Assessing the crippling swipe from the coronavirus pandemic, officials warned Wednesday, April 15, that Los Angeles County is on track for a $2 billion sales-tax hit through next year, with vital social programs at stake.
That toll comes as the region of 10 million people endures a blanket shutdown of “non-essential” businesses until at least May 15, ordered closed to help contain the spread of the pandemic.
Though the measures appear to be working in terms of “flattening the curve” of the virus, those closures have dominoed to impact every industry and agency, from restaurants to nonprofits to gas stations to property owners. “And we know there’s going to be a very large hit the longer we stay closed,” said L.A. County Supervisor Kathryn Barger, also the board’s chairwoman.
County department heads have been asked to prepare contingency plans for three possible levels of cuts: 10%, 20% and 25%. Hiring and expense freezes have already been launched.
The bottom line: Consumer spending is way down. And local governments — which rely on sales and other taxes to provide services — are taking a massive hit. L.A. County is fueled largely by sales-tax revenue — tapping $5.9 billion in 2019.
The county will see a 50% to 75% drop in sales-tax income from March through the end of the current fiscal year, and likely a 25% drop for the next.
Some uncertainty will endure in the weeks and months ahead, depending on how soon physical distancing measures are eased, and whether the virus resurges later, said county CEO Sachi A. Hamai.
So far, responding to the pandemic’s impact, the county is forecasting expenses of about $600 million, Hamai said. But coupled with future projections, the losses are potentially in the billions of dollars in 2021, officials said. Right now, those losses stand at $1 billion through the end of the current fiscal year in June, a total of $2 billion from now until the end of next fiscal year in 2021, officials said. The county’s total budget for 2019-20 is $35.1 billion.
As virus-propelled expenses pile up, revenue will continue to head downward, official said, and that has major ramifications for “vital” county programs:
- Public health, which has soared as a priority amid the pandemic;
- The Measure H homeless initiative, funds that will be key to assuring that people currently in short-term, impromptu shelters will have a please to go when the crisis ends;
- Child welfare and social services;
- Police, fire and other public safety efforts.
Specific funding streams most disrupted by the county’s stay-home orders include:
- The Proposition 172 Public Safety Sales Tax;
- The Realignment sales tax;
- Measure H sales tax dollars,
- And the Transient Occupancy Tax, known as the hotel tax.
Barger said she was “pleasantly surprised” that almost all county residents, however, paid their property taxes when they were due earlier this month, but she said officials are still waiting for final results.
“Los Angeles County’s fiscal outlook has been significantly impacted by COVID-19 and we project it will have a major effect on the programs the county administers on behalf of our 10 million. residents,” Hamai said.
The county’s government has already taken some measures to tighten spending, including a freeze on hiring and purchases — including in public safety, whose personnel have been hard hit by virus diagnoses.
County leaders across the United States held a conference call with the National Association of Counties on Wednesday morning to explain some of the financial challenges they are facing and may face due to the effects of the coronavirus pandemic.
The NACO called on the federal government to provide more assistance to counties through the Interim Emergency COVID-19 Relief Act, as the formula for funding would have allocated more money to major cities and the state government, the letter stated.
“Counties have already expended billions of dollars responding to this pandemic and will remain on the front lines as we prepare for difficult weeks and months ahead,” the letter stated. “We strongly urge Congress to allocate resources directly to counties, as most states mandate the implementation of public health and emergency response responsibilities to county governments.”
The letter asked leaders of Congress to modify their traditional use of the Department of Housing Urban Development’s Community Development Block Grant formula to assist the counties, as it was not intended to allocate funds during a public health emergency.
According to the letter, Los Angeles County invests more than $35 billion in local services for more than 10 million residents, more than double the population of its major city.
Under the block grant formula, the county would receive $366 million compared to the almost $856 million for the city of Los Angeles, according to NACO.
The interim emergency funding is slated to give local governments $150 billion, but NACO would like Congress to allocate $250 billion to help fill in the funding gaps.
“Our ultimate goal is to establish a fair and equitable formula that would create a ‘win-win’ situation for all local governments,” the letter stated. “Unfortunately, the CDBG formula creates immense disparities and fails to take into consideration both the overall population served and the front line responsibilities of counties.”
Among those disparities was guidance from the federal Treasury Department on how the money is carved up, and who has control of it.
For instance, LA. County was entitled to $1.7 billion under one calculation, but under the guidance, it would take a cut of $696 million, said Matthew Chase, NACO’s executive director.
“What we are saying is that it’s not just L.A. County, the entity, that lost $696 million,” he said. “It’s that the geography, the economy of L.A. County, that just lost $696 million that moved back up to Sacramento. That same pattern is happening across all these major metropolitan areas, where money was taken out of the local economy and shfited back to the state capital.”
City News Service contributed to this report.
Editor’s note: This story corrects an earlier error in the projected sales-tax loss.