Escondido, CA

Council vacancy punted to voters

Unable to agree on whom to appoint to the vacancy created on the Escondido City Council by the death of John Masson, the four councilors at the May 6 meeting voted to schedule a special election that will coincide with the November presidential election.

This was a repeat of the April meeting when the council split 2-2 over their favored candidates. Nine candidates applied for the vacancy in District 2.

There was a short discussion before the vote. Speakers turned in letters. Three supported  Richard Paul while four favored Vanessa Valenzuela. 

Councilmember Olga Diaz nominated Valenzuela and was seconded by Consuelo Martinez. Valenzuela was a candidate for the seat two years ago and came in second to Masson. She is a controller by profession.

Mike Morasco nominated Tina Ostrem Inscoe, a development adviser at the California Center for the Arts, Escondido and a longtime executive of Escondido Chamber of Commerce, member of the Palomar Health Foundation and Escondido Charitable Foundation.  That motion also failed.

Unable to agree on a candidate, the four councilmembers agreed on holding an election. 

After the vote Diaz commented, “I want to say that there is no replacement for John. None of them are going to be John. John was a friend to all of us. His skill set was complementary to all of us. We’ll let the voters help us do that and that’s the wise thing to do.”

After the vote Mayor McNamara told The Times-Advocate: “The council’s inability to find consensus for filling the seat for District #2 was disappointing.  Consequently, a special election will be held in November.  Each council member has their reasons for promoting a particular applicant.  I believe that District #2 is a historically conservative area of the city and was represented by a conservative in the body of John Masson.  So, to suddenly put a progressive or non-conservative applicant into the position would be a disenfranchisement of the District #2 voters and a breach of faith with them.  This November the voters of District #2 will have the opportunity to pick who they think best represents them.”

Huge Tax Losses Loom

Earlier that evening Assistant Finance Director Christina Holmes reported on the dire straits the city has entered due to the loss of tax revenues from the COVID-19 outbreak. The financial report was for the quarter ending March 31, 2020, and the budget adjustment was to address that impact.

This report was in stark contrast to February 12, when the council was working off a balanced annual operating budget for the General Fund in Fiscal Year 2019/20 without tapping reserves. 

On the plus side, General Fund revenues through March are projected to be over budget by $3.1 million, mainly from one-time revenue of $4.1 million from the sale of Windsor Gardens, although that increase was offset by lower than anticipated revenue from franchise fees, leases and paramedic transports. 

Expenditures are also projected to be under budget through March by about $2 million. If COVID-19 hadn’t struck, the General Fund should have ended the year with a net surplus of roughly $5 million. The governor’s declaration of emergency changed all that. 

According to the staff report, “The impact to our local economy will significantly reduce the amount of revenue the City of Escondido receives from sales tax, transient occupancy tax, leased landholdings, and recreation programs especially during the period of time that businesses remain closed.”

Staff estimates this loss through the end of the fiscal year to be about $4.6 million.  

“A loss in revenue this significant requires early action in order to preserve reserves and flatten the budget gap caused by declining revenue,” said the report.

Sales tax makes up 37% of total revenue. It was projected to be $38.9 million before the pandemic. The city’s sales tax decrease “is primarily the result of lower auto sales, lower gas station sales due to lower demand and fuel prices, lower retail sales due to mall and store closures, and lower restaurant business due to delivery and carryout only restrictions,” said the report.

Staff, working with a sales tax consultant, estimates a $970,000 in sales tax loss for each month local businesses stay closed. If they remain closed or at reduced operations through the end of June the city will lose about $2.9 million.

This is offset by increases in sales tax revenue collected from online sales due to the Wayfair decision. The U.S. Supreme Court decision in South Dakota v. Wayfair allowed the State beginning April 1, 2019, to require out-of-state retailers to collect and remit the state’s sales and use taxes. Additionally Amazon, Ebay and Etsy are now obligated to collect and remit sales and use taxes for third party retailers who contract them.  

This increase is projected to be about $900,000 through the end of the year. With the losses and gains added, the net sales tax loss for the city are forecast to be $2 million.

The city also collects a 10% Transient Occupancy Tax (TOT) from the 16 hotels. This is about $1.9 million annually or 2% of the General Fund. Staff is estimating a reduction in TOT revenue of about $525,000.

Revenue from the city’s swimming pool rentals, after school programs, day camps, recreation classes, skate park use and league activities the revenue was projected at $2 million. It will instead be an estimated loss to revenue of about $685,000. This will be offset by reductions in staffing costs of about $181,000.

The city also collects lease revenues from such sources as Westfield North County Shopping Mall and Vineyard Golf Course. Westfield closed the mall (restaurants remained open) and suspended rent payment. Other tenants have requested assistance with their monthly rent. City staff is working with them to defer rent payments through May 31. 

The city also expects losses from business license fees, fines and forfeitures, interest income and paramedic transport revenue. This projected decline is estimated to be about $1.4 million.

To respond to these losses City Manager Jeff Epp has ordered a reduction in personnel costs, elimination or delay in operating and capital costs, and implementing ways that business can be conducted differently.  

It will also tap one-time funding sources that will allow it to provide essential services through the end of the fiscal year. These include an Irrevocable Pension Trust balance of $9.9 million and the General Fund Reserve, a one-time funding source available for unanticipated expenditures or when revenues are reduced. Its balance is $17.4 million.

A third one-time funding source is the sale of real property. Proceeds from the sale of Windsor Gardens are available for one-time use.

The amendment the council approved included a decrease to the Recreation/ASES Department operating budget of $181,000 to reduce salary and benefit costs due to the layoff of employees working at recreation facilities that have been closed and a decrease to the Library operating budget of $165,000 to account for service level reductions resulting from the Library being closed to the public. 

The library will remain closed or at reduced hours through the end of the year.

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