Even a mild recession is expected to impact Santa Barbara County revenues by millions of dollars, budget staff said during a presentation last week of a five-year financial forecast.
Jeff Frapwell and Paul Clementi from the County Executive Office projected a surplus next year, 2020-21, and deficits likely after that, with the assumption there will be a recession in the next five years.
The Board of Supervisors passed a balanced budget with no reductions for the current fiscal year, which started July 1.
Looking long term, the county may need to cut costs and find more revenue-generating initiatives, and not just rely on revenue increases to balance future budgets, Frapwell and Clementi told the Board of Supervisors.
A mild recession is considered the most likely scenario, Clementi said, which over a five-year period could mean normal revenue growth in the first year, lower revenue growth in the following years, and then moderate recovery.
A deep recession could cause a larger dip in revenues and much slower recovery, Clementi said.
Over the next five years, the county expects a 3.1 percent average annual increase for salaries, a 4.7 percent annual increase in retirement costs, and a 4.8 percent annual increase in health insurance costs.
The Northern Branch Jail near Santa Maria is still under construction, but operating costs are expected to be $12.7 million for the current year and reach $19.3 million by 2022-23.
“The forecast also assumes additional increases of $1.2 million in each of the final two years of the forecast to cover annual cost increases and medical contract costs that will likely be higher than were anticipated when this funding plan was first developed,” according to the County Executive Office.
Eighty percent of the county’s discretionary revenues come from property taxes, 4 percent are from the sales tax and 4.8 percent of revenues are from the transient occupancy tax, or bed tax.
The county received nearly $7 million in its first full year of cannabis tax revenues from cultivation and other businesses, and budget staff expect $8 million in the next few years. Storefront retail revenue is not included in the estimates, since no dispensaries are open in unincorporated areas yet and the Board of Supervisors is still amending the ordinance.
Clementi said budget staff did not do a recession stress test for marijuana-related tax revenues, “because cannabis is considered to be a relatively recession-resistant market, similar to the alcohol market.”
The Board of Supervisors will dive into budget details during April workshops, ahead of May and June’s 2020-21 funding decisions.
When faced with an unknown financial future, board chairman Steve Lavagnino said the agency should stick to the basics of spending one-time money on one-time expenses, and being prepared for large investments on aging infrastructure, such as the public safety radio system with a $45 million-plus price tag.
“We shouldn’t get crazy when we get a black number instead of a red number because there’s a long list of things that keeps growing, that we need to spend money on,” he said.
— Noozhawk managing editor Giana Magnoli can be reached at gmagnoli@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.