Weighing the 'what-ifs' of SLO County's financial future

Nov 8, 2019

What is the financial outlook for San Luis Obispo County? It depends on a lot of factors. County officials got a five-year financial outlook this week and it covered a lot of “what-if” scenarios.

The San Luis Obispo County Board of Supervisors is already planning—and arguing about—priorities for the next fiscal year’s budget.

“I think we compromise our ability to make well-reasoned discussions if we create a Christmas tree of things that individual supervisors have particular interest in,” Bruce Gibson said at the end of a budget discussion Tuesday.

The budget talks, along with discussions about groundwater in the county, got heated at times. But the supervisors were all ears when it came to getting a five-year financial forecast for the county.

“It’s not a prediction, it's just an outlook of what things might look like,” Assistant County Administrative Officer Guy Savage said. “The future isn’t a straight line, it obviously bounces around.”

Savage showed the supervisors different precision models, all available on the county’s website, of how the county might fair in various scenarios—like if there were salary increases for county staff, or the county hired a slew of new employees, or if a recession hit.

“Projecting out a mild recession, it shows 1.2 % CPI growth is not unreasonable,” Savage said.

CPI is the Consumer Price Index. It’s a measure of the weighted average cost of goods and services, and a higher rate typically signals a healthy economy. For example, during the 2009 recession, the county’s CPI was -.3%, which set off a hiring freeze and took the county several years to recover from.

In all of the single “what-if” scenarios presented, Savage’s models showed that in five years, the county should be be pulling in roughly $680 million dollars in revenue, and spending should be much lower than that.

A model of county revenue and expenses if employees received 1% raises
Credit San Luis Obispo County Administrative Office

But to be clear, that’s five years away. Currently, the county is about $100 million short that revenue goal and is already facing a budget gap next year of up to $5 million. But Savage's models appear to show that a prudent approach to budgeting will improve the picture, and Savage told the supervisors the county can essentially handle any of those single scenario changes.

But what if several scenarios happen at once? Then the outlook isn’t as optimistic.

“Even a modest recession, coupled with salary increases, is going to result in cut budgets—there’s not much question about that,” Savage said.

A model showing county health is a recession hit after county staff received raises.
Credit San Luis Obispo County Administrative Office

The board also asked Savage to find ways the county could possibly drum up revenue if needed. One way is an increase in property taxes. 577 new homes would have to be built for the county to pull in enough new property taxes to equal $1 million dollars. Another way is through sales tax: the county’s rate is 7.25%, which is lower than many area cities like Paso Robles and Arroyo Grande, and the surrounding counties of Monterey and Santa Barbara, which have a 7.75% sales tax.

“If we were to raise our rate, it would mean an extra $7 million dollars a year,” Savage said.

Sales tax rates for San Luis Obispo County cities and surrounding Counties.
Credit San Luis Obispo County Administrative Office

Savage also said if the county sought to have tourists carry the burden of increasing revenue, the county could increase its transient occupancy tax on hotels and short-term rentals; a one percent increase would generate roughly $1.4 million annually.

What wasn’t mentioned in all this are the ramifications of the closure of the Diablo Canyon Power Plant. Its planned 2024 closure could impact local economies, which is another unknown to add to the list.

It will be up to the board—and maybe even voters—to find ways to agree on the best moves to make San Luis Obispo County financially healthy over the next five years.