As I walk and drive around Folsom, I am saddened to see some of my favorite restaurants, bars and shops closed, some temporarily, some permanently, due to the impact of the coronavirus.
I’ll never have Huevos Rancheros at the Sutter Street Grill again. I’ll miss the grilled avocado with crab meat and honey sriracha at Marly and Moo.
Some retailers, office parks, and hotels have empty parking lots.
At the same time, the real estate market is booming. Driven by low interest rates and rumor has it, people fleeing the Bay Area, homes in the Folsom area are selling fast.
One of my listings had 15 showings and 4 offers in one day. A buyer I’m representing has been out-bid on 5 homes she’s made offers on.
So, what’s it all mean for the local economy?
Christine Veloria, a long time Folsom resident, client and friend of mine, still living in the home I sold her 16 years ago, has some answers.
Christine had to do a research project for her business class, and decided on exploring the impact of COVID on our local economy.
COVID-19 Impact on the Economy of the City of Folsom
On March 19, 2020, the governor of the state of California issued an executive order implementing a stay at home order to slow the spread of the COVID-19 virus.
Critical infrastructure and certain businesses were designated as essential and were allowed to stay open. These indispensable employees that worked in these special sectors were allowed to continue to work to keep critical functions accessible and operative. Nonessential businesses remained closed with employees barred from working until the governor gives permission to reopen in different phases.
How is the stay at home order impacting the economy of the city of Folsom, California?
In an interview on July 7, 2020 with the mayor of the city of Folsom, Sarah Aquino described how the stay at home order has impacted the economy of Folsom. The mayor explained how many local businesses have been struggling with the shutdowns, with a few restaurants going out of business, which will not be coming back. The city has been hit hard having to borrow 5.5 million dollars from the city’s rainy-fund to cover expenditures.
There has been a loss of tax revenue, income from rental facilities, and programs from the park and rec department.
The mayor has been receiving calls and emails from the citizens of Folsom to stand up to Governor Newsom, the governor of the state of California. The governor has not reached out to help the smaller cities of California, only the larger cities with a population of 500,000 or more,
receive direct funding from the Federal government. The city of Sacramento has received 89 million dollars. The city of Folsom has received no funding from the State or Federal government. Past city councils have set aside money in a savings account knowing that a recession could hit or something could happen where we would need to draw from it.
With how recent the events are the mayor did not know about the current unemployment rate numbers for the city; those would come out in the 2019-2020 Fourth
Quarter Financial Report. Before the pandemic, the unemployment rate was under 4 percent at about 3.2 percent. The mayor was also unsure if the reopening had had any financial benefit to the city, some of these numbers will be in the next report.
The mayor mentioned that there are about 2,200 non-home-based businesses in Folsom. With hundreds of people who run their businesses out of their homes. She does not know how many businesses have closed because of COVID-19, but when the businesses are going to layoff
employees the city does receive a Warn notice. In terms of business closings, there is no notification to the city when a business is closing that she is aware of. The hardest-hit business sectors in Folsom has been the hotels and restaurants.
The city of Folsom is home to two state parks, Folsom Lake and Lake Natoma. During the stay at home orders, the state shut down the parking lots of the state parks so it would limit the amount of people using the parks.
The mayor and the city manager sent a letter to the
governor early on asking for more county control and for financial relief for cities but they never received a reply.
They sent the letter right before the governor let certain counties reopen if they meet certain criteria. They were, however, able to talk to someone in the governor’s office and at the State parks department in regards to the parks closing of the parking lots, because when they closed the parking lots all it did was relocate the cars into the neighborhoods.
These two parks bring in many visitors from all over to enjoy the water, trails, and fishing.
The mayor described how the city has tried to help some of the local businesses by relaxing some of the city’s ordinances. They expedited permits to businesses so they could open outside seating in some parking areas.
City Hall has remained open during the entire pandemic, with some staff working from home. The city is also working with the Greater Folsom Partnership, Folsom Chamber of Commerce, and other organizations to put an extension on development projects and extending applications that were going to expire.
