Budget fears mount for local governments and schools facing massive COVID-19 unknowns
San Diego County Supervisor Nathan Fletcher, co-chairman of the county’s COVID-19 subcommittee, speaks at a news conference on the coronavirus, March 19, 2020. To his right is Board of Supervisors Chairman Greg Cox. (Zoë Meyers/inewsource)

Budget fears mount for local governments and schools facing massive COVID-19 unknowns

Greg Cox, a county supervisor for 25 years and Chula Vista mayor before that, has helped lead the San Diego region through some of its most significant crises.

He remembers the devastating wildfires in 2003, and again in 2007. He was here for the H1N1 flu pandemic in 2009, when a 10-year-old county resident became one of the first cases in the nation. And he was here for the recent hepatitis A outbreak in San Diego that persisted for two years and killed 20 people.

As the nation grapples with a massive public health crisis tied to COVID-19, finances at the local level have been thrown into chaos. The consequences of budget upheavals could have implications on public life for decades.

But as residents statewide are under orders to stay in their homes and put their regular lives on hold, the Board of Supervisors chairman admits: COVID-19, the disease caused by the novel coronavirus, is different.

“This, unfortunately, is something that’s going to be with us for some period of time,” Cox told inewsource. “How long? I don’t think we have a good feel for it at this point, but clearly it’s not a matter of hours or days. It’s a matter of months, and you know, probably several months before we can get things turned back to normal.”

San Diego County Board of Supervisors Chairman Greg Cox answers questions at a COVID-19 news conference, March 19, 2020. (Zoë Meyers/inewsource)

Leaders of local governments and school districts across San Diego County and the state are bracing for budget challenges as coronavirus takes hold.

Over the next several weeks, they will be deciding how billions of dollars will be spent on services that affect citizens every day ‒ from public safety to roads to parks. And public health.

Budgets usually need to be approved by June 30 for the new fiscal year.

The county was projected to have more than $2.2 billion in its general fund balance at the end of fiscal 2020, but that was before the COVID-19 pandemic. Spokeswoman Tracy Defore said in an email Friday that county officials are “carefully monitoring and evaluating potential implications of recent market volatility and economic conditions” connected to the outbreak.

The Health and Human Services Agency, which includes the public health department, is the largest funded expenditure in the county’s more than $6 billion budget. Nearly $33 million goes toward its infectious disease control program.

“While it is too early to quantify potential budget impacts,” Defore said, “the County is well positioned to address any resultant financial needs in a thoughtful and practical manner to ensure that residents continue to receive critical services and support provided by the County.”

Cox said he doesn’t yet know the day-to-day costs for responding to the virus, but the county’s finance staff is maintaining records. Between federal and state aid, he said, “there’s a reasonable chance that we’re going to be reimbursed for a lot of these costs,” but probably not all of them.

“But the important thing to remember is whatever the cost is, is what it is,” Cox said. “Our highest priority is public safety. And we will spend whatever we need to spend in order to make sure that the citizens of San Diego County get the services and programs, the health assistance that they need. And the cost at this point is not going to be a factor.”

Faulconer: Impact on city budget ‘far greater than those of 9/11’

In San Diego, Mayor Kevin Faulconer is required under the city charter to have a proposed budget by April 15, and the pandemic may force him to dip into emergency reserves to balance it.

“It’s not something we’ve done in the past, but this is rather unprecedented,” said Jeff Kawar, deputy director of the Independent Budget Analyst’s Office, which advises the City Council.

The city has $205.6 million in its general fund reserve. Leaders have taken dramatic action in recent days to try to protect residents and businesses from economic challenges connected to the pandemic. Among them: a temporary eviction moratorium, and plans to help small businesses through microloans and fee waivers.

Faulconer also announced a proposal to extend all building permits for 180 days as part of a $4 million economic relief package to help local businesses.

“We need to be prepared, and we will be, to sustain our city budget impacts that are now far greater than those of 9/11,” he said during an emergency City Council meeting last week.

San Diego Mayor Kevin Faulconer asks the City Council to ratify his state of emergency declaration in response to the COVID-19 pandemic, March 17, 2020. (Zoë Meyers/inewsource)

But the scope of the challenge ahead is massive. San Diego’s general fund, like other cities in the county, relies heavily on revenues from property, sales and hotel room taxes. As travel and tourism slows, many hotel rooms are sitting empty.

