Grass Valley, Nevada City first to feel COVID-19 economic hit
This week The Union presents “Investigating the Impact,” a series of stories that will discuss how Nevada County is coping with the COVID-19 crisis. This week’s coverage will focus on the economic toll of the pandemic on business, government services and nonprofits.
For most, the economic blow caused by the coronavirus pandemic has been felt almost immediately, with businesses effectively shut down overnight and unemployment claims breaking historic records.
For Nevada County government operations, thanks to lessons learned from the last recession, the significant economic hit felt by most of the world hasn’t notably impacted their activity, at least not yet. While the county has shut down some services and pooled some of its 800-person workforce who cannot work from home into a disaster worker pool, most of the changes made so far have been cosmetic.
According to county Financial Officer Martin Polt, while some departments have been immediately impacted, for the most part the county’s budget concerns continue to be rising pension costs and property tax revenue, as they have been historically. Pension and employment costs lead the county’s expenses, with pension costs projected to rise between $1-$2 million each year, breaking $30 million by the 2024-25 fiscal year.
Following the Great Recession, the county’s share of property tax revenue, the largest source of general fund dollars, fell to its lowest point at just under $34 million in the 2011-12 fiscal year. Since then it’s grown to more than $46 million, but Polt warned as efforts to curb the spread of COVID-19 continue, the “new normal” could have lasting effects on business and property tax values that could damage the city’s most buoyant source of funding.
“Property tax is absolutely very important to the general fund,” Polt said. “We’re definitely concerned about that.”
The county averages a positive property tax growth rate of more than 5%, but during the last recession rates dropped more than 7%. While county officials don’t expect such a precipitous drop this time around, any negative consequences on property taxes will be felt by the county in the subsequent years.
Coming out of the housing crash, the county focused on tightening its budget by reducing its total staffing through attrition, county Human Resources Director Steve Rose said. In 2001-02, the county had 1,054 full-time equivalent employees and steadily brought the figure down to 986 employees in 2007-08 before dropping rapidly to 773 in 2012-13.
Today the county has 801 employees, with 30 vacant positions. County officials said the ethos of keeping cost drivers down and creating reserve balances continues to be an integral part of their budgeting process, putting them in a position to navigate the economic crisis strategically.
“We’re trying to be thoughtful about how we approach this,” Polt said. “Because we are in good financial shape, we don’t want to be reactionary.”
In the shorter term, taxes that rely on economic activity, such as sales tax, transient occupancy tax and gas tax, will be affected the most. Preliminary estimates project those revenues could be reduced by around 30%, depending on how long economic activity is slowed, officials said.
Projections from the start of the fiscal year estimated sales tax for the year would reach $4 million. About $4 million was allocated from the gas tax to road maintenance projects.
According to Board of Supervisors Chairwoman Heidi Hall, how the county opens as restrictions ease will also play a role in its economic forecast. County officials have convened a reopening task force to guide the process of ushering in the new economic normal, which could look drastically different to how most businesses are accustomed to making money.
After relaxing some restrictions on recreation this week, county officials said they will work on a larger recreation plan for the summer to allow more businesses to open safely down the road.
According to Sierra Business Council Vice President Kristen York, while some businesses will continue to hurt as patrons shy away from large gatherings, other businesses could benefit from people looking for rural recreation in the next phase of the economic recovery.
The cities of Grass Valley and Nevada City are facing more dire financial straits, though like the county many impacts are yet to be felt or even projected.
This month Grass Valley substantially amended its budget to account for a nearly $1 million loss in projected revenue over the next two fiscal years, laid off four positions, froze seven others and proclaimed a financial emergency. The frozen positions include a maintenance worker, city clerk, mechanic, police officer and three firefighters. An assistant engineer, general ledger accountant, senior accountant and senior administrative clerk were laid off.
The loss in revenue is largely due to sales tax losses, which are the biggest funding drivers for both cities’ general funds. Grass Valley could lose nearly $500,000 in sales tax revenue alone next year.
According to Nevada City Manager Catrina Olson, the city will receive an updated budget reflecting the extent of the economic damage during its next meeting and will convene the budgeting process to implement changes for the upcoming year the next day. While the details are being compiled by the city’s consultant, Olson said the projections are much worse than initially anticipated and could call for a slow, multi-year recovery.
Nevada City Mayor Reinette Senum said the city is prepared to make more changes, but with the small-scale operation of the city it’s unclear how much more they could cut if necessary.
To contact Staff Writer John Orona, email firstname.lastname@example.org or call 530-477-4229.
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