Despite COVID-19 hardships, Merced’s finances doing better than initial predictions
Despite job losses and persistent economic uncertainty incurred by the coronavirus pandemic, a recent report on Merced’s fiscal outlook shows the city’s in a better position than officials had initially anticipated.
Local budgets for fiscal year 2020-21 were initially passed in June amid the high level of economic uncertainty.
Meanwhile COVID-19 cases began rising from the hundreds to the thousands countywide. “This was an unprecedented event for the City of Merced,” Venus Rodriguez, city finance officer, said of the budget process.
Unsure of how the 2019-20 fiscal year would end — or what coming months would bring — Merced’s leadership adjusted the budget to err on the conservative side. A $5.4 million hit to sales tax revenue was estimated at the time.
The Merced City Council was notably pleased at Monday night’s meeting when Rodriguez reported that unanticipated revenues and savings for the 2019-20 fiscal year landed the city’s general fund in the black by $3 million.
The formerly estimated 2019-20 general fund balance of $8.6 million increased to a predicted year-end balance of $11.6 million.
While COVID-19 did negatively affect some general fund revenues, other fund sources like sales tax and the transient occupancy tax finished out the fiscal year higher than both original and revised budget estimates.
More reasons behind the numbers
The extra cash flow is in part due to fewer businesses taking advantage of the state’s deferred sales tax option than expected, Rodriguez said. Other businesses caught up on delinquent sales tax payments from prior quarters, she said.
Plus, industries like building and construction, as well as automobiles and transportation, saw the sales tax increase during the fiscal year’s final quarter compared to the same period the prior year. Overall, sales tax increased by 1.86% compared to original budget estimates.
“We projected to be at a certain place by the end of this budget, and it turns out we’re actually over by a couple million,” said Councilmember Anthony Martinez. “That’s good news, that means things didn’t get as bad as we thought.”
Rodriguez said she was cautiously optimistic about the news, but noted that a future report of the current fiscal year’s July-September quarter will also show impacts of the pandemic.
More budget changes
With an unexpected $3 million boost to Merced’s general fund, City Council on Monday directed staff to begin putting together a reserve policy, which would specify a specific amount to be maintained within the general fund.
Reserves are built up when general fund revenues exceed expenses.
The Merced County Board of Supervisors recently adopted a reserve policy to safeguard the county’s general fund during tough economic times. Tapping into the reserve is allowed only in certain circumstances outlined by the policy and by a four-fifths vote.
A discussion among the Merced City Council members suggested that the city’s policy would have similar parameters. “What I’m thinking is, 2021? We really don’t know what that’s going to be like,” Martinez said in support of the reserve policy.
The policy is expected to come back before City Council in about a month, city staff said.
Merced City Council on Monday also unanimously passed several adjustments to city personnel positions.
During the budget meeting in June for fiscal year 2020-21, layoffs were avoided but several city positions in administration, public works and public safety were unfunded.
Updates to the budget included positions within the fire department, development services and the housing division being reclassified to reflect department needs.
Merced’s Public Works Department also gained two refuse equipment operator positions — a much needed addition, since the department is currently stretched thin, Councilmember Jill McLeod noted. T
The new operator positions incur a cost to the city of $123,787 from November to June.
This story was originally published October 7, 2020 at 2:49 PM.
