City to Ask for Sales Tax Hike

Written by Neil Farrell

Neil has been a journalist covering the Estero Bay Area for over 27 years. He’s won numerous journalism awards in several different categories over his career.

July 31, 2020

With its budget in tatters due to the coronavirus pandemic response and near complete closure of the local economy, the Morro Bay City Council will ask voters to raise their taxes in November and rescue the City.

The Council voted unanimously July 14 to place a 1-percent (1¢ on every dollar) local sales tax hike on the November Presidential Election ballot.

The City said in a news release that the tax increase was to “address community-identified local recovery and emergency preparedness priorities.”

Translated that means the City is trying to soften the blow dealt when it — following orders from the Governor and County Health Department — shut down all non-essential businesses starting Friday, March 20.
Virus Closures Hit Hard
The list of closed businesses under the Governor’s orders included restaurants, of which Morro Bay has nearly 50, constituting a large share of the City’s economy.

Retail stores, hair salons, day spas, massage and tattoo parlors, and barbershops, among others, were also ordered closed by the City, bringing the local economy to a near standstill for about 4 months.

Businesses were allowed to open for a few weeks from mid-June into July under social distancing and cleanliness guidelines.

The virus response included so-called “shelter-at-home” orders, and the one-two punch hit the City’s finances like a Mike Tyson uppercut to the chin.

And just when it seemed the economy would rise up off the canvas, the Governor again shut down businesses including bars and restaurants (for indoor dining), on July 16, after the State saw a rise in COVID-19 cases, the disease caused by coronavirus.

SLO County also saw a rise in cases and deaths, but total cases in Morro Bay remains small, 17 as of July 21. (For the current SLO County numbers, see:
Revenues In Free Fall
The City has been scrambling to address the huge drop in taxes, especially transient occupancy taxes (TOT) that are collected by the motels, licensed vacation rentals, B&Bs and private RV parks. The City’s TOT rate is 10%.

The City gets roughly $3.5 million a year in TOT and the shutdown hit just as spring and summer tourism was starting. Occupancy rates fell dramatically with the shutdown. The virus response also led to the cancelation of every public event on Morro Bay’s annual calendar, many of which are major tourist draws.

Sales taxes, while lagging several months in reporting, have also taken a big hit, as have literally all the other revenue sources the City has.
Deep Cuts Made
The City has taken some pretty drastic measures, laying off nearly 100 mostly part-time employees and recently adding several full time staff to the laid-off list.

Other moves include leaving police officer positions open, along with other jobs spread across the City. The emphasis has been on keeping the police and fire departments — so-called “essential services” — at normal levels.

“With nearly 70 percent of calls to the Morro Bay Fire Department being related to medical emergencies and emergency rescue,” Fire Chief Steve Knuckles said, “the pandemic only proves the City must be prepared for any medical crisis. This measure will maintain the services provided by our local Morro Bay Fire Department so our skilled, local firefighter-paramedics can continue to respond to our local emergencies.”

Chief Knuckles is in charge of the City’s Emergency Operations Center, a City and volunteer staffed service normally used for short-term emergencies like the March 2010 Japan Tsunami, and December 2003 San Simeon Earthquake. The EOC was in full time operation for over 3 months and recently ramped down.

According to budget documents, the City is not filling or eliminating one police officer position, an assistant planner, a maintenance worker III and a part-time code enforcement officer.

Laid off workers include an assistant engineer, public works superintendent, administrative technician, recreation supervisor, a part-time office assistant, and over 70 part-time Recreation Department employees.

The City closed the Community Center, the Senior Center, the Teen Center, and Kids Club after school program. Also, all the youth and adult sports leagues that employed umpires, scorekeepers, and referees, were canceled, along with all the adult recreation classes and those instructors.
Ballot Measure Ready To Go
The City has already written the tax measure, as it will appear on the ballot.

Entitled, “Recovery/Emergency Preparedness Measure,” the text will read: “To protect City of Morro Bay’s financial stability, local property values and City services, such as maintaining Morro Bay’s local Fire/Police Departments, 24/7 paramedics, 911 emergency response, health emergency/disaster preparedness; keeping beaches, public areas safe/clean; retaining/attracting businesses; and other general City services, shall the measure establishing 1¢ sales tax providing approximately $2,000,000 annually until ended by voters be adopted, requiring independent audits, public oversight, all funds used locally?”

This new tax measure, which has yet to receive an official name from the City Clerk, is separate from Measure Q, another sales tax hike that voters approved.