Working with the Merchants Association to shut down part of Sutter Street to car traffic, then the whole street can open to restaurants and stores.
Main General Fund Revenue Sources for the City
Property Tax Revenue
Property taxes account for 33.3 percent of the general fund revenue. There has been a steady increase in property taxes for the last five years. (Office of Management & Budget F. S., 2020) The County Assessor’s office determines the property tax based on the housing values as of the first of the year.
The city receives the property taxes based on the previous year’s housing values. If the property values drop because of COVID-19 the loss of revenue would not be felt until the next budget. (Folsom, 2020)
As of January 2020, the average sold price of a home in Folsom was 600,000, the average sold price in June 2020 was 664,000. (Figure 1)
An interview with Realtor Steve Heard explained what was going on in regards to the real estate market in Folsom and the COVID-19 shutdowns.
In April, because of the COVID-19 shutdown, in-person home showings were banned and only 47 homes were sold in Folsom. May was not much better with 52 homes sold. June saw a turn around with 97 homes sold.
Steve said the reason why selling homes now was difficult was because “sellers were staying put” not
many people wanted to list their homes with COVID-19 happening, with only 94 homes for sale in Folsom at the time of the interview.
What made the housing market change recently was the decrease in the interest rates for mortgages. On the day of the shutdowns, the interest rate was 3.65 percent for a 30-year mortgage. By July, the interest rate had fallen to an average of 3.07 percent.
That has fueled home sales and raised the price of the homes that a person can afford to buy. (Heard, Sacramento Area Housing Market Comes Roaring Back, 2020)
Average Sold Price of Folsom Homes Source of data: (Heard, Board of Directors Folsom Chamber of Commerce, Realtor, 2020)
Property Tax Revenue Source of data: (Office of Management & Budget F. S., 2020)
The city of Folsom is projecting a 7.3 percent increase in the property tax revenue for FY 2020-21, because of a 6 percent increase in housing prices on the County Assessors assessed value role. Property taxes are not expected to be impacted by COVID-19 for the current budgets. (Office of Management & Budget F. S., 2020)
As of June, the average sold price of homes is rising but there has been a moratorium on rental evictions until September 30, 2020.
It is not certain what will happen to the housing market when the consequences of the moratorium are felt. (Symon, 2020)
Sales Tax Revenue
Sales Tax is a large revenue source for the city that has a faster reaction time to economic changes than property taxes.
Property and sales tax combined account for about 60 percent of all the general fund revenues. With the COVID-19 shut down the city is expecting a sharp decline in sales tax from the previous year, with declines expected to continue on into the FY 2020-21.
“The City receives monthly sales tax revenue payments based on estimates with quarterly adjustments for actual receipts. The City receives one cent of the total 7.25 cent statewide Sales Tax levied on each dollar of taxable sales.” (Office of Management & Budget F. S., 2020)
As a result of the COVID-19 shutdown, the city is currently projecting a 5.8 percent decrease in sales tax revenue for the third and fourth quarters compared to the prior year. The city is hoping the economy will recover from COVID-19 by the third quarter of FY 2020-21. (Office of Management & Budget F. S., 2020)
Transient Occupancy Tax Revenue
When a visitor stays in a hotel in Folsom for less than 30 days, they are charged a Transient Occupancy Tax (TOT). The city receives 8 percent of the gross room receipts from that stay.
The COVID-19 stay at home orders stopped most travel whether it was for business or pleasure. This has led to a sharp decline in hotel occupancy and lower than expected TOT tax revenue for the year. This decline is expected to last into the FY 2020-21. (Office of
Management & Budget F. S., 2020)
Charges for Services
The city of Folsom has charges or fees that a user pays when they receive the benefit of a service the city provides, rather than putting the cost on all of the citizens. With the COVID-19 shutdowns, the city closed the parks, community center, sports complex, zoo, and canceled the parks and recreation programs.
Fees also come from use of the Fire and Police department.
