Marin facing economic challenge
$16 million budget shortfall dropped on county administrators
COVID-19 has delivered a onetwo punch to Marin County’s finances.
Budget managers told supervisors Tuesday that the county is facing a $16million budget shortfall in the fiscal year that begins in July and uncertainty regarding how it will continue to fund COVID-19 emergency response. The county is currently spending about $6 million a month on that effort.
“There are really two budget challenges we’re facing,” said County Administrator Matthew Hymel. “One is this ongoing structural gap caused by the recession. The other is the uncertainty after December on our COVID response.”
By the end of December, the county estimates it will have spent $60 million on COVID-19 response. It expects to recoup most of that from federal Coronavirus Aid, Relief, and Economic Security (CARES) Act distributions and the Federal Emergency Management Agency (FEMA).
The CARES Act money runs out at the end of the year, however, and FEMA has indicated it may not continue to reimburse for all the programs it is currently funding beginning in January.
“We try not to panic due to some of the financial challenges we’re facing,” Hymel said, “but that is obviously a big risk, a big concern. If we have to spend more, that is going to have to come from available reserves and one-time general fund monies.”
Emergency response, however, is only half of the problem. The “shelter-inplace” order utilized to slow the spread of the virus has wreaked havoc with the economy.
“COVID-19 had a major impact on the economy last spring,” Marin County Budget Manager Bret Uppendahl told supervisors. “There were historic declines in many of the key economic measures.”
For example, the nation’s second quarter gross domestic product declined by 32% compared to the prior year; it was the largest quarterly decline on record for the United States.
Marin’s unemployment rate shot up from 2.5% in July 2019 to 11.2% in April 2020. Consumer spending in the United States declined 6.7% in March 2020 and 12.9% the following month. The nation lapsed into recession in February 2020.
Uppendahl has revised his five-year forecast for Marin County’s budget due to the recession. In December 2019, under his most pessimistic scenario, Uppendahlwas projecting that Marinmight see a deficit of $16.6million by fiscal 202425, if no action was taken to rein in spending.
On Tuesday, however, Uppendahl saidhe is nowforecasting a $16 million deficit forfiscal 2021-22. He said unless steps are taken to address the imbalance between revenue and expenditures the shortfall could grow to $36.4million by fiscal 2025-26.
“The shortfall we’re seeing is primarily caused by drops in tax revenues particularly ones we get from the state,” Uppendahl said. “We will be bringing to your board the first round of our recommendations for reductions to department budgets in November.”
He said the $8 million in budget reduction proposals that will be presented in November will not include any layoffs and will involve no major reductions in services to the public. He said a proposal for closing the rest of the gap will be presented to the board in the spring of 2021.
Hymel cautioned that further cuts in state funding are possible if the federal government fails to provide additional stimulus money to deal with the fallout from COVID-19.
“The state of California, much like us, is in dire straits if there is not continued federal support past January,” Hymel said.
Marin County relies heavily on state funding to provide mandated public health programs, social services, mental health services and the local criminal justice system.
Uppendahl said there is also reason for concern regarding the county’s other primary source of revenue: property tax. In June 2020, the Marin County assessor reported that the annual growth in the assessed value of Marin property was half a percent lower than the budget forecast of 5%. And those valuations were pre- COVID-19.
In addition, Uppendahl said the total number of home sales in Marin between Jan. 1 and July 31 dropped by about 17.5% in 2020. Valuations generally rise when homes are sold.
Lost revenue isn’t the only challenge facing the county. Uppendahl said he also expects the county to face higher pension costs over the next several years due to the likelihood that the stock market will fail to produce the 7% annual rate of return assumed by the Marin County Employees’ Retirement Association.
Uppendahl said there is, however, reason for hope.
“The good news is we’re seeing some initial signs of a recovery,” he said.
Economic indicators, such as unemployment, are improving, he said. A recent poll of economists by the Wall Street Journal found that more than 68% now expect the economy to recover gradually rather than sharply rebounding or suffering a prolonged downturn.