The downturn in Kern County’s oil industry is affecting hotel stays and may continue to depress sales tax revenue, forcing cuts to city spending, City Manager Alan Tandy has warned.
In his weekly memorandum to Mayor Harvey L. Hall and the Bakersfield City Council, Tandy did Wednesday as he has done several times this year: caution of the continued negative impact of oil prices, which hover around $40 a barrel and are expected by some to dip into the $30 range.
Oil prices are at a six-month low, Tandy said in his memo, citing U.S. Department of Energy data, and are down roughly 60 percent from where they were at this time last year.
Industry woes have cast a pall throughout Kern, the city manager noted:
• Countywide oil-related employment is down nearly 18 percent from the same period in 2014.
• Just six oil rigs in Kern County were active as of last week compared to 23 at this time in 2014. That’s a 74 percent decline.
• Hotel occupancy has declined during each of the past eight months in a month-to-month comparison to 2014, though exact numbers were not available.
City staff believes this is due in part “to the reduction of oil-related travel to the region,” Tandy wrote.
It’s not yet known how all this will affect Bakersfield’s fourth quarter holiday shopping but so far, 2015 has not been kind to sales tax revenue.
In the first quarter, revenue declined nearly 16 percent, prompting the City Council to trim around $4.9 million out of the new city budget due by June 30, cutting it to nearly $571 million.
Sales tax revenue did better during the second quarter, but only rebounded to a weak improvement of more than half a percent positive growth.
City officials estimate each percentage point of sales tax is actually worth about $700,000, making the weak second-quarter rise worth a little more than $400,000.
Tandy said the city forecast 2 percent growth in sales tax during the current fiscal year, which ends next June.
But after hearing earlier this month from Finance Director Nelson Smith that Bakersfield’s general fund could face a possible million-dollar shortfall if that growth fails to materialize, Tandy informed the council of possible “reductions to expenditure authorizations” ahead.
The city manager said Friday that Bakersfield might have to consider cutting “certain capital items.”
“We don’t expect a 16 percent drop in sales tax to re-occur, but it’s not promising, so very flat or a small decline is probably the best we can project,” Tandy said. “We will look to other line items if at all possible to get by. But it all depends on the numbers.”
Bakersfield expects to hear from the state about its third quarter sales tax performance in mid-December.
The City Council will get its annual mid-year budget update Jan. 20.
Councilman Terry Maxwell, who represents downtown, said he had expected oil industry problems to affect other facets of Kern’s economy, and predicted more oil layoffs if prices drop into the $30-per-barrel range.
“What happens with this next (third) quarter may give us an indication what road are we really heading down and what adjustments do we need to make. I think it’s a re-prioritization of where we’re spending our money,” said Maxwell.
A critic of Bakersfield’s major highway projects, Maxwell said these may be where the city has to cut.
“To me, spending money on the Thomas Roads Improvement Program should be put on the back burner,” Maxwell said, adding, “It may not be TRIP. It may be other things that we’re doing that we don’t need to be doing at this point.”