ANAHEIM, Calif. (Dec. 15, 2020) — The prolonged and ongoing coronavirus economic downturn has created a $114 million city budget deficit with Anaheim looking to borrowing, more cost cutting and any additional federal assistance to close the gap in coming months.
The deficit stems from the unprecedented extended closure of Anaheim’s theme parks and convention center, which has drastically impacted city revenue from hotel stays, usually Anaheim’s largest source of funding for public safety and community services.
The updated deficit figure and potential scenarios to address it were shared in a workshop with Anaheim’s City Council on Dec. 15.
Any decision on borrowing could come in March with a follow-up budget update for Anaheim’s City Council. Potential borrowing could address the city’s current budget deficit and a deficit projected for the following fiscal year as well.
Depending on how much is borrowed, proceeds also could be used to fund city pension obligations, which would free up money in the city’s annual budget in future years.
Here’s an overview of Anaheim’s budget deficit, cost cutting to date, potential borrowing and pension obligations.
Anaheim’s Budget Deficit
With the closure of Anaheim’s theme parks, convention center and sports and entertainment venues since March, the city has seen a dramatic drop in hotel-stay and sales tax revenue, resulting in a budget deficit this fiscal year and next.
Property tax revenue has not been impacted as real estate values and home sales have held up better during the pandemic recession.
Anaheim has cut spending from the 2020-21 budget through labor and operational savings.
Additional cost cutting, including layoffs and service reductions, remain as options as Anaheim continues to work to address its budget deficit.
Revenue, additional federal aid
The reopening of Anaheim’s theme parks and convention center are variables in the city’s budget outlook. As of now, the city does not project reopening of theme parks before mid-2021, and we do not have guidance from the state of California on when convention centers may start holding events again.
The city also continues to track, but not count on, additional federal stimulus as Washington debates an additional aid package that could include assistance for state, county and local governments.
When theme parks and convention centers are allowed to reopen, they are expected to see a gradual reopening with initial limited capacity and operations. That would bring revenue for Anaheim, though initially not at the level of what’s seen in a normal year.
Hotel-stay revenue is seen rebounding to $153 million in 2021-22 and exceeding pre-pandemic levels at $189 million in 2022-23, $196 million in 2023-24 and $203 million in 2024-25.
Longer term, Anaheim expects to see a strong recovery in its economy with major investments planned around Angel Stadium of Anaheim, Honda Center and with continued investment at the Disneyland Resort.
Anaheim is evaluating potential borrowing, along with additional cost cutting, to address its budget deficit now and potentially for the next fiscal year.
A determination on borrowing, including what type of financing and how much might be borrowed, has not been made yet and would depend on consideration and direction from Anaheim’s City Council.
To cover the current and projected 2021-22 deficit, Anaheim could look to borrow up to $185 million.
Borrowing is estimated at an annual interest rate of 3.12 percent for 20 years and 3.56 percent for 30 years. It could cost the city $11.3 million in debt and interest payments for 30 years or $14.4 million for 20 years.
The city could consider borrowing more than $185 million and using part of the proceeds to pay down part of Anaheim’s unfunded future pension obligations.
Borrowing as much as $396 million would allow the city to cover two years of deficits and reduce its unfunded pension obligations by 25 percent.
That could bring a yearly savings of $4.8 million to $5.5 million in the first 10 years and improve the unfunded portion of the city’s long-term pension obligations from 71 percent to 78 percent.
The city’s total long-term pension obligation is $2.7 billion, with $1.9 billion of that funded.
The city’s unfunded pension obligation is $817 million.
Anaheim now pays $61 million a year in general fund pension costs, which rise each year.
For now, Anaheim continues to advocate for additional federal spending to aid local governments, identify other ways to cut costs and evaluate borrowing to cover two years of deficits.
The city’s administration and finance staff is expected to report back to the City Council in March with additional budget updates and seek direction on any potential borrowing.
Should Anaheim’s City Council approve borrowing, the city could seek to complete financing by June, ahead of the city’s adoption of a budget for fiscal year 2021-22.