‘Fantastic news’ that ‘buys us time’: City, Santa Cruz County leaders react to Biden’s $1.9 trillion stimulus

Santa Cruz County government and the county’s four municipalities are expecting about $90 million in federal aid by way of the new federal coronavirus relief package — a windfall that is sure to help with a wide variety of pandemic-related costs.

But even with the stimulus — called the American Rescue Plan — providing a financial lift, county officials still expect to grapple with budget shortfalls in the long run, which could mean the need to explore tax or fee increases in the future. In the short term, however, the money could help reduce mandatory furloughs for county employees.

Meanwhile, the four cities, Santa Cruz, Watsonville, Scotts Valley and Capitola, are all experiencing various states of budget distress, so whether the money will be a panacea remains to be seen.

The new $1.9 trillion relief package from the Biden administration — signed into law by the president Thursday — allocates $350 billion for state and local governments across the country.

California is poised to receive a total of $42 billion for state government, counties, cities and schools. Of that, local governments and school districts are expected to divvy up $16 billion.

While county officials have pegged their share at a little less than $53 million, the county’s four cities are expected to receive the following, according to Congressman Jimmy Panetta’s office:

• Santa Cruz: $14.98 million
• Watsonville: $18.81 million
• Scotts Valley: $2.21 million
• Capitola: $1.88 million
  

How much school districts in Santa Cruz County will receive wasn’t immediately clear Thursday.
County officials had been eyeballing the stimulus as part of a mid-year financial analysis presented to the Board of Supervisors on Tuesday.

Both the county and its cities will receive the American Rescue Plan money over the course of two years, rather than all at once. Half the money is expected to be disbursed within two months and the rest a year after the first payment.

What county government is expecting

“We would have preferred to have all the money upfront,” said Christina Mowrey, the county’s budget manager.

Still, the stimulus will help the county offset some of the tens of millions of dollars the county has incurred in pandemic-related costs.

The stimulus — which is specifically for revenue losses and virus-related expenses — is expected to help the county reduce furloughs for county employees to half their current levels in the next fiscal year, which runs July 1, 2021, through June 30, 2022.

President Joe Biden signs the $1.9 trillion stimulus bill Wednesday.

(Whitehosue.gov via YouTube)

More than 2,300 employees are now being furloughed — taking unpaid days off — for between 5% and 10% of their work schedules, saving the county’s general fund an estimated $12 million. The cost to reinstate half the furloughs is $6 million, which the stimulus money will help cover because it likely will free up funds elsewhere.

Depending on what happens with reimbursements from the Federal Emergency Management Agency, the county might even be able to eliminate the furloughs altogether a year sooner than originally planned, Mowrey said. But so far the county has not received any FEMA money yet.

Additional revenue still needed at county level

Despite the federal aid, the county is still faced with a widening budget gap in the coming years.

The county’s general fund — which draws on property, sales and hotel taxes, among other state and federal sources — currently makes up $622 million of the roughly $1 billion budget for a wide range of county-provided services, from public safety to health care to parks and recreation.

County officials are projecting budget deficits of between $13 million and $15 million starting in fiscal year 2022-23. The shortfall is the result of expenses — driven by rising health care and pension costs — outpacing revenues. One-time funding exacerbates the problem.

“The reason it’s so high is because we’re relying on a lot of one-time money to balance the budget for next year and those following years,” Mowrey said. “So we have to replace that and that’s what then creates the gap.”

That leaves the county with two options: cut costs or explore additional revenue streams. County officials Tuesday presented some ways to increase revenue, though all of them would require voter approval.

Among the options presented were raising the county’s emergency response fee, its hotel tax or its sales tax.

The emergency response fee, currently at $1.47 per land line per month, has gradually fallen behind in covering the county’s share paid to the 911 center because fewer households have landlines. The idea would be to lower the rate and expand it to cellphones and voice over internet, county Administrative Officer Carlos Palacios said. Upgrading the tax to include digital lines and reducing the fee to $1.25 per line would increase revenue by $1.5 million.

The county’s hotel tax currently sits at 11%. The city of Monterey last year increased its hotel tax from 10% to 12%, Palacios said. A 1% increase for Santa Cruz County would generate an additional $1 million in revenue.

A hike in sales taxes also could be on the table. A quarter cent increase in the unincorporated area would raise about $4.5 million annually.

Watsonville, Santa Cruz leaders react to ‘fantastic news’

With Watsonville among the communities hit hardest by the pandemic regionally, city leaders welcomed news of the coming federal aid.

“We are so excited for the opportunities the 18.81 million dollars from the relief package will do for our community,” Mayor Jimmy Dutra said in an email. “Watsonville was disproportionately affected by COVID-19.

“This money will allow us to focus on projects that have been sidelined for years that could have helped us deal with this pandemic easier. Though we are waiting to hear if there are restrictions on how we can utilize the funding, we are confident whatever direction it is, it will be great for Watsonville.”

City manager Matt Huffaker said Watsonville has been advocating for more federal support throughout the pandemic and city officials are “thrilled to finally see direct funding to help the community recover.”

“As we approach our two-year budget process, we look forward to engaging in conversations with the community to develop a plan for this funding, ensuring the dollars are prioritized for areas of greatest need,” Huffaker wrote in an email.

For the city of Santa Cruz, the stimulus will mean it can forego cuts city leaders had previously anticipated.

“This is fantastic news for Santa Cruz,” city manager Martin Bernal told city employees in an email Friday. “It means that we will not be forced to make the anticipated $3.75 million in reductions in the coming fiscal year. The infusion of money will help offset lost revenues and ensure that we can continue to deliver our current services with similar staffing levels as in Fiscal Year (FY) 2021.”

The city, like other local governments, has been grappling with a rough financial road ahead. Next fiscal year’s deficit is expected to be more than $12 million, with anticipated revenue losses of $22 million through fiscal year 2022, Bernal said.

The relief funds will give the city time to put in place a recovery strategy, including seeking new revenue to support operations and its pension obligations.

“While not a panacea, the stimulus buys us time to plan for the future,” Bernal wrote.

From keeping an eye on everything from businesses’ struggles to government finances, COVID Economy Watch is among eight Lookout initiatives documenting all aspects of the pandemic. For more, go to our COVID 2021 section, sign up for COVID Text Alerts and our COVID PM newsletter here, and leave feedback and ask questions at the end of this story.