Financial outlook remains grim for Lemon Grove

The city of Lemon Grove will exhaust its savings within five years and be unable to pay its bills, according to a report given last week to the City Council.

The funds, known as reserves or surplus, are critical to a city to meet unexpected expenses. The city was already struggling to make ends meet because of falling revenues and rising public safety costs. Then the pandemic hit. And that has put this East County community even closer to the brink.

A five-year projection shared with the City Council last week shows that at its current pace, the city will exhaust its reserves by 2025.

Molly Brennan, administrative services director, told officials that the city’s General Fund budget, which funds day-to-day expenses, is operating at a deficit of more than $340,000 this fiscal year. That deficit would rise to $1.5 million in 2021-22 and hit $1.8 million in 2024-25. The projection estimates that reserves, currently at $6.4 million and being used to offset the deficit, would dwindle to $4.9 million in 2021-22 and be at minus-$22,000 in 2024-25.

Will the city of nearly 26,000 again face the threat of disincorporation, looking to the county to take over its basic services? At least one City Council member said that’s a real possibility.

“We saw a very dire chart that said that in five years we’re out of money,” said City Councilman Jerry Jones, the longest tenured elected official in the city. “So basically that tells me that either we find new revenue or we just cease to be a city.”

Even with voters this past November passing Measure J, a cannabis business tax that the city hopes will bring about $175,000 in the fiscal year ending June 30, 2021, and potentially about $350,000 of revenue in 2021-22, Lemon Grove is in some dire straits.

Jones said the city will have to buckle down now, and he suggested it waste no time looking into a two-year plan for some type of guaranteed revenue stream.

The council expressed alarm with news that calls for service to Public Works that used to be responded to in seven working days now take three weeks, unless they are a public safety concern.

Because of a hiring freeze and employees who have left the city, Lemon Grove currently has 5 1/2 vacant positions in its Public Works department — more than one-third of the department’s staff. The city has lost and not replaced two maintenance service workers, a management analyst, a street tech and a paid intern. It is also without a half-time Park Ranger.

The City Council earlier this year voted to eliminate a sheriff’s deputy, taking the city’s patrol force from 13 deputies to 12 to save the city nearly $275,000 and cut the sheriff’s station’s property and evidence specialist, for a savings of about $78,000.

Jones said “chopping off limbs and chopping off limbs trying to prolong the inevitable is not really serving the public.”

Brennan said among other things, the five-year projection took into account:

  • 2 percent revenue growth per year,
  • four operational cannabis dispensaries by July 2024,
  • $800,000 of temporary expense cuts from this year reinstated for 2021-22,
  • and a 4.5 percent increase in costs for the city’s contract with the sheriff’s department.

She noted that the cannabis ordinance, which takes effect Jan. 1, and is expected to begin at a 5 percent retail tax rate but can be adjusted in the future, will give the city more time to figure out a long-term solution. There is currently one operating dispensary in Lemon Grove but another is expected to open at the beginning of 2021.

City Councilwoman Yadira Altamirano, who was behind a failed citizens initiative on the March ballot that looked to bump the city’s sales tax from 7.75 percent to 8.5 percent, said she hoped people in Lemon Grove will “think very hard about the direction our city is going.”

“A tax measure would save the day, save our city,” Altamirano said. “I urge everyone now listening to strongly support a future measure. This will make a difference.”

The city’s sales tax typically makes up about 40 percent of the General Fund revenue.

During the COVID-19 pandemic, Lemon Grove’s sales tax revenue has not been hit as hard as other cities because of the types of businesses that operate in the city such as auto sales, building and construction. There has also been an uptick in online sales activity. The city originally estimated $4.9 million in sales tax revenue but is now projecting $5.6 million, Brennan said.

But the city has lost money because of COVID-19 concerns. Lemon Grove closed its short- and long-term facility rentals, suspended its passport processing and stopped holding recreation classes. Day camps have also had to be limited in capacity, also reducing revenue.

Jones said he didn’t know how to convince the public that the city can do a better job than the county addressing their concerns unless some better decisions are made by the City Council and staff.

“There’s a bigger plan we need to talk about,” Jones said. “We need to set a shorter timeline… a two-year revenue plan to try to bring back some of these services. (We need to) make our two-year plan and try to maintain some of these things that are quality-of-life issues.”

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