Solana Beach expecting drops in sales, hotel taxes

Solana Beach is bracing for a projected drop in revenue, including sales and hotel taxes, due to the novel coronavirus outbreak.

“We are experiencing and will experience, both in the near-term and long-term, financial impacts to our budget,” City Manager Greg Wade said during the council’s April 8 meeting, held remotely and streamed on the city’s website.

Sales tax, which typically accounts for about 16% of general fund revenue, is projected to decline from $3.26 million to $3.14 million in the 2020 fiscal year, a 3.6% decrease. For the 2021 fiscal year, it’s projected to drop from $3.31 million to $3.2 million.

Hotel and Airbnb revenue has also come to a near standstill. The city expected approximately $2.84 million in hotel tax combined from the two budgets covering the 2020 and 2021 fiscal years, but now projects that figure will sink to about $2.1 million.

City staff has not projected a drop off in property tax revenue, but that could change if owners are unable to make those payments, council members and staff said.

“Although this is definitely an unforeseen impact that is potentially sizable,” Wade said of the Covid-19 crisis, “we are in a good position to weather it. It’s just a matter of what decisions we make moving forward.”

Council members and staff said they still have to determine where to scale back city expenditures.

“Rather quickly, we do need to have those types of conversations around what we’re going to do about this,” City Councilman David Zito said. “Given the circumstances and given that we’ve done a really good job of building our reserves over the past decade it is acceptable to try to buffer the punch and go into the reserves a little bit as needed.”

The coronavirus crisis has also pushed back the city’s appeal to the San Diego Association of Governments (SANDAG) over new state-mandated housing requirements. The appeal hearing was originally scheduled for April 10. A new date has not yet been scheduled.

Through the state’s sixth Regional Housing Needs Assessment (RHNA) cycle, Solana Beach has been asked to plan for 875 housing units over the next decade, a 157% increase from the 340 units the city was assigned in 2013, at the beginning of the previous RHNA cycle.

San Diego County is responsible for adding approximately 171,000 new housing units across all income levels. The SANDAG Board of Directors approved a methodology to distribute those units near jobs and transit, resulting in larger allocations for coastal cities compared to the numbers they received in past RHNA cycles.

The cities of Coronado, Lemon Grove and Imperial Beach also appealed to SANDAG for lower RHNA numbers.

Cities are expected to complete and submit their new housing elements to the state by April 2021. Zito, who represents Solana Beach on the SANDAG board, said Solana Beach has asked the state to extend that timeline.

“If the (SANDAG) board can take a position of asking the state to push that date out, then it gives everybody more breathing room,” he said.