Palm Desert Council Approves $ 55.5 Million Budget with Projected $ 7 Million Shortfall
Palm Desert will draw on reserves to fill a projected deficit of just under $ 7 million for fiscal year 2021-22 as the economy continues to recover from the coronavirus pandemic.
The city is projecting general fund revenue of $ 55.5 million with expenses of more than $ 62.5 million, leaving a projected deficit of $ 6.99 million, said CFO Janet Moore.
The projected deficit is about $ 3 million less than last year’s $ 10 million shortfall, which the city also made up with money from general fund reserves.
The city currently has a general fund reserve balance of $ 80 million, Moore said.
The shortfall for the new fiscal year, which begins July 1, is largely due to a planned drop in hotel or transitional occupancy taxes as the tourism industry continues to recover from the pandemic.
If the economy recovers faster than expected, the deficit could shrink, Moore said.
Money that comes to the city through US federal bailout law can also be used to make up for lost income from the pandemic, Moore said.
The city is expected to receive approximately $ 9.9 million in total in funds from the American Rescue Plan Act. About half of those funds – $ 4.99 million – have already been received, with the remainder expected in the new fiscal year, Moore said.
âThe money could be used for lost income in the general fund, and staff will make recommendations once regulations and reporting requirements are finalized,â Moore said.
Main sources of income
Hotel and sales taxes are the two main sources of revenue for the city.
The city is home to big box stores, many popular restaurant chains including the only red lobster in the valley, as well as a mix of small businesses and local restaurants to suit all income levels. Palm Desert is also home to El Paseo, often referred to as “the Rodeo Drive of the Desert” with its upscale retailers and restaurants.
Sales tax revenue is estimated at $ 19.9 million in 2021-22, up from $ 15.75 million projected last year and about $ 1 million more than the $ 19 million received in 2019-2020.
The city is planning $ 10.33 million in hotel taxes, Moore said, up from the $ 8.5 million forecast last year, but about half of pre-pandemic revenue.
Stay informed: 5 digital benefits of a Desert Sun membership
The loss of revenue from hotel taxes is largely due to the forced cancellation of major events, including the Coachella and Stagecoach music festivals 2020 and 2021.
The two-week BNP Paribas Open tennis tournament in Indian Wells has also been canceled in 2020 and this year’s event has been moved to October, although ticket sales have not started as dates have not yet been released. still been finalized. The tournament is expected to resume its normal March schedule next year.
El Paseo Fashion Week and Palm Desert Food and Wine have also been canceled for 2020 and 2021, each of which draws thousands of people to the upscale shopping area of ââPalm Desert. The two are expected to return in March 2022.
While preparing the new budget, Moore said she had been cautious in projecting income for next year.
âWhile a number of regional events such as BNP Paribas, Coachella and Stagecoach have announced dates for their return, many variables are still unknown,â Moore said.
âWe’re very happy to see the start of the economic recovery, but we just don’t know what surprises in store for us next year,â Moore said. “As we get closer to big events and have more information about the variables that would affect the city’s projected revenues, we will revise our budget projections and adjust them if necessary.”
Public safety is the city’s biggest expense. Together, police and fire costs will total approximately $ 38 million over the next year.
Law enforcement, provided by the Riverside County Sheriff’s Department, is estimated at $ 20 million in 2021-22, an increase of $ 500,000 from 2020-21.
The cost of the fire services, provided by Cal Fire / Riverside County, is estimated at just under $ 17.5 million, of which $ 13.5 million comes from the city’s fire fund which comes from the appropriations. county tax. The remaining $ 4 million will come from the city’s general fund, Moore said.
The city’s second-largest expense is employee wages and salaries, estimated at $ 11.67 million in the new fiscal year.
Options to increase income
The city council unanimously adopted the budget without much discussion after drawing up a financial overview during study sessions held in April and May.
âIf the audience is looking and saying, ‘How can you spend such a huge budget so quickly,’ it’s because of all the time that the staff and we have spent absolutely diving into the weeds and getting into this. -in it, âsaid board member Sabby Jonathan said.
There are options for new sources of revenue, which could include increased sales or hotel taxes, as other cities have done, Moore said.
Palm Desert increased its hotel tax from 9% to 11% in 2016 thanks to the T measure, which voters overwhelmingly approved with 74% of the 19,387 votes cast in favor. The increase to 11% brought the city’s TOT in line with the average rate across the valley.
Unlike most other cities in Coachella Valley, however, Palm Desert has avoided raising its sales tax above the state’s 7.25%.
For example, voters in La Quinta approved a sales tax increase of 1 percentage point to 8.75% through Measure G in November 2016. The city is forecasting $ 11.5 million in revenue from measure G only for 2021-2022. The funds are used to help police and the costs of capital improvement projects, but the city is also placing a portion – more than $ 3 million in 2021-2022 – in special G-measure reserves.
Any tax increase, whether TOT or on sales, would require voter approval.
During the May 11 study session, Moore described the various tax increases that could bring additional revenue to Palm Desert.
Raising the sales tax by a quarter of a percentage point, from 7.75% to 8% for example, would net the city about $ 4.5 million in additional revenue per year, Moore said.
Raising the hotel tax from 11% to 12% would bring about $ 1 million in additional revenue per year, while a tax on users of public services, like the one in Cathedral City, could add $ 1.5 million in revenue. additional annuals, she said.
âThere are a number of different things the city could do to raise new revenue,â Moore said. “We’re really throwing them away because we want you to know what other cities have been up to.”
Desert Sun reporter Sherry Barkas covers the towns of La Quinta, Indian Wells, Rancho Mirage and Palm Desert. She can be contacted at firstname.lastname@example.org. Follow her on Twitter @TDSsherryBarkas