So this new measure isn’t bound to the same promised uses as Measure Q was — police, fire, streets and storm drainage.

The measure is a simple “Yes” or “No” vote and a simple majority of voters is needed to pass because it is a general use tax measure.

Unfortunately, the deadline for voters to submit arguments in favor or against the measure was set for 5 p.m. Tuesday, July 28, well before Estero Bay News’ publication date.

However, rebuttals of the arguments — pro and con — have to be turned in to the City Clerk before 5 p.m. Friday, Aug. 7. The limit is 250 words and the argument can be submitted by a registered voter or an organized group of voters. See the city clerk for more information.

The City’s impartial analysis is due to be released Aug. 17.
Outreach Already Begun
The City created “Join the Conversation,” an online community engagement effort over the last several months to come up with what citizens who responded see as priorities for City services. The priorities, according to the City, are:
• Preparing for a medical or catastrophic emergency;
• Maintaining 24/7, 9-1-1 emergency response including paramedic, police and fire
protection services;
• Keeping public areas healthy, safe and clean; and,
• Protecting the financial stability of the City, its residents, and businesses.
New Rate Would Be 8.75%
The City’s sales tax rate is currently 7.75%, a figure that includes a one-half-cent local sales tax (Measure Q) approved by voters in 2006.

The additional tax would hike it up to 8.75%, the highest in SLO County, though other cities in the county are also planning to ask for sales tax hikes.

Of the State’s 7.25% sales taxes, the City gets about 1%. Measure Q was budgeted for $1.3 million last fiscal year and has shown steady growth since its enactment.
Future Looks Dim
The 2019-20 estimated losses include $1 million in TOT (dropping from $3.5M in 2018-19 to $2.5M for 2019-20); some $300,000 in sales taxes (from $2.1M to $1.8M); and even $200,000 in property taxes (from $3.4M to $3.2M). The City’s general fund budget tops $12.8M.

At the end of the pandemic when the City anticipates there will be a recession, the City’s budget forecast is looking at a 5.57% drop in property taxes, 21.8% drop in sales taxes and a 48% drop in TOT in 2021.

Much of that last figure could be attributed to uncertainty over how quickly the tourism industry will rebound, as fears of the virus and the shelter-at-home orders continue.

Overall, in the City’s 10-year budget forecast, part of the budget presentations by staff, the City anticipates a $1.75M general fund shortfall for 2020-21, and $2.5M overall.
Bridging The Divide
The budget gap is being made up with $1M from the general fund reserves, $1.4M in salary cuts to general fund employees still on the job, and some $600,000 in “operating expenditure” cuts.

Those operating cuts included defunding the tourism bureau, which also gets funding through the Tourism Business Improvement District’s 3% tax on a room night. All tourism promotions have also been halted and the City Visitor’s Center is closed, too.

It also cut out the City Council “bequests,” monies given to support local non-profit organizations.

There’s no travel outside SLO County on City business allowed, unless of course it’s mandated safety training; and the budget for “training” has been eliminated, unless it’s OSHA mandated, or required for firefighters and police.

They cut the office supply budget to a bare minimum, according to the City, and “significantly reduced supplies and contract services for items such as sidewalk repair/grinding, street patch materials [asphalt], street tree maintenance and removal.”

They also didn’t set aside any money for new equipment or replacement vehicles.
City Manager Scott Collins said, “Even with all the cuts already made in the Fiscal Year 2020/2021 Budget [pay cuts, layoffs, frozen positions, etc.], we still have a significant long-term gap remaining to fill [several million] and would need to make significant cuts to core services like Police, Fire, public space maintenance to balance the budget without a new source of revenue.”

That shortfall, due to a structural deficit, is projected to top $3.8M by 2029 if no new revenues are brought in.
Reserves Siphoned Away
Taking $1M out of reserves, which started the year at nearly $4M, leaves the fund “at a dangerously low level.”

All these cuts and layoffs are hopefully temporary. “Reductions should be considered short-term, mitigation measures until stabilization efforts can be achieved to restore service levels,” according to the budget report prepared by Finance Director Jennifer Calloway.
“We need an additional source of revenue for our local recovery efforts in Morro Bay,” Collins said, “one we control and that is not taken by the County or Sacramento. We are working to maintain our locally controlled police and fire departments and maintain quick emergency response times that our community is relying on now more than ever.”

And if readers think the Federal Government’s multi-trillion dollar relief programs could be tapped, Calloway’s budget report said Morro Bay’s losses do not qualify for CARES Act relief.

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