Anaheim Facing $114 Million Budget Deficit

Anaheim Facing $114 Million Budget Deficit
The closed gates to Disneyland during the COVID-19 pandemic in Anaheim, Calif., on Oct. 21, 2020. (John Fredricks/The Epoch Times)

The ongoing COVID-19 pandemic has ravaged the City of Anaheim’s finances, and left the Southern California city with an anticipated $114 million budget deficit for the 2020–2021 fiscal year.

“The revenue side of our budget collapsed with the downturn,” Anaheim’s chief communications officer Mike Lyster told The Epoch Times. “We are reliant upon visitors who stay in hotels to visit Disneyland, our convention centers, or even to see their favorite sports teams play. None of this has happened since March.”

Until the pandemic struck, hotels were a lucrative source of income for Anaheim. During the 2018–2019 fiscal year, hotels generated about $163 million for the city. During the 2020–2021 fiscal year, which runs through June 30, 2021, hotels will produce an estimated $21 million.

“Hotel tax is our most important revenue,” Lyster said. “In a normal year, taxes from hotel stays make up 60 percent of our revenue.”

The city has made some cuts to make up for the shortfall. About $10.9 million was shaved from labor expenses with a hiring freeze and early retirement program. Another $7.6 million was saved on general spending and operational spending.

“A good example is we have a fleet of vehicles, as you can imagine: police cars, fire vehicles, public works vehicles,” Lyster said. “We have deferred purchases, so if a vehicle was up for replacement, we've just said we're deferring that, we'll try and get more out of existing vehicles. We're just not replacing or adding any new vehicles, and that's helped us save about $3 million, along with some other cost-cutting we've done.”

Of course, that’s just a small portion of the financial shortfall Anaheim faces. The city is looking at making additional cuts, or borrowing money, to bridge the larger gap.

The former option, said Lyster, is not ideal.

“We could continue to cut, but if we continue to cut, we start impacting our ability to serve residents,” he said. “It’s a no-win situation because you’re going to end up not serving the people you’re here to serve. We are fortunate that we are a larger city and we have the ability to borrow.”

Anaheim’s City Council will ultimately decide how much to borrow, and could seek a loan of up to $185 million to cover this year’s deficit, as well as an anticipated $71.5 million deficit during the 2021–2022 fiscal year.

Hotel taxes weren’t the only thing straining Anaheim’s budget. Its anticipated sales tax revenue for this fiscal year will be $57.8 million, 24 percent less than an initial $75.7 million projection. Sales tax generated $85.1 million in 2018–19, the last complete pre-pandemic budget year.

Money Problems

One Anaheim councilor said the city’s financial struggles began well before the pandemic hit.

“Part of it is structural. We do have these increasing obligations, commitments made by previous councils towards pension,” Councilman Jose F. Moreno told The Epoch Times.

"The public pension obligations are really the ones that are creating the greatest burden on the general budget, because they were quite generous, and those were the highest compensated employees. ... We already knew pre-COVID that we were going to have to dig into our reserves.”

The city’s unfunded pension obligation is $817 million; it pays $61 million annually in general fund pension costs, which rise each year. The city has said it can look at borrowing up to $396 million to help pay down those obligations.

Moreno said he's open to all options, and suggested that proceeds from Anaheim’s recent $150 million Angel Stadium sale could be one way to pay down the debt.  The city sold the stadium and adjoining land to Anaheim Angels owner Arturo Moreno, who will pay for it in increments over the next five years.

“Why don’t we use that money up front to pay down this deficit?” the councilor said. “Can we go back to Arturo Moreno, because we are going to need that cash up front after all? We have the money coming. Let’s pay our deficit that way.”

The mayor was quick to shoot down the idea, he said.

“[He said] ‘No. Absolutely not. That money is going to go to neighborhoods. That’s a promise we made, and we’re not going to use that money for that,’” Moreno said. “On Tuesday [Dec. 15], we discussed scenarios, but actual decisions won’t be decided by March.”

A Bright Future

City spokesman Lyster said he expects Anaheim’s finances to rebound quickly once the pandemic passes. He noted that major investments were planned around Angel Stadium and the Honda Center, with ongoing investments at Disneyland.

“We are very optimistic,” he said. “As we look beyond the situation we are in now, we actually see a very bright future that many other cities may not have.”

Michelle Thompson is an editor and reporter based in Orange County, California. Her award-winning work has appeared in numerous major Canadian daily newspapers, as well as multiple U.S. publications.