Santa Cruz City Hall on Dec. 7, 2020.
Santa Cruz City Hall
(Kevin Painchaud / Lookout Santa Cruz)
COVID Economy

Santa Cruz once got $2.6M a year in festival admissions tax. Now, it’s on pace to get less than $100,000

Financial forecasts unveiled during Tuesday’s city council meeting show Santa Cruz will face several years of difficult spending cuts if the city is going to regain its financial footing.

Santa Cruz is bracing for a stormy financial future as a result of the COVID-19 pandemic, which has dried up several of the city’s major sources of revenue.

Before the pandemic, the city collected between $2.6 million and $3 million per year from an admissions tax on festivals, movie theaters, museums and the Santa Cruz Beach Boardwalk amusement park, among other attractions.

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But as of midway through its 2020-2021 fiscal year, the city had only received $37,000 from that tax — a trickle compared to the $2.2 million for which the city had budgeted, according to city finance director Kim Krause.

As tourism continues to suffer, the admissions taxes “will continue to be impacted,” finance manager Lupita Alamos said in a city council meeting Tuesday afternoon.

The city’s Transient Occupancy Tax (TOT) charged by hotels has likewise dipped, especially during what’s typically peak tourism season in the summer. Even with a lightening pandemic, TOT tax revenues are unlikely to return to regular levels in coming months, Alamos said.

During Tuesday’s meeting, the council voted to approve adjustments to its existing budget, which already has endured steep cuts. The city operates on a fiscal year that runs July 1, 2020, through June 30, 2021.

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The city reduced its revenue expectations by almost $4 million, including a $2 million decrease in admissions tax revenue and a nearly $4 million reduction in revenues from water sales and service. Lookout will be reporting on the wider-reaching impacts of these decreases — as well as other aspects of the city’s financial future — in the coming days.

The water department fund took a revenue hit because of business shutdowns and operating restrictions during the pandemic, city staff said. The expense side wasn’t kind either: The department needed $70,000 more to replace a dump truck and treat water at its reservoir, in addition to expenses related to the CZU Lightning Complex Fires and remaining burn scars.

Other reliable streams of revenue, such as city fees for programs hosted by the Parks and Recreation and other departments, were also lower than what the city collected in fiscal year 2019-2020.

Financial forecasts developed by Krause and city staff show Santa Cruz will face several years of difficult cuts to its budget if the city is going to regain its financial footing. By Krause’s estimation, the city will have lower revenues for the next several years and, in response, city departments will need to make structural and one-time budget cuts totaling at least $3.75 million per year for the next two years.

Federal aid could help cover some costs, but the city’s deficit can’t be solved by a one-time infusion of cash, Krause said. A new revenue source of at least $3 million would also help nudge the city out of a recession, but the biggest help would be a return to a robust economy, according to Krause.

“The sooner things open, the better our scenarios will be,” she said.

The goal is for the city to emerge from the recession and have a financial cushion equal to at least 17% of general fund expenditures.

Amid the city budget cuts, the city also increased its budget on Tuesday by about $5 million to pay for needs such as overtime, vehicle maintenance and Personal Protective Equipment for the Fire Department.

Although the Fire Department expects to receive a $1.36 million reimbursement on money it spent fighting the CZU Fire and other emergencies, the agency also expects to rack up at least $1.4 million in overtime “due to vacant and frozen positions, and sick-time associated with potential coronavirus exposure,” according to a staff report.

The $50,000 PPE expense is likely to be paid back by the Federal Emergency Management Agency, but the city must front the money first.

Despite the bleak financial picture, the council agreed to continue to move forward with bankrolling parts of affordable housing projects.

The first chunk of money — a $100,000 appropriation that’s been in the city’s Public Trust Fund since 2016 — will be used to help offset costs for a 400-space parking garage included in the city’s forthcoming downtown library project.

The second reallocation will funnel $1.8 million from the city’s affordable housing trust fund into the purchase of parcels at 325 and 329 Front Street, the site of a future affordable housing project.

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