City of Sonoma faces ‘unprecedented’ economic uncertainty

Like most cities, the City of Sonoma finds itself in a financial hole due to the economic effects of the COVID-19 pandemic. In order to cope with deep cuts in revenue, city staff developed a set of three different five-year financial projection plans for City Council review, named Optimistic, Base Conservative, and Pessimistic. 

All three plans indicate that the city’s annual budget produces budget deficits that will last from this current fiscal year (2020-21) for five years, (through fiscal year 2023-24), and could cumulatively total a potential five-year deficit of $12 million on revenues of $114 million. A significant portion of the city’s various financial reserves of roughly $8 million will be used to make up the difference, combined with cost reductions.

“Until the public is confident that the coronavirus is contained and/or a vaccine is available, a full economic recovery is unlikely,” reported  City Manager Cathy Capriola, who manages the City’s budget process. “To the extent that the downturn continues, it increases the potential for longer-term damage over multiple years from permanent job loss and business closures.”

At this point, budget plans for fiscal year 2020-21 are in the process of being approved by the City Council. Because the pandemic forced the closure of commercial lodging establishments in the city, revenues from Transient Occupancy Taxes (TOT), which normally account for 25% of General Fund revenues, will be much lower, ranging in the three different five-year financial projection plans from as little as 30% of normal to 61% of normal. 

It’s likely that sales tax revenues will also decline substantially. Having used $1.2 million in reserves during fiscal year 2019-20, the budget for the 2020-21 fiscal year depletes reserves by another $1.9 million.

Expense reductions are proposed to further bridge the gap between forecast revenues and expenses. Fiscal year 2020-21 cuts include a 15% reduction, across the board, to the nonprofits with whom the city partners for various programs, including Vintage House, Boys & Girls Club, Sonoma Community Center, Sonoma Ecology Center, and the Field of Dreams. 

No reduction is proposed in funding for the Visitors Bureau or the Chamber of Commerce.

 The general approach to this fiscal year was outlined by staff in its report:

“Modifications without deep reductions in services and staffing

1. Focus for Phase 1 of the budget development was to use one-time and new revenues; reduce or eliminate contracts; eliminate General Fund support for capital projects; reduce investments in city assets; and reduce all operational spending to basic needs.
2. Hold off on major reductions in staff, services, or staffing capacity until more information regarding tourism and economy in July/August.
3. Develop a Phase 2 of reductions if needed in September/October. These next reductions would likely require reductions in services, reorganizations and realignments including further employee concessions.”

As for the future, the projected budget forecasts don’t look rosy, in part due to the large increases in costs to operate the city. For example, over the next five years, the cost of policing services is projected to increase from $4.6 to $5.6 million; fire and rescue to increase from $5.4 to $6. And the city’s legal costs are projected to be nearly $500,000 in this fiscal year alone. 

No staff cuts are anticipated at this time, but the city is in negotiation with staff to determine employee concessions; most city employees are represented by a union, with whom the city negotiates. A possible source of new city revenue includes a Cannabis Tax, projected to generate $200,000 per year; a measure to impose the tax will be placed on the 2020 ballot. Another likely addition to the ballot is the extension of the city’s one-half-cent sales tax, beyond its current “sunset” in 2022; this tax produces $2.58 million in city revenue in a typical year.

The full 44-page budget report is available via the city’s website. City Manager Capriola sums up the financial outlook succinctly: “Due to the economic effects of the pandemic, the city is facing “unprecedented levels of uncertainty.”