Municipal Charity is Limited

The City-funded support for local businesses, residents and charities is coming into focus as the DJ reports today

The Burlingame City Council agreed to build a $500,000 grant program for local businesses, while setting aside $250,000 to purchase gift cards for struggling families and donating another $250,000 to service providers.  The program is to be administered by the San Mateo County Economic Development Association, or SAMCEDA, which is also operating a similar program through the county.

Noting the city’s contribution capacity is limited, Councilman Michael Brownrigg said the Burlingame Back in Business program would likely serve about 50 companies fitting a limited criteria with grants capped at about $10,000.

Officials also agreed to purchase about 1,000 gift cards from Visa or Mastercard worth $250 which would be distributed to families in Burlingame, with hopes the cards would be redeemed at local businesses.  Councilmembers had first discussed attempting to restrict spending to a specific zip code, but ultimately determined allowing flexibility for families who need assistance would be more valuable.  Those eligible for the program will be contacted by the city’s utility provider, which maintains a list of those who qualify for financial aid.

We are in the fourth quarter of the city's fiscal year which ends on June 30th.  Using last year's financial report as a rosy baseline,  page 34 shows the $84.5M of revenue had major components of property taxes (25.7%), sales and use taxes (21.1%) and the biggie that is also the most at risk, hotel tax (34.8%).  When Michael Brownrigg says that the city's contribution capacity is "limited", he ain't kidding.  We could easily see the hotel tax get cut in half for the year--which would be a $15M hit to the budget.

Even at the end of June when the next report arrives, we won't really see the complete picture since the pain arrived at the end of the third quarter.  Another DJ piece on the San Mateo budget shortfall lays out the timing issue

“There’s a challenge we have on sales tax in that the data we get is essentially six months in arrears. The most recent sales tax data we have is for the third quarter of 2019,” said Finance Director Richard Lee. “We won’t see the true impact of COVID-19 for another six months. … It’s a similar concept for [hotel] tax.”

San Mateo's predicting a $7M "structural imbalance" next year which seems small to me.  It's total projected budget is $251M but only 14.3% in sales and hotel tax, so we shall see.

Comments

[Phinancier]

Before we end up with a BBB rating we better reopen the Three B's. Behan's, Barrelhouse and The Bull. Drink up, Burlingame.

[SnitchDoor Sam]

SnitchDoor Sam is loving this bit of BS from the San Mateans.

San Mateo officials have come up with a plan to address a $7 million structural deficit brought on by COVID-19 without significantly affecting service levels or laying off employees — for now.

“I don’t want to see services cut or have employees be cut so this is certainly the lesser of certain evils, no question about it,” said Councilwoman Diane Papan. “We’re each going to have to do our part.”

But the proposal is not yet a done deal as employee bargaining groups have yet to agree to it. If bargaining groups do not agree to the proposal, then officials will attempt to secure $3 million in savings by restructuring employee compensation in some other way, an official confirmed after the meeting.

[Joe]

You read it here first three weeks ago, but here is the Daily Journal synopsis of the Wednesday study session:

Plummeting airport traffic and vacant hotel rooms gutted a main source of income, according to a presentation from Finance Director Carol Augustine, who projected significant transient occupancy tax losses.

Burlingame should expect about $16 million in hotel tax in the next fiscal year, down from $20 million the year before and $29 million the year prior, according to Augustine’s projections. She said discussions with hotel executives fueled expectations the industry could see some recovery over the coming months.

In all, income to the city’s general fund was projected to hit $66 million in the coming fiscal year, down from $69 million in the existing year and $84 million the year prior.

Additionally, Brownrigg suggested some of the revenue projections did not accurately reflect the losses he anticipated will occur.

“I am concerned our scenario is probably too optimistic,” he said.

Much of the initial budget crunch is expected to be covered by a reduced capital improvement plan, from which $8 million was drawn.

https://www.smdailyjournal.com/news/local/burlingame-s-budget-bruised-by-pandemic/article_fd732094-98af-11ea-9b86-1f7e496bd787.html#utm_source=smdailyjournal.com&utm_campaign=%2Fnewsletters%2Fheadlines%2F%3F-dc%3D1589810408&utm_medium=email&utm_content=headline

I've got to agree with Michael Brownrigg on the optimism reflected in some of the forecasts. Much better to be safe than sorry.

[Bruce Dickinson]

"Much better to be safe than sorry... " Something not in the historical vernacular of the City of Burlingame with $60 million dollar rec centers, pool funds going down the deep end, and to think there was a even a proposal to build a new City Hall when the current one is completely sufficient (and underutilized now that future meetings will be Zoomed!).

Let Bruce Dickinson say this again: Being levered to real estate, tourism and retail sales can create a lot of volatility in income streams. Forget about COVID. The same happened in dot.com bubble burst, the same thing happened in the great recession of 2008. And it's not just Burlingame, it's also the state of California. Not 3 weeks into the COVID crisis, and the state is already running billion dollar deficits!

Guys, take it from me: if your earnings are volatile, you HAVE to have a balance sheet that will pull you through the the cycles. And that's only the revenue side of the equation! Look at the underfunded pensions and benefits that Burlingame (and so many other cities) have to pay, thereby understating the true leverage of the City's balance sheet, not to mention that the City's cost structure (due to these pay as you go liabilities) isn't that variable. The Rec center proposal should be scrapped and replaced with a far more reasonable $25-$30 million dollar rec center that should at most cost $500-$600 per square foot (which is still generous for something that serves a utilitarian purpose and doesn't need a lot of bells and whistles).

Since everyone is in a generosity mood with the GoFundMes floating around, how about Burlingame's real estate developers and architects, who have benefited tremendously from the government and residents here, to give back and donate some of their time/labor for this new rec center!!??

