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Federal aid shrinks Anaheim budget gap, but potential $40 million deficit remains

The news that federal coronavirus money can be used to help shrink a projected deficit is a blessing for tourism-dependent Anaheim, but the city still faces a gap of up to $40 million in fiscal 2020-21.

Anaheim will receive $30.6 million from the CARES Act, a coronavirus aid package, and while it was designed to cover virus-related costs such as testing, protective equipment and emergency staffing, officials recently learned the money could also reimburse the city for a $15 million local recovery program the City Council approved in March, city spokesman Mike Lyster said.

“Now we believe we can use that funding to basically back fill what we already spent,” he said. “How that helps us is that we used part of our general fund reserves and we used part of the convention center reserves to fund that program.”

The local recovery program included money for rent assistance, homeless aid and other immediate local needs, as well as funding to help the city tourism bureau rebook canceled conventions and other events once travel and tourism resume, as well as court new ones.

In June, the council approved a budget that forecast a $75 million hole, which staff had proposed filling with 20% cuts across the board. That would have slashed nearly $50 million from police and fire services, which together make up about 65% of annual general fund spending.

Thanks to the federal aid, cuts may be less drastic, but the city is still looking for savings anywhere and everywhere, Lyster said.

The main cause of the shortfall is the coronavirus pandemic and the related shutdown of travel and entertainment businesses, including the city’s largest taxpayer, Disneyland.

No conventions or visitors means no hotel room taxes, which are Anaheim’s biggest revenue source. The state’s stay-at-home order and closure of non-essential businesses in March pushed hotel taxes off a cliff: they dropped by an estimated $54 million in fiscal 2019-20 and are expected to come in around $83.7 million this fiscal year – roughly half the 2018-19 total.

The total budget approved the council – which includes restricted funds such as the city water and electric utilities – was $1.7 billion. The general fund, which covers basic services including public safety, parks and planning, made up $352.9 million of that total.

While city officials are hoping for a quick economic rebound once people start traveling again, it’s unlikely they’ll see new sources of revenue. The council voted down a proposal to allow cannabis businesses in the city, which could have included special taxes, and a council majority declined to discuss asking voters to impose a “gate tax” (or ticket surcharge) on entertainment venues such as Disneyland and the professional sports facilities.

Councilwoman Lucille Kring, who brought the cannabis idea forward, said Santa Ana has made quite a bit of money as the only city in the county that allows retail pot sales.

“I figured, why don’t we get on the gravy train?” she said, adding: “We are desperate for revenue.”

Councilman Jose Moreno voted against the cannabis plan, but he and Councilwoman Denise Barnes asked to discuss a potential ballot measure to let residents decide on a gate tax. (Any tax on cannabis also would need voter approval.)

Absent any new revenues, the council will have to make cuts that city employees and residents will feel, such as furloughs and layoffs, reduced library hours and the like, Moreno said.

“I don’t see why the council would be afraid to let people vote on their budget and what would be their services,” he said.

Lyster said city staff will come back to the council in the fall with updated projections and more details on what spending cuts may be needed.

Source: Orange County Register

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