South Bay cities brace for budget cuts, layoffs after coronavirus

Governments across the country are bracing for furloughs, layoffs and service cuts in response to revenue shortfalls dealt by the COVID-19 pandemic, and experts and city officials expect the damages will be felt for some time.

Findings from a National League of Cities and the United Conference of Mayors survey published this month reveal that 90 percent of the more than 2,000 cities, towns and villages surveyed in the first week of April expected to lose income this year. Additionally, 55 percent expected to furlough employees, 38 percent anticipated layoffs and more than half predicted budget cuts to public safety.

“Every place is going to start seeing the ripple effects (of the coronavirus),” said Christy McFarland, research director for the National League of Cities. “I think it’s going to be a longer-term challenge for regions across the country.”

San Jose estimates a total loss of $110 million for the remainder of this fiscal year and the next, which wraps up in June 2021. The shortfall stems largely from the loss of sales tax (an anticipated $68 million), transient occupancy tax and business tax revenue, according to city documents.

“The impacts are significant,” San Jose City Manager Dave Sykes told San José Spotlight last week. “We have a long road ahead of us.”

Santa Clara expects an $8 million to $10 million shortfall in the current fiscal year and an additional $18 million to $22 million in the next, Santa Clara City Manager Deanna Santana told the Santa Clara City Council on March 31.

An anticipated loss of income in transit occupancy tax, sales tax and property tax are all among the main sources for the shortfall, though Santa Clara has built up an $80 million reserve, which Santana said can help bridge the gaps.

“Our focus will now change from a growth strategy to one that is focused on retaining services to our community,” she said.

Santa Clara has implemented a hiring freeze and is attempting to cut back on expenses. Officials are trying to avoid layoffs, but given the shortfall, those cuts appear to be “more likely than not” at this point, city spokeswoman Lenka Wright said.

Sykes said San Jose is in a similar position as it considers the fate of its nearly 7,000 employees.

“We’re going to look at layoffs as a last resort but we need to be realistic,” he said. “Revenue shortfalls are going to be challenging for us to work through.”

Sykes has been employed by the city for more than 30 years and remembers the series of cuts San Jose went through during the great recession that began in 2007. He recalls cuts to public safety and parks, along with scaled back library hours.

“It was very painful for the organization,” he said. “It’s taken us years to rebuild.”

San Jose operates on a much leaner budget than most large cities because it has more homes than jobs, creating an imbalance in the tax base, Sykes said.

“These cuts hurt us more deeply,” he said. “We don’t have an unlimited number of reserves that we can rely on.”

There are some silver linings for San Jose, however. The city is expecting some relief funding from the Federal Emergency Management Agency, although it is uncertain how much, and $15 to $20 million in revenue from internet sales through an agreement with eBay.

When considering cuts, Sykes said he wants to “preserve public safety above all.”

One of the most surprising results of the survey, McFarland said, was that more than half of the cities surveyed anticipated cuts to public safety — often considered the “bread and butter” of a city’s operations.

“When we see that, we take that as an indicator of the severity of the problem,” she said.

Cities will have to work to strike a balance between supporting residents and businesses by doing things like delaying property taxes while somehow avoiding digging themselves into a deeper hole, according to McFarland. Even if COVID-19 disappeared today, long-lasting damage to the cities has been done, she added.

“City revenue just recovered from 2008, (and) it was a very slow recovery,” McFarland said. “It’s going to be a longer-term impact on city budgets.”

San Jose officials expect to release a proposed budget on May 8. The San Jose City Council is scheduled to approve the final budget for the 2020-2021 fiscal year in June.

Santa Clara plans to release its proposed budget for the upcoming fiscal year at its May 12 meeting.

Contact Carina Woudenberg at [email protected] or follow @carinaew on Twitter.