Healdsburg looks to eliminate city executive roles, freeze police vacancies as hotel, sales tax revenues fall

Healdsburg is planning to eliminate three executive-level positions, freeze two police openings and spend lightly into its operating reserves as the city waits for tax revenues to rebound during what it expects could be a five-year economic recovery period.

Staff this week began unveiling early recommendations to the City Council for the next two-year budget cycle, including the proposed cuts of jobs including vacant assistant city manager, deputy city clerk and senior planner roles. Financial forecasts show a 10% decline in the city’s general fund in the new spending year starting July 1 versus two years ago. By 2021-2022, the budget is still projected to be off by 5% compared to the fiscal year that ended mid-2019.

Still, the city hopes to avoid drastic cuts by spending about 20% of its roughly $4 million rainy-day fund over that two-year period. City staff labeled the proposal a “conservative budget” that allows quarterly check-ins to adjust as needed, if sales and hotel tax returns continue to fall short of pre-pandemic levels in the tourism-dependent town.

“A measured approach is what makes sense at this point,” said City Manager David Mickaelian, who will end his 15-year tenure with Healdsburg in July. “The challenge we have is there’s so many unknowns that it … wouldn’t be prudent to start cutting and slashing here and there.”

Meanwhile, the City Council met under closed session Tuesday for the fourth time in two weeks to name an interim city manager, voting unanimously to offer the position to Dave Kiff, a part-time special project manager who only just joined Healdsburg in late March. Kiff, 55, a Healdsburg native, retired from his nine-year post as city manager of Newport Beach in August 2018 and is in the midst of contract negotiations for the temporary role.

The council is also working to establish a recruitment process to fill the city’s lead executive position. Hiring is expected to be completed by the end of this year.

Also Tuesday, the city announced it awarded small business loans exhausting its $600,000 fund to 76 local companies. Nearly 100 businesses applied for the zero-interest loans up to $15,000 toward wages and benefits, rent and other essential needs.

The city’s attention for now will otherwise be continuing to closely watch its hotel occupancy rates, which have plummeted since the stay-at-home order went into effect in March. Hotel stays through last month declined 64% across the county compared to the same time last year, and were down by 70% for more upscale guestrooms like many of those in Healdsburg, according to STR, a hospitality industry research firm.

But Healdsburg’s lodging industry has the potential to bounce back more quickly than other destinations across the state and country, according to a consultant hired by the city to forecast its hotel tax in the coming years. Those revenues, which support the city’s parks and recreation department, general fund and roads and public safety departments, still aren’t expected to return to 2018-2019 levels until at least 2021.

“We’ve got a big challenge. Under all scenarios, hotels are crushed this year,” Maurice Robinson, the consultant, told the City Council during its special virtual meeting Monday. “But I have to say, your market is relatively well positioned. San Franciscans would rather travel to Healdsburg than go to Italy for the next year or two, and so you’re going to be a little bit better than average, even though average is terrible.”

Healdsburg already anticipates losing more than $2 million in hotel tax revenues through June, and, under Robinson’s worst-case scenario, it could be another $2.5 million in the next budget year compared to 2018-2019 totals. But the 130-room luxury hotel Montage Healdsburg is scheduled to open by the end of this year or early 2021, which will help prevent a total collapse of those revenues, Robinson said. He projected within four years the new hotel will help generate more than a third of the city’s $7.7 million in hotel tax revenues once the economy recovers.

Despite the proposed cuts to Healdsburg’s police force, the city still expects to spend the majority of its annual general fund - more than 70% of its $13.2 million budget starting in July and $13.9 million budget the year after - on its public safety departments. In 2021, about $6.4 million is projected to be spent on police and $3.6 million toward fire personnel, while no other single department accounts for more than 15% of the city’s general fund costs.

City staff will present more on Healdsburg’s upcoming budgets for the next two years during a special virtual City Council meeting at 4 p.m. Thursday and during its next regular meeting at 6 p.m. Monday.

You can reach Staff Writer Kevin Fixler at 707-521-5336 or kevin.fixler@pressdemocrat.com. On Twitter @kfixler.