About 128,000 anticipated hotel room nights tied to conferences and events had been canceled through Monday, according to data from the San Diego Convention Center Corp. That business had been forecast to bring in about $4.5 million in hotel and sales tax revenue for San Diego.

So far, Comic-Con, the annual pop culture extravaganza in July, has not pulled out, but organizers are developing contingency plans, said Rip Rippetoe, the convention center’s president and CEO.

Rippetoe said the convention center’s losses only represent a fraction of the problem. About 12 million hotel room nights were sold in the city of San Diego in 2019. Only about 760,000 contracted room nights were connected to large convention center events.

“There’s going to be a lot of what I would consider renormalizing in the future,” Rippetoe said. “We have to find what the new normal is going to be and continue to find ways of feeding the economy through tourist dollars.”

Before the COVID-19 outbreak, the city had been riding a multi-year surge in hotel room tax revenue. It estimated $136.9 million in revenue for this fiscal year – a number some believe is now far out of reach as hotels across the county are closing. The list includes high-profile properties, including the Manchester Grand Hyatt, which has about 1,600 rooms, and the L’Auberge Del Mar.

Things have changed rapidly. Measure C, which appears to have failed by a narrow margin in the March election, sought to cash in on strong tourism numbers and raise the city’s hotel tax to pay for expanding the convention center.

The closed San Diego Convention Center is shown on March 17, 2020. (Zoë Meyers/inewsource)

As of March 12, the city has now imposed a hiring freeze, excluding police and fire personnel. With about 11,000 workers, San Diego city government is among the county’s largest employers.

The city currently has about 1,500 fully funded vacant positions, said Michael Zucchet, general manager of the San Diego Municipal Employees Association, the city’s largest union. So far, there’s been no talk of layoffs, he said, adding it’s too early for that.

Even so, the COVID-19 pandemic is rapidly changing the financial picture for governments, said Zucchet, who’s also a San Diego port commissioner and former city councilman. That will make it challenging for Faulconer to develop his mid-April budget proposal, and reserves likely will have to be used, Zucchet said.

“The only thing we know is that certain parts of the economy are literally shut down and most every other part of the economy is somewhere between normal and completely shut down,” he said. “It’s difficult to get your arms around the economic impact of this.”

Unlike San Diego, not all cities have budget reserves to turn to, said John Dunbar, president of the League of California Cities and mayor of Yountville in Northern California.

“It has really created some very challenging dynamics,” he said. “We have certain deadlines that we have to hit, not just adopting our budgets, but other municipal deadlines. Some of those can be forgiven a little bit or postponed. But some of them we still need to achieve.”

Budget problems up and down the state

At the state level, California has about $20 billion in reserves ‒ a notable achievement years in the making. The rainy day fund began filling up after Proposition 2 passed in 2014. Lawmakers hoped it would protect the state against the multibillion-dollar budget slashes that occurred during the last recession.

Former Gov. Jerry Brown, who left office at the beginning of last year, frequently warned of an upcoming recession – but the sudden changes to the state’s finances have come as a shock to many.

“The trigger for this likely economic downturn is a complete surprise,” said Caroline Danielson, a policy director at the Public Policy Institute of California who co-authored a recent report on potential challenges for the state during a downturn.

Danielson said the state’s reserves and relief from the federal government will help California weather the challenges. But much of the fate of the state’s finances depends on the length of time COVID-19 remains a threat.

“When the economy starts to do poorly, revenues drop rapidly,” Danielson said.

Families are likely to suffer longer than the budget itself, she said, and the state’s already high poverty levels are a concern.

“The budget will start to recover before family budgets are fully recovered,” Danielson said.

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Diana Ross, executive director at the San Diego nonprofit Mid-City CAN, said her staff heard a range of concerns from City Heights residents last week after the coronavirus crisis began to dominate daily lives.

“We’ve gotten stories from folks who have shared that they’re having anxious dreams or you know, uncommon dreams, disturbing dreams,” Ross said. “And then there’s folks who think that we’re overblowing this. That this isn’t really happening.”

The nonprofit had been making calls to community members as part of its outreach for the census, but staffers have now been redirected to include discussion about COVID-19 during the conversations.

“I worry about the folks who are struggling to understand the seriousness of this,” Ross said.

