Preparing For The Pandemic’s Impact On Municipal Budgets…
Traditionally, the first week of April stretches the capacity of Moab’s tourism and hospitality industries with the Jeep Safari. This year, the hotels and restaurants are empty. Though the public safety personnel might not be complaining, the budget officers will be when they receive their transient room tax revenue.
The economic impacts of the COVID-19 pandemic seem to be unprecedented in recent history. In a recent survey taken by hundreds of municipal finance directors, only 5% expected that the current economic climate would result in an impact to city/town revenues and expenses of less than 10%. Most estimated a 30% shift, with a great deal of uncertainty about the long-term.
Each community is different, but all leaders need to be aware of the ways that this pandemic could impact their ability to operate into the future. Leaders need to have difficult conversations about the following possibilities:
- Sales tax losses;
- Tourism and hospitality (TRT) decreases;
- Loss of economic activity due to online-only education facilities;
- Potentially delayed passthrough funds;
- Loss of user/license fee revenue;
- Significant reduction in transportation/fuel tax revenue; and
- Federal stimulus relief that does not prioritize local government needs.
Though it is too early to tell what the impact of the current crisis will be, there are lessons learned from prior events that give insights into steps that can be taken by cities/towns to better position themselves for the future. Regardless of the size and type of community, there are steps finance officers can take now to put the organization in a better position when “business as usual” isn’t an option.
- Help decision-makers understand where they are today. This work should involve creating concise reports that identify the potential “budget busters”, impacts to revenue streams, and changes in demand for services.
- Learn from the past. If data is available, look back to decisions the organization made following 2001 and 2008. Obviously, the impact of today’s crisis will be unique, but there are likely lessons learned from previous events.
- Ensure liquidity. In addition to ensuring that leaders understand the city/town’s cash reserve levels, finance officers should communicate with external partners (i.e. grant providers) to make sure they understand the expected impacts. These agencies might not have all the answers, but as a recipient, you need to understand their ability to follow-through with commitments as expected.
- Shovel-ready projects. Previous events have typically led to stimulus packages that include new funding for infrastructure projects. These can be excellent opportunities for local governments and special districts that have updated capital improvement master plans.
- Evaluate the debt structure. An economic slowdown may provide an unexpected opportunity to preserve cash by bonding for capital projects at low and/or subsidized rates.
At the end of the day, the first step in dealing with the impact of this pandemic is to get perfectly clear about the things you can control, and those you can only influence. Once you know your options, you can take action.
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