Whistling In The Dark

Apparently Mendocino County’s crack financial overseers are not very concerned about the County’s increasingly strained fiscal situation stemming from the shutdown of major segments of the local economy for going on two months and counting. And counting. 

According to the third quarter budget update in next Tuesday’s Supervisors agenda packet, County Auditor Lloyd Weer forecasts about a $3.5 million shortfall in property, sales and transient occupancy taxes for this fiscal year ending on June 30, 2020. He is also forecasting a $1 million increase in cannabis taxes over the budgeted amount, if you can believe that. 

Auditor Weer: “The coronavirus impact will first be seen in next quarter’s data [“next” being January to March, 2020, after the last full reporting quarter of October through December of 2019] reflecting January through March sales. Based on recovery rates being reported in some Asian countries [?!], the virus’s disruption of supply chains will be deepest in the first and second quarter [i.e., January to June of 2020 presumably] and largely resolved by mid-summer [?!]. However, recovery from social distancing and home confinements could take longer with the deepest tax declines expected in the restaurant/hospitality, travel/transportation and brick-and-mortar retail segments. Layoffs and furloughs are also expected to reduce purchases of new cars and other high cost durable goods. Losses from the state’s high-tech innovation industries may be more modest while the food-drug and online retail groups could exhibit increases. Assuming that the virus is largest contained by the end of September [?!], HdL’s [a consultant] economic scenario projects that tax declines will bottom out in the first quarter of 2021 but with only moderate gains for several quarters after. Data from previous downturns suggests that the return to previous spending is not immediate and often evolves [sic]. Businesses emerge with ways to operate with fewer employees and more moderate capital investment. Consumers take time to fully get back to previous levels of leisure travel, dining and spending and may permanently transfer to newly discovered services, activities and/or online retail options.”

Even if Mr. Weer’s unlikely and relatively rosy picture were to happen, wouldn’t it be prudent to assume that the economic impact of the virus and its ripple effects would be worse than this?

Weer continues: ”Despite this strong growth trend [at the end of 2019] the onset of COVID-19 has impacted and will continue to negatively impact sales tax and room occupancy tax. The recovery from social distancing and home confinement is expected to continue through 1st quarter FY 2020-21 [July 2020 to September 2020]. As the Country emerges from this recession [?) it is expected there will be a delay in rebuilding consumer confidence. This delay will result in a continued downward trend through FY 2020-21 [until June of 2021]. In FY 2021-22 it is expected spending will begin to increase and build back to pre-COVID levels by 2024-25 as businesses find new ways to operate with fewer employees and more moderate capital investments.”

“Estimates assume a recessionary impact from the Coronavirus pandemic. HdL’s Consensus Forecasts [an economic consulting outfit] modeled sales tax impacts based on our analysis of previous recessions plus a review of industry, economist and news reports. Current forecast assumes shelter in place (SIP) continues through May 31 [some version of it will definitely continue well after that]; Forecast will be reevaluated as more is known about the progression of COVID‐19 related events. Business‐level sales tax data from the State reflecting the first weeks of this crisis arrives at the end of May; data reflecting the April‐June impacts will be available in August. …

”FY 2019‐2020: Reflects extensive # of retailers’ temporary closures through May 31 including restaurants, retail centers, auto related businesses plus SIP order which decreases point of sale activity; business investment is deferred or eliminated; unemployment spikes in 1q20 [July-September 2020]; continues into 2q20 [i.e., to December].

FY 2020‐21: COVID‐19 negative impacts extend into end of calendar year; recovery is underway in latter part of fiscal year [April-June 2021]; pace of improved revenues subject to businesses reopening, reemployment. Recoveries by industry group will vary greatly.”

Weer concludes, rather narrowly speaking: “This third quarter projection is reflecting a deficit of ($1,774,495)” — which is much lower than our review of his numbers. 

Nevertheless, CEO Angelo suggests some minor changes:

Accept the Fiscal Year 2019-20 Third Quarter Budget Report as presented; Hold 2000 expenditure series spending for supplies and service; Freeze all new non-COVID related contracts 

Implement a 5% reduction on all existing contracts; Freeze hiring at current level FTE; Take action, per Board of Supervisors direction, to collect service fees for Animal Care Services; Accept [minor departmental] adjustments as described in Attachment A and B; Adopt Resolution Amending the FY 2019-20 Adopted Budget by Adjusting Revenues and Appropriations. 

CEO Angelo concludes:

“The recession has begun with major impacts in FY 2019-20 and 2020-21. FY 2021-22 the economy is expected to begin a slight incline but will take until 2024-25 to pass FY 2018-19 tax levels. Businesses will emerge with new ways to operate with fewer employees and more moderate capital investment. It will take consumers time to fully get back to previous levels of leisure travel, dining and spending. Estimate 5 years to get back to pre-COVID tax levels.”

In other words, a few bumps in the road, a downturn, a recovery… Nothing much to worry about!

3 Responses to "Whistling In The Dark"

  1. George Dorner   May 6, 2020 at 10:26 am

    Cue up the music: “Don’t worry, be happy….” ya da ya da.

    Reply
  2. Citizen Observer   May 7, 2020 at 1:10 am

    Hiring freeze is pointless if employees are allowed to work overtime. Overtime work by hourly employees should be strictly prohibited. If critical work is not getting done, more employees are needed. Exempt (from having to be paid overtime) salaried employees may of course continue to work overtime if necessary. The most highly compensated 10% of county employees should be given a 15% pay cut.

    Reply
  3. izzy   May 8, 2020 at 12:10 pm

    With the pace of current events and concatenating disasters, 5 years is a very long time.

    Reply

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