Page 13 - FY 2021--22 Revenue Outlook

business travel. Similarly, the demand for commercial retail and office space
declined with the pandemic-driven business closures, and the increasing shift
from brick-and-mortar locations to on-line retail and teleworking solutions may
hinder recovery. The drop in demand for parking—from employees, customers
and visitors—can also be attributed to public health restrictions and business
closures. As a result, the City tax revenues that mirror these economic
changes—sales tax, business tax, transient occupancy, parking occupancy, and
to a lesser extent, property tax—are falling well below amounts in 2020-21
adopted budget. For receipts that lag behind the economy—sales tax by a
quarter, property and business tax by a year—the full impact may not be realized
until 2021-22.

City services, while not typically considered economically sensitive, have
decreased during this time as well. Reimbursements for police services to Los
Angeles World Airports and LA Metro were reduced under declining travel and
use of public transportation. Ambulance service billings declined with the need
for transport, as individuals remained at home. License, permit, fees and fine
receipts dropped with closed City facilities, canceled events and suspended
filming.

Conversely, other economic sectors have remained relatively unscathed during
the pandemic, resulting in what economists have described as a K-shaped
recovery. Business sectors with activities that were free from public health
restrictions, or with a workforce that could transition to telecommuting, or with
access to capital to weather closures were less likely to lay off employees or
reduce work hours. Employees in such sectors as financial services,
professional, scientific and technical services, utilities, and construction, were
likely to be better skilled and have higher incomes prior to pandemic. Nationwide,
the households that experienced no income loss (53 percent) or reported gains
(16 percent) have supported economy, including home sales. Consequently, the
City’s documentary transfer tax and residential development tax, which both
experienced drops in revenue with the initial shutdown, have returned to their
pre-pandemic levels. However, these modest improvements are insufficient to
offset the drop in other tax receipts and other non-tax revenue losses.

In its efforts to sustain the economy and support the pandemic response and
recovery efforts, the federal government has provided relief and stimulus funds
via the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the
American Rescue Plan (ARP) Act. This funding benefits individuals, business,
and state and local governments. ARP funding alone will more than offset the
City’s current year revenue shortfall and the reduced receipts anticipated for the
proposed year. Additionally, federal funding in the form of disaster assistance
grants from the Federal Emergency Management Agency (FEMA) are
anticipated this year and next as partial reimbursement for the City’s pandemic
response efforts.

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