The City of Eureka is prepared to cut its general fund budget by nearly $4.6 million for the upcoming fiscal year, largely due to the decrease in tax revenue as a result of the COVID-19 pandemic. 

“This represents a drastic decline,” Eureka Finance Director Lane Millar said during a Eureka City Council budget study session on Tuesday. “Looking back in history, this is maybe the largest decline we’ve seen in the last 20 to 30 years.”

During Millar’s presentation, he explained that the city’s general fund balance has dwindled from about $6.3 million at the beginning of the year, to about less than $1 million remaining. The COVID-19 emergency, as well as some “unexpected capital projects” contributed to the decline, Millar said.

Graph of projected general fund revenue from sales tax. | Images from Eureka Finance Department’s budget presentation on Tuesday

Nearly 75 percent of the general fund comes from sales tax and transient occupancy tax, which have seen about a 10 percent reduction.  Millar explained to the council during the study session that not only has the city seen a significant decline in sales tax this year, but the decline is expected to continue into the next fiscal year. It could take between six and 10 years for the city to recover, Millar said.

The 2020/21 budget proposal includes significant cuts to materials, services and salaries in nearly every city department, with the police and fire departments each seeing proposed cuts of over $900,000. The community services, development services and public works departments would also see significant cuts.

To help reduce personnel costs, the city is in the process of offering early retirement incentives, also known as “golden handshakes” and freezing hiring for nearly all vacant positions, at least until conditions improve, Millar said.

Acting City Manager Pam Powell said that the city needed to keep staffed some of the positions that are “critical to the mission of the city,” but that eliminating positions where possible would be completely necessary.

“It is imperative that we save those dollars when possible and we will all be doing more with less folks, basically,” Powell said to the council during the study session.

Powell also mentioned that the city’s Measure O — which applies a half percent sales tax to fund city services — will sunset in April 2021. City staff will be exploring drafting another tax measure for the November ballot, which Powell said would be “absolutely necessary in order to maintain our services.”

A discussion of drafting the ballot measure will come before the council at the second meeting in July, Powell said.

Following Millar’s presentation, Mayor Susan Seaman expressed her concern for the anticipated decline in revenue and asked what the plans are to prepare for the 2021/ 2022 fiscal year.

Millar said that he believes that by fiscal year 2021/22 the city will have likely “recovered enough to absorb the one-time reductions.” Millar said that likely the best approach going forward is to focus on the next six months, continuing to monitor and adjust the budget as the economy changes.

Seaman also encouraged members of the public who are concerned about the budget proposal to reach out to the council before the next meeting, which was echoed by Councilmember Natalie Arroyo.

“I request that people reach out to us,” Arroyo added. “I know all of us are willing to take time to talk to our constituents and meet with our constituents, so please do that.”

The Eureka City Council will vote on adopting the 2020-21 proposed budget at its next meeting on July 7. You can view the proposed budget here.