City Manager's Blog

Oct 28

[ARCHIVED] At a Glance: Quarter 1 Budget Update

The original item was published from October 28, 2020 1:24 PM to December 23, 2020 10:39 AM

There has hardly been a year in recent history so marked by uncertainty as 2020. With economic impacts from the ongoing COVID-19 pandemic, it is imperative that the City is fiscally responsible with our residents’ tax dollars.

Our City’s Budget Division has collaborated with each department during this economic disruption to carefully manage spending, and we have extended the hiring and spending freeze that began last year. We will continue to provide updates so that residents stay informed on the state of the City.
As a whole, the City has had a reasonable start to Fiscal Year 2020-2021 due to the prudent planning by our Budget Division and each department. City revenue is trending slightly higher than expected, and City expenditures are lower than expected in the first quarter, spanning July to September 2020. 

It’s important to note that while we started off with a solid first quarter, second quarter revenues are a bit more uncertain because it is this quarter when a substantial amount of the major tax revenue – such as property tax – is received.  

“We are reducing our costs in a way that doesn’t harm our services to residents,” Budget Manager Steve Christensen said. “We went through our operations line by line and eliminated vacant positions in order to address lost revenue from the pandemic.”

Due to a large number of one-time payments, the first quarter is generally not the most precise indicator of the upcoming fiscal year; however, our strong base for the start of the fiscal year looks hopeful.

There are three areas we are keeping a close eye on that should give a fuller indication of this year’s budget going into the second quarter: Sales Tax, Utility Users Tax (UUT), and Transient Occupancy Tax (TOT).

Sales Tax
Online sales generate fewer tax dollars for local government than retail. With an increasingly online market, the Budget Department will be monitoring sales tax revenue closely in the coming months.

Transient Occupancy Tax
This revenue source is particularly vulnerable to the effects of the pandemic, as fewer people are traveling and bringing their tax dollars to the City. This will likely be felt for a long portion of the fiscal year, so the budget for this tax has been reduced from $3 million to $2.1 million. TOT revenue had increased steadily between 2016 and 2019.

The City is in a strong position for the start of Fiscal Year 20-21, despite the circumstances. We know that accountability is important, and we are monitoring a fluctuating budget to make fiscally responsible decisions.

We encourage you to keep an eye out for updates as we get a more complete sense of how our City will be impacted in the coming months. Through it all, our number one priority has been, and remains, those who call Modesto their home.