Although the San Fernando City Council did not discuss any official business at it’s Jan. 16 meeting due to a lack of a quorum (Mayor Sylvia Ballin and Councilmember Joel Fajardo — though available by conference call — were absent and Councilmember Jaime Soto did not appear), City Manager Nick Kimball revealed that the recent, unexpected closure of the Sam’s Club store here has city officials trying to figure ways to replace the lost tax revenue.
That may include reconsidering whether to allow the burgeoning recreational cannabis industry to establish a foothold within the city limits.
“We need to diversify our income,” Kimball said .
Kimball said cannabis is probably the biggest thing that the city is looking at right now but added that “everything” is on the table, including seeking an extension to Measure A, the city’s half-cent tax first approved by voters in 2012.
“As far as additional taxes, we don’t want to overly burden the residents. So we’re always looking for ways to do business differently so we don’t need to raise revenue,” Kimball said.
“If you can do something like cannabis, that’s great, because then you’re taxing a certain industry that’s making money, as opposed to a property tax or taxes on the residents.”
Kimball said that the city council is “very open,” especially now.
One possibility is looking at regulating and taxing the cannabis industry. Another possibility is extending Measure A.
Currently, no cannabis industry is allowed in the City of San Fernando, but there are town hall meetings scheduled in the following weeks to inform and discuss the matter with residents before any decisions are made. The first one is tonight, Jan. 18, at 6:30 p.m. at Recreation Park in San Fernando. The next one is scheduled for Jan. 27 at San Fernando’s Las Palmas Park.
The closure of the Sam’s Club warehouse store, one of 63 nationwide, is a big blow to the City of San Fernando, which was hoping to be free of its $6 million deficit by 2020. That could have a huge residual financial effect on the city’s budget, given that Sam’s Club was one of the city’s top ten sales tax producers.
The city may still be receiving sales tax until the end of the fiscal year, but “it’s going to leave a hole in the 18-19 budget,” said Kimball. He said officials could not predict the amount.
“At this point there will be a short-term impact to that property being closed. We’re in the process of meeting with the property owner and figuring out what the deal is,” Kimball said.
Sales tax revenue is confidential, so it cannot be disclosed how much one particular business generates, but Kimball said Sam’s Club’s closure will lose the city hundreds of thousands of dollars.
“Even if a new retailer comes in right away, you still have 8 to 9 months of tenant improvements, minimum, and that’s if you have a new retailer lined up,” Kimball said.
The council will discuss the impacts during the mid year budget presentation, the second meeting of February.
In a letter to employees made public, Sam’s Club CEO John Furner explained the abrupt closures.
“After a thorough review, it became clear we had built clubs in some locations that impacted other clubs, and where population had not grown as anticipated. We’ve decided to right-size our fleet and better align our locations with our strategy,” he said.
While 10 of the 63 closed stores will be converted to fulfillment centers for online purchases, the future of the San Fernando location is not yet known.
On the positive side, Kimball noted, that location is a profitable location, which is a selling point to any new retailer coming in.
“There are so many variables at this point,” he said.
The closure of Sam’s Club is the biggest financial hit to the City of San Fernando since JC Penney closed in 2012.
Kimball said the last few years the city has been keeping its expenditures as flat as possible, but much of the financial recovery is due to Measure A which has provided a surplus since it took effect October 2013, reducing the deficit from $6 million to nearly $1 million and allowing the city to gradually build back its coffers.
Now the city will have to stop saving money and look for new sources of income.
“We are okay for now,” Kimball said. “If Measure A (which generates “$2.5 million per year) lapses and we don’t identify a revenue source to replace it, then the City will be on ver y unstable financial ground.”
Although Sam’s Club’s closure does cause the city to worry, Kimball is being optimistic.
“The good thing is, we are in a lot better spot to deal with it today, than we were three years ago,” he said. “If this happened three years ago, we’d be in a very tough spot.”