San Diego Mayor Kevin Faulconer & League of CA Cities’ John Dunbar on California’s Buckling City Budgets

Ben Christopher: Set the stage for what the economy was like in your two cities pre-pandemic and when was it that you realized that this would really have serious financial consequences for your city?   

John Dunbar: It has been unprecedented. In Yountville we're in the middle of the Napa Valley wine country here in Napa County, north of San Francisco. We have seen, unfortunately, our share of natural and other types of disasters. We saw significant economic impact from the wildfires back in 2017 when, by the threat of fire, we had our entire economy shut down.  It was not nearly as prolonged as what we're seeing right now. We have seen this before, but in my lifetime the only time that compares is 9/11,  twenty years ago, when the nation immediately came to a halt—airlines stopped flying, businesses in some cases closed, and protocols were completely different overnight. Now, what I see is the difference is that this touches literally every sector in our economy.

First and foremost is the public health sector, where we are trying to put all the resources that we can get — from the local level, the state of California, and the federal government —to help support all of us. Because what used to be considered normal fiscal responsibility— Public Safety and other critical municipal services—haven't gone away. This is on top of all that. So, we are looking in Yountville, specifically, at about a 74 percent loss in revenue purely based on transient occupancy tax, or hotel tax, and sales tax combined.

And you can imagine, losing almost 75 percent of your budget is significant. We are very fortunate that we had in place some fairly healthy reserves that we are going to need to rely on. 

I recognize that not all of California’s 482 cities have the kind of reserve stability that we do to reach into right now, and so it's going to be a real challenge going forward. We have about an $11.5 million budget and we're projecting a six-million-dollar loss in the next fiscal year. Thankfully, we have four million dollars in reserves that we can tap into.  But we are an example of why it's so critical that we can get support as quickly as possible from the state of California and some of the CARES Act funding from Congress. But those dollars are only really reaching the largest cities in the state, including San Diego—Mayor Faulconer’s city. So, we are continuing to work to represent all of the cities, large and small in California.

John Faulconer: Like most cities, when you look back four or five months ago, we had significant growth that we worked so very hard to have. I was on the City Council through the Great Recession. To give you a sense of context, when I think back to 2008, the gap that we had to plug in San Diego’s budget at that time was $180 million. The budget that I've just put out shows a $300 million-dollar deficit. Like John just mentioned, dollars for cities don't really come from Washington DC or the state, but from a strong economy. So, in our case, its sales tax, property tax and TOT, or hotel, tax.

 The tourism economy is a major, phenomenal, fantastic driver of our economy here in San Diego.  I have never had to go through a month with no conventions at all. To see the layoffs that have happened in our hospitality, industry, our tourism industry, our restaurants and bars is not, unfortunately, unique to San Diego.  But these are real people; these are our families.  The significance of this cannot be understated, and the task that I am embarking on with this budget is to make some of these tough decisions now and not try to rely on one-time funding that some cities may or may not get.

The biggest thing I think a lot of us as mayors are going to struggle with is not knowing back whether we’ll see the return to the level of sales tax and the revenue streams when our economy comes back that we used to have. That's a big question mark. The more that we can plan for that now, we’ll be better off sooner. But we are all going to have to enter in the reductions in services and reserves, doing things that none of us thought we’d have to.

The budget that I was preparing for months ago is dramatically different than the one that I just unveiled. I remember the meetings vividly on some of the increases that we were going to be doing and I, as mayors do, take personal pride in what we’d presented.  We had just raised library and rec center hours to the highest point in a decade and had the most street repair we've ever done as a city— all things that myself and my colleagues on the council were very proud of. And now, to turn that around almost overnight and to talking about reducing hours and focusing on the very core services that you have to deliver as a city— public safety, sewer, water, trash pickup—knowing that you're going to have some phenomenal deficits in other programs like libraries, rec centers, and the arts. Those are very real, not just discussions, but decisions that we are making right now.

Watch the full conversation on CalMatters Youtube.