Monterey reports slow return, continued shortfall in preliminary budget – Monterey Herald

MONTEREY — After two years of fiscal challenges as a result of COVID-19, the City of Monterey is signaling it’s on the road to recovery — it just hasn’t happened yet.

At its last regular meeting, the Monterey City Council received a presentation outlining the city’s preliminary operating budget for fiscal year 2022-23. Consistent with expected structural deficits even before the pandemic, Monterey’s planned general operating fund expenses for next year are expected to exceed revenues by about $2.2 million.

The good news? Larger than expected transitional occupancy tax and sales tax returns for the prior year will help close the gap. It’s a rebound in revenue that the city recognizes as a positive sign, though caution still looms as a nuance to optimism.

“The increasing revenue trend is a strong indicator that the city is beginning to recover from the devastating loss of revenue due to the pandemic,” the preliminary budget report said. “As we rejoice in this fact and look forward to a full recovery, we must continue to keep in mind that we are not there yet.”

Pandemic-related losses resulted in $32 million drawn from the city’s general fund, a hit barely cushioned by $6.5 million in support for the American Rescue Plan Act. Following COVID-19, the city chose, in June 2020, to lay off 72 full-time employees and eliminate 102 positions. Since then, the city has been able to rehire more than 40 employees, incremental progress both made possible and tempered by the city’s economic recovery over the past year.

According to the preliminary budget report, Monterey’s main industry, the hospitality sector – with its associated hotels, motels, restaurants and stores – has recovered better than expected prior to last fiscal year. With this unexpected comeback, the city expects to end 2021-22 with a higher than expected unrestricted general fund balance. The surplus will help Monterey through the next fiscal year, as the city intends to inject a one-time increase in the unrestricted balance to offset impending deficits. Further revenue increases are expected, in part, to include salary savings from ongoing vacancies.

Yet even with this revenue boost and other voter-approved tax measures to offset the longstanding structural deficit, the city is holding on just where it was before the pandemic. And, while seeing strong returns on hotels, sales and property taxes, the city acknowledges in its preliminary budget report that guests are still noticeably absent from some key city services, namely the Monterey Sports Center, the conference center and the library. Lack of demand has also complicated the city’s ability to rehire employees in these areas.

Bookings for the conference center are still 30% lower than in 2019, the draft report notes. Likewise, the Monterey Library is currently operating at about 50% of 2019 levels. Between these and the sports center, Monterey is looking to reallocate millions to the trio of facilities.

“The way forward for our sports center, conference center and library is to stay focused on smart decision making,” the draft budget maintains. “Best practices for a post-pandemic 2022/23 are fundamentally different from those of just a few years ago. Customers are still cautious and our society has not yet accepted the pandemic.

Still, where the funding for these facilities – particularly the sports center – will come from is up for debate. Initially, staff recommended that the City Council siphon off funds from the city’s Neighborhood and Community Improvement Program, which directs tourist-generated funds to local improvement projects, to support improvements in fixed assets of the sports center. But the idea may be short-lived, as program officials and Monterey ward presidents recently implored the council to find the proposed funding for the sports center from another source.

The Neighborhood and Community Improvement Program “is not a slush fund,” Tom Rowley, president of the Fisherman Flats Homeowners Association, said at the last meeting. This isn’t the first time the city has turned to the improvement program for cash. In 2020, the city suspended funding for existing capital projects, including the improvement program, which helped pump millions into Monterey’s general fund as the pandemic depleted reserves. But it was clear, judging by the reactions at the recent council meeting, that many didn’t like the improvement program stepping in as the city’s bailout in a fiscal pinch at the expense of its own aspirations – yet another time.

Other recommendations for city council include a staff suggestion to suspend city funding for local business districts. Currently, the city is allocating $10,500 each to the New Monterey Business District, Cannery Row Business Association, and North Fremont Business District, as well as $55,000 to the Old Monterey Business Association and $25,600 to Fisherman’s. Wharf Association. While it’s recognized as the “smaller side” of the city’s general funds, as its draft budget report explains, staff argue that district funding is fundamentally imbalanced.

“Restaurants and other visitor-dependent businesses do not contribute to destination marketing as hotels/motels do, but they clearly benefit from the investments made by hotels/motels and the city,” according to the draft budget report. Instead, staff encourage districts to work with restaurants to find additional funds from members, while the city uses the funds it saves for other basic visitor services, such as security. public, parks or public restrooms.

The business districts disputed the staff’s recommendation, also going to the council to discourage funding.

Merely to provide guidance, no final budget decision has been made.

Monterey City Council is set to consider and pass a final operating budget for the 2022-23 fiscal year on June 21. Further information regarding the City of Monterey’s fiscal operations is available at

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