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The full scope of the economic crisis brought on by the coronavirus pandemic is not yet clear, a reality that leaves public agencies to build budgets with one clear understanding: They will have much less money.
Given the uncertainty, the San Diego Association of Governments nearly recently approved a draft budget created before the crisis hit, knowing it was already an irrelevant document, because the agency’s bylaws require it to do so by April 1. The board instead instructed staff to come back this week with a budget incorporating the COVID-19 hit as much as possible, along with a motion to amend the agency’s budget rules.
“We’re in uncharted territory,” said SANDAG Chairman Steve Vaus. “This budget is a roadmap, and you can’t have a roadmap in uncharted territory.”
Other agencies are in the same situation. The city of San Diego is considering moving to quarterly budgets during the crisis, as an acknowledgment that there are too many unknowns – how steep the losses will be, how long they’ll last and how fast the economy can recover – to follow the standard budget process. SANDAG itself could go with a quarterly budget. And San Diego County is expected to delay its typical budget process, too.
“We cannot ignore the circumstances we’re in right now, and economically we’re all getting hit,” said San Diego Council President Georgette Gómez, during the SANDAG meeting. “The city of San Diego is reconsidering its budget process right now, just because there are a lot of unknowns.”
Mayors and council members from across the region acknowledged that it’ll be months, at least, before the full extent of the coronavirus-induced crisis is known.
In the meantime, Ray Major, SANDAG’s chief economist, has attempted to quantify what could be coming – though the board never heard his presentation on the impacts facing the economy, since it decided to delay approving a draft budget until this week.
Major, who in an interview said he’s confident the economy is already in a recession right now, had his staff conduct primary research into what’s hitting the economy. Each week they’re surveying the 100 top tax collectors in the region, and its 100 largest employers, to understand what they’re experiencing. They’ve combined that with other information that’s been released by industry groups or reported in the media to create a dashboard about what’s happening in different economic sectors.
The numbers are grim, if expected. Drug stores and food markets are up. Perhaps least surprising: so are liquor stores.
Vehicle sales, meanwhile, have cratered, falling some 75 percent. And wholesale construction materials are down by half.
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That all carries bad news for SANDAG’s sales-tax funded transportation infrastructure program TransNet, which is facing a multibillion-dollar shortfall between now and 2050 because collections have already far undershot initial projections while project costs have far exceeded them.
In his undelivered report to the board, Major estimated the impact would be a $29 million loss to TransNet, if the economy simply hit pause for a few weeks then everything resumed as normal in mid-April. If aggressive economic restrictions stay in place through mid-May, followed by a sharp and immediate recovery, the program that pays for major transit and highway projects would lose $53 million. And a more severe loss that nonetheless sees an immediate and sharp recovery would lose some $80 million.
But just a week later, Major said he’s already more bearish on the region’s economic prospects, and what they mean for the agency’s infrastructure program.
“I believe it will take longer to get back to work for a number of reasons,” he said. “The original assumption was, everyone is quarantined for a little, and then we go back. But what does going back look like? If restaurants need to rethink how they serve to keep people six feet away, if when you go to the office you can’t have everyone in a meeting room together, maybe you don’t take the entire workforce back. So there’s still some disruption, people are driving less, so our gas tax revenue will be less. If I was going to put up a directional arrow, it would be that it would be more than $53 million. A lot has to do with how quickly we recover from a recession – I have to imagine we’re in a recession now.”
That’s where the possible effects become especially threatening. Even the potential $80 million loss imagines an economy that quickly recharges itself and resumes its previous growth trend.
But if the economy instead recovers from the initial coronavirus hit at the same rate that it recovered from the Great Recession, TransNet would lose $534 million, according to Major’s forecast.
The city of San Diego’s budget could be in even worse shape. It’s likely seeing the same effects for sales tax collection – and every agency that collects sales taxes just got another curveball with Gov. Gavin Newsom’s late Thursday announcement that companies collecting less than $50,000 a year in sales tax can temporarily defer that payment. But the hit to hotel taxes is expected to last even longer than the hit to retail activity, with conventions and discretionary travel not expected to recover for a year at least.
“They’re looking at a longer disruption – and we could also start seeing people who are unable to pay their property taxes, or who delay paying them,” Major said.