Visalia ‘surprised’ by increase in local tax revenue

Pandemic predictions of an economic dropoff have been picked up by city finance officials who reported across the board increases in sales, property and hotel tax revenues for 2020-21

VISALIA – A funny thing happened to Visalia on the way to the recession. Predictions of the city’s financial demise turned out to be greatly exaggerated. 

Despite the pandemic-induced economic coma and forecasts of failed revenues by Visalia finance officials, the county’s largest city saw a 14% increase in sales tax income in fiscal year 2020-21, a substantial 6% increase in property tax income and an unexpected 22% increase in hotel tax revenue.

Those same city staff reported an extra $7.6 million in General Fund income during the city’s budget planning sessions.

“We were pleasantly surprised,” Mayor Steve Nelsen said, still vowing to use conservative principals as the city adopts a new 2022-23 budget in the coming weeks.

Finance Director Renee Nagel sang a much different tune in June 2020 when she predicted a 9% ($2.7 million) decrease in sales tax in 2020-21. Also the City’s property tax revenue was projected to increase just 1% each year (2020-21 and 2021-22). As for the bed tax, Nagel, based on expected low hotel occupancy, predicted only a 1% growth in each of the next two years. The report appeared to be a sobering wake-up call that leaders should prepare for belt tightening.

“At the time of this writing, a majority of businesses are closed or operating at a limited capacity, and the unemployment rate has reached levels not seen since the Great Depression,”Nagel wrote.

With the end of the current fiscal year looming in June, all reports point to the trend continuing despite COVID’s long shadow. Whether its retail sales, new single-family home permits, a surge in new multi-family projects or the millions of square feet being built right now in the industrial park, it  seems clear the city is still firing on all cylinders. The February 2022 Employment Development Department (EDD) jobs report shows more than 10,000 additional jobs in the county compared to a year ago. Also the labor force here has increased by 7,000 as both supply and demand for jobs has climbed. 

One unappreciated fact is that some of the new industrial distributors are contributing to local sales tax funding under the Wayfair Rule, a 2018 U.S. Supreme Court ruling where the city gets sales tax revenue based on where a product is shipped from and not its final destination with the buyer.

At the end of the 2019-20 year, the Finance Department was operating in a very uncertain economy with plenty of bad news on the doorstep and was forced to make a guess about the next year. But they were way too pessimistic, through no fault of their own, and based on the city’s tradition of underpromising and over delivering financial news. 

Here’s how they put it: “We will apologize in advance, because we have to assume that many of our predictions and estimates will be less than accurate, and we ask for your patience and understanding as we navigate through uncharted waters,” the report stated.

Changing Its Tune
So what does the Visalia Finance Department say now?

“We can only surmise that the record breaking stimulus packages issued by the Federal and State government combined with the gradual reopening in the early part of 2021 from the historic lockdowns, contributed to this growth,” the city’s finance department reported in January. 

The report said the city’s main areas of sales tax growth were in General Retail (department stores, apparel stores) which grew $1.5 million; Business to Business (office equipment, industry) which grew $1.4 million; and Transportation (auto sales, service stations) which grew $.8 million. Property Tax maintained its growth trend increasing 6% as existing home sales, new development, and property values increased in Visalia.

The ending of the shelter in place and reopening of the California economy was really evident in Transient Occupancy Tax (TOT), or hotel or bed tax on room bookings, revenue as fiscal year 2020-21 had an increase of 22% as compared to 2019-20.

Instead of shrinking under the shuttering power of the pandemic, the business community expanded. Visalia has 12,505 licensed businesses operating in the City, an increase of 190 compared to last year. Construction activity in the City increased 13% (based on the number of all permits issued) in fiscal year 2020-21. The total valuation for all permits issued was $473 million, a 39% increase from the prior year and the city added 1.9 million square feet of new commercial property and 3.6 million square feet of space overall.

In terms of single-family housing permits, fiscal year 2020-21 had an increase in construction activity compared to the prior year. The new single-family permits issued were up 36% from the prior year. The construction value for 749 new  permits came in at $197 million, up 40% from the prior year valuation level.

Overall, it was the eighth consecutive year that the General Fund has ended the year with a surplus.

Rescuing Civic Center
Not included in this surplus was the American Rescue Plan Act (ARPA) grants – a total of $29.3 million in federal funds earmarked for Visalia. The Act states that funding can be used to:

▪ Respond to COVID-19 or its economic impacts

▪ Replace City revenues lost due to COVID-19

▪ Provide premium pay to eligible essential workers

▪Invest in water, sewer, storm water, and broadband infrastructure

All this saves the city money it would otherwise have to spend from local sources. Then there are Emergency Reserves at 25% of operating expenditures with a balance of $16.4 million. In addition to these monies, Visalia received Coronavirus Relief Funds (CARES Act) of $1.7 million which helped offset expenses and contributed to the General Fund surplus. The large surplus is also due to vacant positions within the City, especially in Public Safety, where a large number of vacancies for fiscal year 2020-21 were actively being recruited for.

The unexpected surplus has helped move along at least one pending project, the Civic Center on Oak Avenue near Burke Street. Just over $12 million was transferred to the Civic Center Reserve Fund under the council’s current policy on surpluses. The policy states any revenues in excess of actual expenditures would continue to be deposited in the General Fund emergency reserve to maintain the reserve at 25% of operating expenditures. Beyond that, all remaining surplus is deposited into the Civic Center Reserve Fund. It is anticipated the city will be adding to its Civic Center Reserve Fund by the end of this fiscal year in June as the city is gearing up to construct a new public safety operations building and a separate council chambers building at Oak and Burke. 

Swimming in Revenue
The new revenue could change the council’s mind on another project. Councilmember Greg Collins resurfaced his plan to build a new 50-meter aquatic center with kids pool near the ImagineU Children’s Museum in downtown. It would also be located next to a new grant-funded inclusive park for children with disabilities and just down the street from the proposed civic center.

Collins recently made a presentation to a joint meeting of the council, VUSD trustees and the COS board on March 24 held at COS. Collins told the three entities they could work together to help maintain the pools at the complex which could host swim meets, water polo events, senior aquatic exercise classes and kids swim lessons as well as free community swimming time. All of Visalia’s current competition pools are at schools – limiting public access.

“When I was growing up here, the COS pool was open to the public,” Collins noted in his presentation. “But not any more.” 

Being in a low income area, the proposed aquatic center would likely garner grant funding yet Collins, who has been laboring to get the project off the ground for years, has been unable to convince his fellow council members to support any move forward. The facility is expected to cost $10 million. CalWater has agreed to fund $500,000 for its maintenance.  In the past, a majority of council have suggested there wasn’t the money to build the complex despite big support from the city Parks and Recreation Committee and the public. At the council’s April 4 meeting, Collins requested the aquatic center be placed back on the agenda for discussion at a future meeting.

The city’s recent budget boon may change his peers’ perception of the pool from a drain on resources to a swimmingly solid amenity. 

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