 15% and 19% respectively of the city’s total budget and comparable to the annual budget of our entire Police Department.

“The COVID-19 pandemic created an economic implosion and caused volatility in the stock market,” Hsieh explained “The U.S. unemployment rate jumped to 14.7% in April from 4.4% in March.”

“The pandemic has created an economic shock and unfortunately The City of Emeryville’s primary revenue sources are most vulnerable to the type of economic shock we are experiencing,”

The good news is Emeryville has a significant set-aside intended for times like these mostly from a property transfer tax. Emeryville received an over $2 million sum from the recent sale of the Courtyards at 65th complex.

In addition to the revenue losses, the city will still be on the hook to offset significant losses to employee pensions caused by the stock market drop. The pandemic-induced collapse vaporized an estimated 1 trillion in value for an investment loss of about 21% in the U.S. “This meltdown has exposed the fragility of public pension systems in the United States,” The Washington Post recently published.

budget presentation to Emeryville city council

Staff Recommends Budget Balancing Strategies, Hiring Freeze

This staff report recommended several short-term, “bridging strategies” to help cover these shortfalls including tapping into one-time transfer tax revenues and drawing down funds from the pension reserve. No mention of staff layoffs were discussed at this time but a hiring freeze for six vacant staff positions were among the suggested remedies.

These strategies are short-term and intended to provide time for the Council and City Committees to assess the timing and strength of an economic recovery. “This puts us on the clock,” commented Councilmember John Bauters who pondered a ‘U’, ‘V’ or ‘W’ shaped recovery.

Alameda County Supervisor suggests Smaller Cities may need to “merge” with neighbors

Small cities like Emeryville are not currently eligible for federal aid and would rely on money filtered down through the county.

The downturn is expected to be such a bloodbath for local economies that Alameda County supervisor Scott Haggerty suggested at an April 9 ABAG meeting that smaller cities under 75K consider merging with a neighboring city to consolidate resources. “If these cities are not going to survive and go bankrupt, maybe we need to look at other ways.”

“If these cities are not going to survive and go bankrupt, maybe we need to look at other ways.”

Other cities in the area including neighboring Oakland and Berkeley are exploring furloughs, hiring freezes, service reductions, deferring capital improvement projects, cutting programs and layoffs. Property taxes are considered to be a more stable source of revenue for cities and less prone to economic volatility like what we’re currently experiencing.

The Budget Committee will be holding a special meeting to further evaluate the options and make recommendations. Council will be required to take action at the June 2nd meeting and likely make quarterly budget adjustments as things unfold.

Read the entire staff report on Emeryville.org


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State also Bracing for Deep Cuts

CA Gov. Gavin Newsom unveiled his revised state budget proposal last week with deep cuts in education and health care funding. The $203.3 billion budget is nearly $20 billion less than Newsom’s initial budget proposal in January and includes about $6 billion in eliminated plans to expand programs like Medi-Cal, prompted by a roughly 25 percent drop in sales, personal income and corporate tax revenue.

According to Newsom, the state is saddled with a projected $54.3 billion budget deficit that it must balance over the next year while confronting an ever-mounting loss of tax revenue and an unemployment rate that state officials expect to peak at more than 24.5 percent.

Newsom said the state plans to use about $4.4 billion in discretionary funding from the federal Coronavirus Aid, Relief and Economic Security (CARES) Act to maintain education spending at current levels with adjustments for factors like inflation.

Newsom’s proposal calls for the state to pull from multiple funding reserves and surpluses to partially pay down the deficit, including using the entirety of the state’s $16.2 billion funding reserve over the next three years, using $7.8 billion during the 2020-2021 fiscal year, $5.4 billion the following year and the remaining $2.9 billion the year after that.

Federal Relief for State & Local Governments in the works?

At the federal level, congress has identified the dire need of relief for localities and is assembling legislative packages to address this. The Democratic-backed HEROES Act would provide funding for a wide range of groups, a new round of stimulus checks as well as funding for state and local governments.

The Democratic controlled House of Representatives narrowly passed the act on May 15 by a 208 to 199 vote. The legislation is unlikely to pass in the Republican-controlled Senate, however, and the White House issued a statement opposing the legislation.