Anyway, on a tangential note, I think Bruce Dickinson's ideas and influence are really starting to hit home, given this trend of others on the BV starting to refer to themselves in the third person. As they say, imitation is the sincerest form of flattery!

Notwithstanding this, there really is only ONE "cock of the walk"!

Once you start wearing your gold-plated diapers you will have also learned this: Reputations are earned, not automatically granted!

[Joe]

This is a very smart move on the part of (3 of) the Burlingame City Council:

With a belief they can make a bigger difference while directing the money locally, Burlingame officials agreed to pull money from the San Mateo County Strong Fund.

The Burlingame City Council voted 3-2, with Mayor Emily Beach and Councilman Ricardo Ortiz dissenting, to withdraw the city’s remaining contribution from the county relief fund assisting businesses harmed by COVID-19.

City officials wanted larger enterprises with at least $5 million in revenue to be eligible, while the county’s threshold was set at $2.5 million. (My note--that is about $210K per month-- very tight).

Those who favored taking the money back said it could be set aside to help companies acquire protective equipment, shields or other tools needed to reopen when allowed.

Others suggested the money could be used to help local businesses navigate potential challenges with operating along Burlingame Avenue, should the street be shut down to traffic to give more space for merchants. Officials are slated to discuss such a proposal Monday, June 15.

https://www.smdailyjournal.com/news/local/burlingame-pulls-contribution-from-county-relief-fund/article_fd16985c-a939-11ea-a115-0b7c70dc6339.html#utm_source=smdailyjournal.com&utm_campaign=%2Fnewsletters%2Fheadlines%2F%3F-dc%3D1591624817&utm_medium=email&utm_content=headline

[Bruce Dickinson]

So wait a minute, the Council decided to withdraw because they wanted larger businesses to be eligible? So which business with more than $5 million dollars in revenue tried to lobby some of the members to get more funds?

Bruce Dickinson believes the smaller businesses should be getting first priority as they are the least likely to survive. A $5 million dollar revenue per year firm is pretty large and are much more likely to get relief from numerous sources including landlords than a very small business.

How is this a good thing again?

[Joe]

Perhaps my mistake to focus just on the revenue ceiling at the expense of the local control/beneficiaries. One can imagine a bit of the "Oh, you're a Burlingame business, you're not as deserving as RWC or Millbrae, etc.

We're both sort of shooting in the dark since we have no good numbers on how many sub $2.5M, and $2.5-5M businesses there are in town.

You did make a rare leap of faith into the unknown, Bruce, by asserting the later have more leverage with their landlords than the former. They also probably have more employees to caretake through this as well.

I still think it's a good idea.

[Bruce Dickinson]

Joe, let's not forget that Bruce Dickinson is a captain of industry, as it were. I'm actually working backwards, ie what does $5 million dollars get you in terms of gross margin and net margin for typical business in Burlingame (retail, wholesale, or distribution/warehouse). $5 million revenue at 30% gross margin is 1.5 million. That is a decent sized business. I'm talking about proprietors who are making less than $200k per year. They're much more likely to have the $2.5MM or less in revenue.

I'm convinced there were some $5+ million a year businesses that lobbied hard to get direct relief. Wonder who they were and how much bigger than $5 million. Was it $10 million, $15 million?

Yes, I do know a thing or two about leverage with landlords, being on many sides of the economic value chain across numerous businesses and investments (eg I costed out the Rec Center above and nobody has disputed my economics--granted I have many experts working for me). $5 million for a retail storefront is pretty good; a retail store rent in Burlingame can be $150-$200k per year, easily. So again, you need decent size revenue to be able to afford it and to have leverage with your landlord. All things being equal, for the same storefront, a landlord would be very happy with a $5 million a year revenue business versus a $2.5 million one.

You think these Ferraris I own grow on trees or something or maybe I learned a thing or two about how the economy works along the way??!?

As far as local control, I'm all for that, but the article is through a paywall (so I can't read what were the pros and cons) and you didn't really explain any good reasons as to why the vote was a good one/step in the right direction.

Maybe ask yourself "How would Bruce Dickinson cogently explain it" and give it another try!

[Sign me up]

Shouldn't a Captain of Industry be able to afford a Daily Journal subscription?

[Joe]

Sign me up- I was travelling today and did not notice your comments ended up in Spam until I checked it on arriving home. No need to post twice.

BruceD- I can parse P&L's, balance sheets and cash flows as well. I have no insight on which "larger" businesses lobbied for anything. Sure a landlord would prefer the larger business because they can raise the rent faster--I could tell you some stories on that from the Avenue!

Local control is better because, well, it was our money to begin with. Not sure why we would ever filter it through the County in the first place. Being B'game, we would probably be viewed in RWC as a "net donor" city rather than a "net consumer" of the "charity". But we sort of digress together--the real question as noted in the original post is why is the City robbing Peter (in this case itself/us) to pay Paul (the recipients) when Peter and Paul are both broke? These weren't loans--even those as convoluted as PPP--it was unencumbered. Does that help explain?

[Bruce Dickinson]

A captain of industry reads what other captains of industry read. Here's the big reveal: the San Mateo Daily Journal isn't one of them!

Folks, Bruce Dickinson has long maintained that the BV is far superior to any local papers, including the SF Chronicle. You have to have a really really,... I mean...really low opportunity cost of time to read the Daily Journal, even if they paid you to read it!

So no thanks, will continue to read the BV for my local news and editorials.

This is why I needed Joe to elucidate! (which he *kinda* did). I'm guessing the DJ article had even less to say! *wink*

[resident]

United to lay off up to 36,000 employees by October. I'm betting the cause of that puts a dent in the city budget and causes rents to drop in town.