Lillian Boyd, Dana Point Times

In May, city staff presented a game plan to Dana Point City Council to address the economic and financial impacts COVID-19 would have on the city budget.

“You’ll recall we were looking at a $4-million potential revenue hit just in (Fiscal Year) 2020,” City Manager Mike Killebrew said during a Financial Review Committee meeting. “Leaning into 2021, we were looking at a $6 million hit.”

The committee met Tuesday, Aug. 25, for an update on the FY21 Budget due to COVID-19. After juggling more up-to-date numbers, Killebrew says that Fiscal Year 2021 could likely be seeing a hit of more than $7 million.

“I want to highlight some of the important points that the council directed us to lean into,” Killebrew said. “We kept our investments in our city infrastructure. We also decided when putting our game plan together not to count on federal and state funding—unless we were certain it was coming in.”

Killebrew will be recommending setting all reserves to meet the percentage of revenue as originally projected for FY21.

“The first thing we did was set all the reserves to what they should be in FY21 using the original adopted budget for 2021 and not our lowered revenue projections,” Killebrew said. “Our reserves our set as percentages of operating revenue budgeted. I didn’t want to go and take advantage of the lower projected revenues and lower our reserves if this is a one- or two-year problem, because we have to rebuild those reserves … I’m trying to solve to keep the reserves where they should be normally, absent a pandemic”

In April, city staff advised of a chilling forecast on the city’s budget. Absent of the pandemic, revenues had been trending to exceed projections earlier in the year.

“The effects of COVID-19 on the second calendar quarter of this year are going to be absolutely devastating,” Killebrew said during an April council meeting. “The hotels have had almost zero occupancy for several months … I know restaurants are trying to stay alive.”

The transient occupancy tax (TOT), the city’s largest source of revenue, is projected to have a shortfall of $5.9 million for FY21. The TOT typically accounts for about 30% of the city budget.

The city has adapted to financial uncertainties by cutting personnel costs by about $760,000, which has been achieved by leaving job positions vacant and cross-training employees. With the Dana Point Community Center being closed, recreation staff has been repurposed to help out in other areas, Killebrew said. Employee raises have been cut from the proposed budget as well.

While the city was able to replenish the portion of the reserves needed for FY2020, Killebrew is recommending using $2.2 million of the Economic Stability Reserve for FY2021 (49.5%) to help balance the rest of the budget.

According to city policy, staff will need to develop a plan to replenish the reserve, due within 180 days of its use, which will be around the time staff will be working on putting together the budget for FY21-22.

“This issue will not go away, it will have to be solved,” Killebrew said.

The operating revenue for the city’s updated FY21 budget is $39.8 million with revenues expected be $34.8 million. City council will hear an update from staff on Tuesday, Sept. 1, and consider the proposed budget on Tuesday, Sept. 15.

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