Newson expressed his support for the act in a formal statement noting “The COVID-19 global pandemic has caused a national recession, and cities and states across the country cannot weather this storm alone. Even states like California that boasted record reserves after years of prudent spending decisions are facing deep revenue shortfalls that put core government services at risk.”

About The Author

is a third generation Californian and East Bay native who moved to Emeryville in 2003. A new parent in the community, he can often be seen walking his French Bulldog rescue "Fiona" around his Park Avenue District neighborhood, traversing the greenway on his bike or enjoying his favorite Emeryville small businesses. Rob's "day job" is as a creative professional.

9 Responses to City Braces for ‘Economic Implosion’ Amid Expected $15.2M Budget Shortfall

  1. California already has the highest debt to income ratio in the country says:

    The State of California alone has promised retirees over $500 billion of pension and health care benefits, however, prior to COVID-19 only $200 billion was in the bank. In other words – a $300 billion shortfall already existed – which is $21,500 per state taxpayer. Added on top of this are county and city promises. Alameda County has a shortfall of $3 billion. The city of Oakland also has a shortfall of $3 billion – $18,600 per city taxpayer. (Another example, the city of San Francisco has a $9 billion shortfall which equals $17,000 per city taxpayer.)

    The Bay Area Council Economic Institute pegs the cost of California’s unfunded infrastructure (roads, bridges, water and wastewater treatment plants, dams) is at least $765 billion. However, California already spends over $200 billion per year paying off bonds for economic disasters like a bullet train to nowhere. We pay for these things through high gas taxes, high cable and internet bills, etc.. Look at your electric bill – the cost of “East Bay Community Energy Electric GENERATION Charges” per kWh has increased by 22% in only 16 months!

    Last November Emeryville voted to increase sales taxes to pay for more employees. Now there is a hiring freeze so the tax increase should be held off. I will continue to eat and buy taxable goods in less expensive neighboring cities to avoid paying the higher tax.

    California is moving further left and wants the nation to pay for it. Attorney General Xavier Becarra is focused on dreaming up lawsuits against the Trump Administration for political gain instead of policy gain. Current members of the Emeryville city council continue to propose cockamamie ideas supporting their socialist agenda. LOL – economist John Bauters pondering a
    ‘U’, ‘V’ or ‘W’ shaped recovery. “This puts us on the clock,” he said. Sorry John – you were already on the clock and no amount of winding can prolong it.

  2. Anonymous says:

    How many council members’ pet projects could be cut?

  3. Anonymous says:

    This is when having a couple of small business owners on the City Council would be a major plus. There’s nobody who knows how to cut fat like a small business owner.

    (Too bad we ran them all out of town. Oops)

  4. Anonymous says:

    Patz finally got his economic downturn he so much wanted. Take a look at the salaries the city pays its employees. When a city employee retires with a salary and benefits north of $400k, something is wrong.

    DIRECTOR PUBLIC WORKS (2017)
    Regular pay: $143,520.00
    Overtime pay: $0.00
    Other pay: $267,373.00
    Total pay: $410,893.00
    Benefits: $35,148.49
    Total pay & benefits: $446,041.49

    • Anonymous says:

      Stand against the Pixar fence across from the glass cube at various times on a weekday (when the cowards return to work.) The only person moving will be the guy in the bottom left corner. Their pay and benefits must be cut – especially manipulation of the pension system by working oodles of OT the last 3 years before retirement. No Federal bailout for cities or states since they have squandered all previous bailouts.

      City Council should have been meeting for the past month with restaurant owners and small business management to formulate a plan that would facilitate the quickest possible recovery for Emeryville’s tax producers.

      There are three kinds of people: those who make things happen, those who watch things happen, and those who wonder what happened. We elected the third.

    • Steve says:

      Its amazing that someone who worked as a public servant (already far less stressful than an equivalent private sector job and gets overtime) can be earning more in retirement than any senior executive or CEO of local businesses.

  5. Ryan Thurman says:

    Independently owned businesses are now trashed due to rioting. I wouldn’t be surprised if many companies straight up pull out of Emeryville and Oakland. Can’t really blame them honestly.

    Emeryville is going to be a wasteland this time next year.

    End the shutdown! Arrest bad cops & criminals!

    Lets get this show on the road and get back to civil life.

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