All of the events in the city have been shut down. The revenue from services is expected to have a significant drop in fees collected because of the closures due to COVID-19. (Office of Management & Budget F. S., 2020)
General Fund Revenues and General Fund Expenditures
General Fund Revenues
Overall, the city is expecting a decrease of 6.23 million dollars in revenues compared to the FY 2019. A projected 5.8 million dollars decrease in the general fund revenues from the FY 2019-20 budget is due to the impacts of the COVID-19 shutdowns on the city’s Sales Tax, Transient Occupancy Tax, and Charges for Services. Housing-related revenues and Intergovernmental revenues are projected to come in above the FY 2019-20 budget numbers.
The budgeted revenues for FY 2019-20 was 91.8 million dollars because of COVID-19 the forecast has changed significantly with revenues coming in at an estimated 86 million dollars. (Office of Management & Budget F. A., 2020)
General Fund Expenditures
The projection for the FY2020 expenditures was 94.4 million dollars which included a 2.9 million payment for the Transit annexation. With the COVID-19 shutdown loss of revenue, the city is putting the Transit payment on hold bringing the budget down to 91.5 million. (Office of
Management & Budget F. A., 2020)
When the COVID-19 stay home orders where imposed the
city took action to reduce expenditures, these measures were:
Temporary staff budgets were cut by 50 percent.
No new positions added to departments
Hiring freeze, except for essential jobs
2.3 percent O&M budget reduction in all departments
Defer non-essential capital purchases
Parks& Recreation operating budget cut by one million.
Source of data: (Office of Management & Budget F. S., 2020)
The City Council has a contingency plan, the Unassigned General Fund. The council had a policy of adding one percent of the revenues to a fund that would be for emergencies, such as the COVID-19 stay at home orders.
In FY 15-16 they dropped that down to 0.5 percent of
revenues. At the end of FY 2019 the unassigned general fund had a balance of about 17.4 million or about 20.09 percent of expenditures. With the COVID-19 shutdown causing a revenue shortfall, the city will use the unassigned general fund to fill the 5.5-million-dollar gap
between the expected revenues of 86 million and 91.5 million expected in expenditures.
That will leave the balance of the fund at about 11.8 million or 12.5 percent of expenditures. For the
FY20-21 budget the recommendation is to go back to adding the full one percent to the fund bringing the fund up to about 12.7 million dollars or 13.2 percent of expenditures. (Office of Management & Budget F. S., 2020)
Unemployment in Folsom
Before COVID-19 hit the unemployment rate in Folsom was 2.6 percent by the end of the third quarter which was just a couple weeks into the COVID-19 shutdown the employment rate was up to 3.4 percent. (Office of Management & Budget F. A., 2020)
By the end of June 2020, according to the California Employment Development Department, there were 36,100 people in the labor force in Folsom and 32,600 of those people are employed. These preliminary numbers show unemployment in the city of Folsom has had an increase to 9.7 percent or 3,500 people unemployed.
The city’s unemployment rate at 9.7 percent is better
than the county’s unemployment rate of 13.6 percent. (EDD, 2020)
We are now in the fifth month of the COVID-19 pandemic. In May, many counties were allowed to reopen certain businesses but with the recent spike in new cases, indoor activities were ordered to be shut down again, with some moving outside.
The city has been trying to help businesses by easing ordinances, working with local organizations, and providing free face coverings and hand sanitizer to businesses. Even with the city’s help, there has still
been news of more restaurants closing because of the COVID-19 shutdown.
The city is optimistic about the economy and the future budget. With the reopening of more businesses and with the local people aware of the importance of shopping locally that will help with the sales tax revenue.
Until the restrictions placed on counties are eased the Charges for Current Services and Transient Occupancy Tax is still going to be in decline with all the community activities stopped.
The bright spot is the housing market, with the lower interest rates the Folsom market is increasing in value, which will increase property taxes.
The city’s unemployment rate at 9.7 percent is better than the county’s unemployment rate of 13.6 percent.
Overall, the city is making the changes necessary to keep expenditures down while there is an emergency and revenues are lower than expected. The Unassigned General Fund will help the city when it is needed.
More information about the impact of COVID-19 on the city of Folsom will be available when the 2019-2020 Fourth Quarter Financial Report is presented to the city.