Santa Barbara County expects at least a $3 million hit to its tax revenues this year, and additional financial impacts from the COVID-19 pandemic in the form of response costs and market impacts to the Santa Barbara County Employees’ Retirement System.

Closures of hotels, restaurants and retail will affect sales tax and transient occupancy tax revenues, and the statewide executive order to stay at home will also have an effect on gas taxes, budget director Jeff Frapwell told the Santa Barbara County Board of Supervisors Tuesday.

Frapwell said the $3 million number is an early estimate for the hit to General Fund discretionary revenues.

“That number will increase,” he said, adding that he will report the potential impact to all county operating funds during the third-quarter financial presentation in April.

Sales tax and TOT revenues make up a smaller percentage of the county’s budget compared to cities, he noted, and “cities are much more vulnerable” to drops in these “economically sensitive revenue sources.”

Eighty percent of the county’s discretionary revenues come from property taxes, 4 percent from sales tax, and 4.8 percent from TOT, or bed tax.

Frapwell and other budget staff presented a five-year financial forecast to the Board of Supervisors in November that projected a surplus in the 2020-21 year and deficits after that, with increasing costs for salaries, health insurance, and retirement.

Chart showing possible revenue impacts of a recession.

Santa Barbara County budget staff presented the Board of Supervisors with a five-year forecast in November, including the possible revenue impacts of a recession.  (Santa Barbara County photo)

They assumed at the time that there would be a recession within the next five years, and modeled potential revenue impacts. In a deep recession, revenues would stay mostly flat for several years.

The Four Seasons Resort The Biltmore and the Rosewood Miramar Beach temporarily closed, and those Montecito hotels are the largest bed tax generators for the county’s unincorporated area, Frapwell said.

The cannabis industry has been a lucrative new source of revenue for the county, which budget staff have called “recession-resistant” in the past.

There are only a handful of dispensaries open so far, and none in the unincorporated areas, but cultivators paid the county $2.8 million for the October-to-December period, according to the latest tax report.

Supervisor Steve Lavagnino, who sits on the board of the Santa Barbara County Employees’ Retirement System, said there was an estimated 13-15-percent impact to the pension fund as of last week’s board meeting, although the situation is changing daily.

“I don’t want to freak everybody out and say it was 50-percent loss; it was more in the 13-15 percent range at that point,” he said.

It will significantly affect the budget for the next fiscal year, which starts July 1, he said.

“It’s extremely dire and something we need to deal with,” he said, “but we don’t need to make it worse than it is.”

The SBCERS had a total fund market value of about $3.29 billion at the end of February, and the next market investment report will be released at the end of March.

Property tax assessments are due next month, and Treasurer-Tax Collector Harry Hagan said he has authority to give penalty waivers to people who pay late.

“If someone is affected adversely because of COVID-19, and it’s out of their control obviously, I’m prepared to cancel the penalty,” he said.

Only the state can move the delinquency date, Hagan noted, but the county could temporarily close his office to delay it.  

Hagan said his office is still working out a process to accept applications for the penalty waivers.

The Board of Supervisors approved a $1 billion budget in June, with no reductions for departments in the 2019-20 year.

County Executive Officer Mona Miyasato said at the time that staff are focused on having a fully funded strategic reserve and buffer in case of a future recession, and not using one-time money for ongoing expenses. 

The budget process for the 2020-21 fiscal year will start in April, with workshops for each county department. 

Noozhawk managing editor Giana Magnoli can be reached at Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.