Proposed Encinitas budget better than expected

Thanks to the city’s dependence primarily on property tax revenue rather than sales or hotel bed tax fees, the proposed Encinitas city budget for the next fiscal year isn’t in as dire shape as some might fear given the global economic downturn, city finance employees report.

The draft spending plan for the next next fiscal year, which begins July 1, was unveiled during a special City Council meeting Wednesday, June 10. The council is scheduled to approve the final document at its June 24 meeting.

While the new spending plan includes reductions in estimated sales and hotel tax revenue, property tax revenues are expected to “remain strong” and that’s good news because property tax revenues make up the majority of the city’s general fund revenue, Teresa McBroome, the city’s finance director, told the council.

Property tax constitutes 67 percent of total revenue in the city’s general fund, the budget that covers most day-to-day city operations, including everything from parks department employee salaries to policing expenses. The county is estimating that the city’s share of property tax revenue will increase from $48.36 million in the current fiscal year to nearly $51.7 million in the coming year.

Councilman Joe Mosca agreed that the county’s property tax revenue forecast for Encinitas looks great at the moment, but said “all economic indicators are that we’re in a recession now” because of the global COVID-19 pandemic and asked if property valuations might fall within the next two years.

McBroome responded that Encinitas is in such a highly desirable coastal location that she didn’t expect to see a decline in property tax revenue. The city didn’t in the last recession, she said.

“(However), we’re prepared to make reductions if we need to,” she added.

Encinitas operates on a two-year budget cycle, and city finance officials do a second-year revise just before the city enters the second year of the two-year spending plan. The city is currently in that spot now.

The new draft revise for the coming fiscal year calls for Encinitas to collect $2.2 million less in revenue in the coming fiscal year than what was originally forecast a year ago. Due to various proposed budget cuts, the city also now is forecast to spend an estimated $742,000 less than what was originally forecast. The new budget totals put general fund total revenue at $77.6 million and expenditures at $71.2 million.

The current fiscal year’s budget was recently adjusted due to the coronavirus situation as well, and the city is now estimating that it will collect $75.1 million in revenue and have $71.9 million in expenditures this fiscal year.

Sales tax is the city’s second-largest source of general fund revenue after property taxes. McBroome and other city finance employees told the council that they expect the recent decline in sales tax revenue to continue throughout the remainder of 2020.

“Increased unemployment and consumers’ lingering fear of exposure (to the coronavirus) will hold down discretionary spending,” particularly in general consumer goods, restaurants, hotels, auto sales and transportation, a city staff report states. What was previously estimated to be $13.9 million in sales tax revenue for this coming fiscal year now has been reduced by $2 million, the report continues.

However, McBroome said she’s hearing that there might be a faster “bounce-back” in retail sales than initially anticipated. She noted she’s already seeing lines of people waiting to get into some of the city’s retail shops.

“That’ll just add to our balance because I just didn’t expect that,” she said.

When it comes to budget cuts, reductions are spread across a wide variety of categories, finance employees said. Among other things, all non-essential travel and training is being eliminated, supply purchases are being postponed and expenses for contract services, ranging from engineering to recreation program providers, are being reduced.

One budget addition is $110,000 in extra funding for the city’s three Mainstreet organizations and the chamber of commerce to help them with business assistance programs.

There’s also $128,211 for a special mini-street sweeper to service the city’s buffered bike lanes. It’s cheaper to buy the machine than to add speciality sweeping to the city’s existing street sweeping contract, a city staff report states, adding that the contract add-on would cost $327,000 per year.

-- Barbara Henry is a freelance writer for The San Diego-Union Tribune