On Wednesday, the Sonoma City Council will consider updating its mid-year budget to reflect better-than-expected revenue — a surplus of up to $3.7 million, according to city staff projections.
Despite a projected 1.68% increase in expenses, the City’s finance staff forecast an excess of revenue over expenses of $1.87 million for the year.
The higher-than-expected revenues are a sign the city’s economy is emerging strongly from more than two years of a pandemic downturn.
The first half of the 2021-2022 financial year saw “dramatic increases” in sales tax and the transitional occupancy tax, a tax aimed at tourists that levies on overnight stays in hotels.
The city’s general sales tax, according to the city’s tax adviser, is expected to bring in $394,661, or 12.4%, more than expected, while the half-cent sales tax from Measure V passed in 2020 is expected to earn $330,006, or 13.2%, more than expected.
The TOT, meanwhile, is projected at $2.2 million, or 53.7%, higher than expected.
The rest of the surplus will be made up primarily of the $1.3 million the city received in funds from the American Rescue Plan Act (ARPA), the federal stimulus package aimed at mitigating financial losses caused by the pandemic.
“While this surplus is in part due to federal stimulus ARPA funding, it certainly reflects the continued and pronounced economic recovery from the COVID-19 pandemic,” reads the city staff report.
During the health crisis of 2020 and 2021, when Sonoma’s tourism economy sometimes shut down, the sharp drop in hotel and sales taxes resulted in a shortfall of more than $2 million in the fiscal year 2019-20, and approximately $3.3 million in 2020-2021. To cover losses, the city of Sonoma cut spending, postponed non-essential projects and dipped into its emergency reserve fund, which stood at about $9 million at the start of the pandemic.
At its April 6 meeting, the board will consider staff-recommended budget changes, which also include some spending increases.
Among the additional expenses are approximately $139,000 due to a fire district labor agreement approved after the last budget was passed, and an increase of approximately $186,000 for the 1% of the TOT that the city transfers to its city housing trust fund. The mid-year budget changes also include a $68,000 reduction in expenses for the financing of a PG&E financing loan, which was prepaid.
City Council meets April 6 at 6 p.m. at 177 First St. W., when it returns to an in-person-only schedule. Visit sonomacity.org for the agenda and additional information.