Nestle, Chevron, and State Farm to Cut Jobs in California
The local economy in Bakersfield, California is getting hit hard by a number of layoffs. Chevron Corporation (NYSE:CVX) said that it will lay off around 300 employees, Nestlé USA, Inc. said that it is temporarily laying off close to 600 of its workers at its Häagen-Dazs ice cream plant, and State Farm announced that in 2021 it will be leaving the city altogether.
The layoffs and associated economic decline will result in a municipal budget deficit, which will lead to government cost-cutting and a loss of services for those living in Bakersfield. It could also result in the introduction of a local sales tax in order to close the budget gap.
In May, State Farm announced plans to shutter facilities in 11 U.S. markets, including Bakersfield and Petaluma, California. The company will be moving operations to its headquarters Bloomington, Illinois and to offices in cities such as Atlanta, Dallas, and Phoenix. The nationwide cuts of 4,200 jobs comes after the largest U.S. home and auto insurer reported a $7.0-billion annual underwriting loss in 2016 on auto insurance policies.
In September, Nestlé announced that it will temporarily lay off 598 employees in Bakersfield in November, December, and early January. Nestlé said the layoffs are a result of production slowdowns. In nearby Tulare, the local Häagen-Dazs ice cream plant will be temporarily laying off 217 employees.
In October, Chevron announced that it is reassigning or laying off 26% of its Central California workforce, which is around 300 employees. The oil and gas giant is gutting its staff because of depressed oil prices. This news comes after a difficult year for the company. In 2016, Chevron reported a $497.0-million loss, after recording earnings of more than $4.6 billion in 2015.
Bakersfield’s General Fund Suffers Due to Massive Job Losses
There’s an economic trickle-down effect from the layoffs that will hurt the Bakersfield economy for years. As it stands, the five-year outlook for the Bakersfield government’s general fund looks bleak. The city expects that, in just two years, the general fund will report a deficit of $8.0 million. In five years, the general fund deficit is expected to balloon to $16.5 million.
Assistant City Manager Chris Huot noted that the general fund pays for firefighting, police, roads, and municipal code enforcement—”the general city services that everyone experiences every day.”
While there is no single incident that has caused the budget shortfall, the events that impacted the general fund the most have been the widespread Bakersfield layoffs, most notably those at Nestlé’s Häagen-Dazs facility, State Farm, and Chevron.
The job losses will result in a significant drop in disposable income among residents, which means less shopping, less sales tax collected, and less money for the general fund.
In Bakersfield, around 33% of the general fund comes from state and county sales tax. Less sales tax revenue means the police and fire departments (which account for 62% of the general fund’s expenses) will face layoffs. Non-essential services could also be affected, including lawn-mowing, streetscape maintenance, preventative roadwork, and facility maintenance.
“State Farm Announces 2016 Financial Results,” State Farm, February 28, 2017.
“State Farm Announces Plans to Consolidate Facilities,” State Farm, May 4, 2017.
“WARN Report,” State of California Employment Development Department, last accessed October 30, 2017.
“Chevron announces it will cut its local workforce by 26 percent,” The Bakersfield Californian, October 18, 2017.
“Chevron Reports Fourth Quarter Net Income of $415 Million,” Chevron, January 27, 2017.
“City of Bakersfield, CA FY 2017-18 Proposed Budget,” City of Bakersfield, last accessed October 30, 2017.
“Bakersfield considering layoffs, tax hikes amidst bleak financial outlook,” Bakersfieldmow.com, October 27, 2017.