Since the COVID-19 pandemic brought the world to an economic standstill, the city of Solvang has seen its tax revenue drop by $500,000 per month as tourism has ceased. According to Solvang Mayor Ryan Toussaint, this loss of funds will force the city to dig into its financial reserves to pay for miscellaneous costs and will complicate its economic recovery once the coronavirus crisis subsides.
When the world does enter post-coronavirus mode, the fast depletion of reserved funds won’t be made up for easily.
“It takes a whole year for Solvang to set half a million dollars into reserves, and right now, we’re losing more than that a month,” Mr. Toussaint said.
In an interview with the News-Press, Mr. Toussaint elaborated on this loss of tax revenue as well as its possible implications going forward. These implications are also detailed in writing in a draft of his forthcoming “Message From the Mayor,” the latest in a series of communications he has posted on the city’s website to inform residents of what is being done during the crisis.
Before the COVID-19 outbreak put an end to business as usual, Solvang’s taxable sales from retail businesses and restaurants, combined with taxable stays in the city’s hotels, pumped about $180 million into its economy every year. Had this not been interrupted by the pandemic, it would have generated about $6 million in taxable revenue for Solvang this year, 60% of the city’s approximately $10 million general fund.
As there’s currently no end in sight to the COVID-19 situation, the loss of half a million dollars every month due to no tourism could possibly have a significant impact on funds for important expenses such as the cost for city personnel and the city’s contract with the Santa Barbara County Sheriff’s Office, costing $3 million and $2 million a year, respectively.
The significance of tourism-generated sales tax and transient occupancy tax revenue in covering these expenses comes into sharper focus when considering that Solvang’s biggest source of non-tourism related tax revenue comes from property taxes. At $1.4 million a year, it can’t cover either expense on its own.
In the wake of COVID-19, the city of Solvang has reconfigured City Hall so it functions only on essential services. This has required layoffs to slow the decrease of its financial reserves brought about by the sudden drop in sales tax and transient occupancy tax revenue. However, the fact that reserves are getting drained at all is problematic enough. The city already didn’t have enough money to pay for much-needed capital projects.
According to the mayor’s message draft, the Solvang City Council agreed in a public meeting earlier this year that expenses for fixing Solvang’s infrastructure couldn’t be paid for with either the city’s reserves or revenue. The biggest of these capital projects is Solvang’s new wastewater treatment plant, costs for which the city has considered meeting by increasing water and sewer rates. That said, Mr. Toussaint wrote that the council is seeking ways to lessen the severity of any increased water and sewer rates, given that people are increasingly struggling to pay their bills.
Though the plant and other capital expenses may not be covered by revenue or reserves, Mr. Toussaint stressed using the latter wisely now will have considerable influence on Solvang’s capital improvements down the road.
“We must be very conscious of the use of our reserves during this time, as it will impact our ability to use them for future capital projects,” Mr. Toussaint wrote.