City of Napa Financial Forecast Predicts City Spending May Soon Exceed Revenue | Local News

Napa City Budget Officer Jessie Gooch told the Napa City Council on Tuesday that the projection is based on historical revenue and spending trends for the past six years. She pointed out that the assumptions underlying the forecasts can change quickly if the economy changes.

“There’s a common misconception that forecasts will accurately predict the future, but unfortunately we don’t have a crystal ball in the finance department,” Gooch said. “Our forecast is a financial model that shows us what could happen in the future. Our revenue estimates are therefore based on our current best estimate of the timing of economic recovery; next week, we may have new information that changes those assumptions.

The COVID-19 pandemic initially caused sharp declines in the city’s operating revenue, particularly revenue generated from sales tax, business license tax, municipal service revenue, and rooms tax. – known as the Transient Occupancy Tax, or TOT.

In response, the city cut spending for the 2020–21 fiscal year by about $20 million, canceling funding for various city projects and freezing job vacancies. But Napa’s local economy recovered last year to near pre-pandemic levels, resulting in a budget surplus that was reallocated to several previously funded areas, such as the sidewalk repair program in the city in November last year.

Even so, Gooch said, costs continue to rise year after year.

“We’re seeing revenue essentially recovering to pre-pandemic levels, but costs have increased over the past two years,” Gooch said. “Employees continued to receive cost-of-living increases, CalPERS rates increased, and the cost of supplies and utilities increased.”

The city expects the current fiscal year 2021-22 budget to end with revenue slightly higher than expenses, Gooch said. But only an optimistic revenue projection — which assumes the current surge in demand is Napa’s new normal — predicts that revenue will eventually outpace expenses over the next five years, and only from 2024-25.

But, Gooch said, COVID-19 makes it difficult to predict the future. Two main reasons for this, she said, are that the strength of the current economic recovery is unknown and that the future impact of the COVID-19 pandemic – including the impacts of future variants or long COVID on labor – remains unpredictable.

“The question now is whether this is sustainable growth, or whether we are seeing the results of pent-up demand easing once vaccines become available and travel feels like it’s back again. handy,” Gooch said. “The other unknown is how the evolution of the pandemic could impact our economic recovery. Even as the virus continues to become less lethal overall, widespread illness and increasing long-term disability are impacting workforce availability.

Gooch said the city has fully funded General Fund reserves to fill potential funding gaps. Those reserves would likely be fully spent if the city continued on its current trajectory, she said. But by not adding back about $5 million in cuts made due to COVID-19 — including 17 frozen positions and $2.7 million in budget cuts — the city would be able to fill funding gaps over the five coming years without completely depleting its reserves, according to forecasts.

“With this change alone, we can see that reserves are not fully spent with our most likely revenue projections,” Gooch said. “It just goes to show that, as we strive to control our costs, we can protect and expand our General Fund reserves during this period of uncertainty. However, we will need to balance reducing costs while still being able to provide city ​​services.

Council member Liz Alessio said she has a positive view of the direction of the city’s economy, given the speed of the current recovery. She said the recovery this year has even exceeded the optimistic projections presented last year.

“Call me optimistic, but I really think what we’re seeing in terms of Napa coming back, I think that’s going to be supported because we’re Napa, and we have a very special city with a lot of things that draw people in. .and I want to be a part of it and experience it,” Alessio said.

Alessio also said final staffing expenses in the current fiscal year will likely be lower than budget given the high number of vacancies in the city.

Gooch confirmed that indeed the forecast assumes the city is fully staffed.

“Looking at our actual data for the last few years, and if we look at the growth rates of our expenses year over year, they’re growing faster than our revenues,” Gooch said. “What saved us was that we usually don’t always spend everything we budget.”

But Gooch urged caution. For one thing, she said, the forecast doesn’t take into account the estimated $1 million to $2 million that would go from the city’s general fund each year to the district’s enhanced infrastructure funding that has yet to be released. created.

“Our actual numbers may vary, but based on what we’ve spent and what we think we’re going to spend this year, I mean, some of those rates are just through the roof,” Gooch said. . “It’s really fair, I’m here to be careful. Let’s be a little conservative, make sure we don’t over-commit, and before we add more budget, let’s think about: do we really need this?”

The Napa City Council is then expected to receive a budget report, covering the first six months of the current fiscal year, on Feb. 15. Budget priorities will be set at the annual City Council workshop on February 18.