Her list of concerns for vulnerable communities is long: food access, unemployment, medical access, care for the homeless and further housing problems for communities already in crisis due to high rents and home prices. Ross also worries some immigrants may not take advantage of resources because they fear interacting with the government.

Cindy Lapio, 59, lives in Azalea Park and sometimes relies on food assistance. Lapio visited the nonprofit Bridge of Hope on Friday. She received pears, potatoes and almond milk, and said she planned to share them with her neighbors.

“I love what’s happening right now because people are so used to eating like kings and queens. They don’t realize what it means to just savor,” Lapio said.

She said she’s seen an increased sense of community in her neighborhood since COVID-19 began, and she remains positive.

“I’m already content,” Lapio said. “I’m kind of one of those people.”

For school districts, next year remains a question mark

Like cities, school districts are facing an uncertain future. All public districts in San Diego County have been closed for more than a week to try to curb coronavirus cases, and Gov. Gavin Newsom said students likely won’t return before summer break.

State government has taken some steps to help address funding concerns. Newsom on March 13 issued an executive order, saying school districts would retain state funding throughout the closures. He directed officials to use the state dollars for distance learning, school meals offered to low-income families during closures, and in some cases “for the supervision for students during school hours.”

The schoolyard at Alice Birney Elementary School in San Diego is empty on Thursday afternoon, March 19, 2020. (Zoë Meyers/inewsource)

Legislators also approved an initial $100 million in emergency relief last week to help school districts and child care centers cover school cleaning expenses.

But Peter Birdsall, executive director of the California County Superintendents association, said it’s too soon to know whether that money will cover all of the costs tied to COVID-19, many of which are still unknown.

“We went into this whole thing with huge, huge budget concerns. Districts up and down the state were making cuts. … So there’s all these cost pressures, and so districts are already in trouble,” he said.

Birdsall added that questions remain about how districts will cover the costs of reopening schools safely and play catch-up with students who’ve been out of school for weeks or perhaps months.

“People are thinking about it obviously, but right now it’s been the more urgent issues,” he said.

San Diego County has 42 school districts serving more than 500,000 students. Some districts, including the county’s two largest, already are struggling with budget woes and shrinking enrollment.

San Diego Unified School District, the second-largest district in the state, cut $84 million from its budget for next year because of a projected deficit. Its school board also approved up to 55 potential layoffs. The vote occurred six days before schools closed for its roughly 105,000 students in response to the coronavirus.

San Diego Unified has a $1.4 billion budget.

The San Diego Unified School District headquarters is shown on March 19, 2020. (Zoë Meyers/inewsource)

Last month, Sweetwater Union High School District’s board voted on a proposal to lay off more than 200 employees. The district, which serves about 40,000 students in South County, is facing a $30 million deficit.

Poway Unified School District’s current budget will likely remain in line with its projections, said Ron Little, associate superintendent of business support services.

The county’s third-largest district, Poway serves about 37,000 students. The vast majority of its $405 million budget is funded by the state, but 4% is covered by local revenue such as facility use fees, grants and program-based fees, among others.

In a phone interview, Little said a shortfall “somewhere in the neighborhood of a couple of million of dollars” is possible, but the district has maintained a relatively healthy reserve and experienced steady enrollment growth.

A nearly $50.2 million ending fund balance is projected in Poway’s current budget, which covers spending through June. Officials have been working on next year’s budget since January, Little said.

Districts are required to submit budgets to the county Office of Education by July 1. As of Friday, Little hadn’t heard of any extensions or delays to that deadline, and staffers were working from home to “keep the functions going.”

He said the state assistance has been “a huge relief” for school officials across California – and they again will likely look to Newsom for more funding answers.

“We would anticipate some significant guidance from the governor as we live out the next few weeks, and I would anticipate that his May revise budget will have a lot of answers and a lot of direction with respect to developing next year’s budget,” Little said.

inewsource intern Natallie Rocha contributed to this report.


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About Mary Plummer:

Mary Plummer
Mary Plummer is an investigative reporter at inewsource. To contact her with tips, suggestions or corrections, please email maryplummer[at]inewsource[dot]org.

About Jennifer Bowman:

Jennifer Bowman
Jennifer Bowman is an investigative reporter at inewsource. To contact her with tips, suggestions or corrections, please email jenniferbowman [at] inewsource [dot] org.