Uncertainty around the length and severity of the pandemic has made it difficult to forecast revenue; however, the city has come up with estimates of loss for all five of its operating funds, and some are faring better than others, Assistant City Manager Shanna Sims-Bradish said at an April 20 council meeting.
The city’s fiscal year 2019-20 budget had already sustained unexpected losses due to the Oct. 20 tornado. Millions of dollars were spent on infrastructure repairs, emergency housing and more, City Manager Dan Johnson said.
“This has quickly become the year of challenges,” Johnson said.
Earlier this month, the Federal Emergency Management Agency announced it will not reimburse the city for damages related to the storm. And while appeals are underway, the city plans to pull $4 million from its reserves to cover that expense, Johnson said.
“As the year goes on, we should rely less on an assumption of getting [reimbursement from FEMA] and study a year-ending position that requires us to activate those reserves,” he said.
This year’s budget was also built with the impending strain of Senate Bill 2 in mind, Johnson said. The bill, signed into law by Gov. Greg Abbott on June 12, limits funding for municipalities by requiring voters to sign off on property tax revenue growth exceeding 3.5%.
Last summer, city staff estimated the revenue cap could inflict a $7.2 million hit to Richardson’s operational budget over the course of three years beginning in FY 2020-21.
Two disaster declarations signed by Abbott could exempt Richardson from the revenue cap, Johnson said. Staff will spend the next two to three months analyzing the city’s eligibility for those exemptions, he added.
Mayor Paul Voelker said the city must proceed with the baseline assumption that no assistance will be provided.
“Whether or not there is relief from Senate Bill 2, at this point in time we have to assume there won’t be,” he said.
The first six months of the fiscal year were “right on track” budget wise, Johnson said. It is the final six months as well as the entirety of FY 2020-21 that will prove challenging due to hamstrung resources, he said. Despite these challenges, the city is committed to maintaining its anticipated 70-day fund balance at the end of this fiscal year, Johnson said.
As a result, the city is rolling out numerous strategies to alleviate the strain of COVID-19 on the city’s finances. Those plans include freezing vacant positions, reducing departmental expenditures, delaying or canceling capital projects and equipment purchases, and canceling events and programs, among other items.
Fund-by-fund breakdown
The biggest loss is expected to come from the city’s general fund, which is sustained mostly through property, sales and franchise taxes, Sims-Bradish said.
A two-month payment lag means the city will not know the full effect of April’s shelter-in-place order on sales tax collection until June, Sims-Bradish said. However, staff is estimating an 18% reduction in budgeted sales tax revenue through the end of the fiscal year in October. This translates to a loss of about $6.8 million, she said.
Other strains on the general fund include a dip in property tax collection; the cancellation of city-held events, such as the Wildflower! Arts & Music Festival; and the slowdown of construction activity, which means the city is missing out on building permit fees. Overall, the city projects a $12.1 million loss in general fund revenue.
Revenue losses in the water and sewer fund are also expected, Sims-Bradish said. Some residents have been unable to pay their water bill, and the city is waiving late fees for those who are past due. Looking forward to the summer, the city projects some residents may decide against watering their lawns in order to save money.
A strong fund balance heading into this fiscal year should alleviate pressure on the water and sewer fund, Sims-Bradish said. The preliminary loss estimate is $3.1 million.
The majority of pressure on the solid waste fund comes from a slowdown in commercial activity, Sims-Bradish said. There are also some losses on the residential side because solid waste charges are tacked onto water bills, which some residents are unable to pay. The preliminary fiscal impact on this fund totals $500,000, Sims-Bradish said.
Tourism activity has slowed nationwide, and Richardson is no exception, Sims-Bradish said. Several hotels are reporting occupancy rates in the single digits, she said, and some were unable to make March hotel-motel tax payments.
“The hospitality industry took an immediate and deep hit,” she said.
The city projects this, along with a halt in Eisemann Center activity, will cause an estimated $2.1 million loss in hotel fund revenue, Sims-Bradish said. The city had saved about $1 million for a roof restoration project, and that money will now be redirected to the hotel fund balance.
The city’s only revenue stream that is not projected to lose any money is the Golf Fund. The Sherrill Park Golf Course remains open; however, inclement weather or a decision at the state level to reduce outdoor activity could change things, Sims-Bradish said.
Balancing optimism with realism
The city’s biggest challenge will be fiscal planning without knowing the rate of economic restoration, Johnson said.
“We will all be challenged to have our tone of optimism, but I want to propose a tone of realism,” he said.
Abbott announced a plan April 17 to begin slowly reopening the state’s economy. Retail businesses can now resume business under a to-go format, and elective surgeries are allowed under certain circumstances.
How the public reacts to these changes will provide insight into economic recovery in the long term, Johnson said.
Voelker urged the community to place trust in its city officials and to know they are doing everything they can to ensure the city emerges stronger than ever before.
“Hope is not a plan, but the Richardson way is something we can be proud of,” he said. “We plan our work, and we work our plan, and a plan is being put together to make sure we can weather this storm,” he said.
