The National City Mile of Cars is one of the oldest car shopping districts in the country and a South San Diego County landmark. It is also a major source of revenue for the city government.
But business has been slow lately with COVID-19 pandemic keeping many would-be shoppers in their homes and the cratering economy causing consumers to put off big-ticket purchases. All of this has been bad for both the car dealers and the National City budget.
According to the city's latest estimates, it expects to lose about $4.8 million in revenue because of the pandemic.
National City Manager Brad Raulston has proposed balancing the budget for the next fiscal year with mostly short-term measures — things like things like deferring infrastructure projects and dipping into the city's reserves — in hopes of a quick recovery and more state and federal aid. The City Council is scheduled to vote on the proposal Tuesday.
"I keep saying how do we drive down the hill versus off the cliff," Raulston said. "Off the cliff to me is hurting people and employees, dealing with layoffs and those sorts of things."
National City is suffering more than most cities because it gets about 55% of its general fund revenues from sales tax — more than any other city in the county. On top of the Mile of Cars, it also has one of the region's main shopping malls, Westfield Plaza Bonita, which only recently reopened.
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Raulston said the city's robust business economy contributes to "the good and the bad of having a lot of sales tax."
"The good of course is you need the revenues," he said. "The bad is when you have recessions it tends to be more volatile than property tax and some of the other taxes that support local government."
Nick Romo, a legislative representative for the League of California Cities, said cities statewide face a collective loss of about $7 billion through summer 2021 because of the pandemic. Even during the Great Recession, sales tax revenues were more stable than they have been during the current crisis, he said.
"These are extraordinary times with the social distancing (and) the stay-at-home orders that have really prevented all of us from being able to at least go down to the corner store and purchase something," Romo said. "That has been a unique point of this crisis."
The one source of revenue for cities that has so far not been negatively impacted is property taxes. But Romo said California's Prop 13 significantly limits year-to-year growth in property tax revenue. This makes it tough for cities, even in good times, to find ways to pay for basic services like public safety, parks and libraries
"If (cities are) going to grow, if they're going to continue to serve more and more residents with great service, they've had to turn to other sources of revenue, including the sales taxes," he said.
Hotel taxes are another big revenue source for San Diego cities. But they’ve also dried up over the past four months, as tourism has come to a standstill.
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After the city of San Diego, the county's second biggest generator of hotel taxes is Carlsbad. Its hotel industry is suffering, but the city's valuable real estate and relatively wealthy population have allowed Carlsbad to build up one of the most robust rainy day funds in the county — more than $100 million.
Carlsbad City Manager Scott Chadwick said the city also took advantage of the healthy economy before the pandemic to pay down a sizable chunk of its pension debt — approximately $20 million last year, and about $11 million the year before that.
"We are aggressively trying to address our pension (debt)," he said. "I feel that we've well positioned ourselves to be able to weather the storm."
Travel about 20 miles east of Carlsbad, to Escondido, and the budget situation is far worse. City manager Jeff Epp said he's planning on asking voters for a one-cent sales tax increase in the November election to help close a structural deficit that has been plaguing the city for years.
"We've been able to deal with it internally for several years, but we simply can't keep doing that," Epp said. "And we can't keep doing that particularly now with the effects of the global pandemic."
But tax hikes typically don't fare well on the ballot in bad economic times. And depending on how long the pandemic lasts, and the speed of the economic recovery, 2020 could be just the start of cities' financial struggles.
