photo by: Mike Yoder

Lawrence City Hall, 6 E. Sixth St., is pictured Thursday, July 7, 2016.

With some Lawrence businesses closing temporarily or seeing drastic reductions in customers because of the coronavirus pandemic, city leaders will soon need to manage how the potential drop in sales tax collections affects the city’s budget.

City Manager Craig Owens told the Journal-World this week that the city has already started to have conversations about the budgetary impact of the business slowdown caused by the pandemic. Owens said the city will have to consider how it will help stabilize the impact on businesses, their employees and the city’s finances.

“Our first thoughts are to those folks and those businesses,” Owens said. “And then yes, of course, we’re starting to do long-range financial planning and impact analysis on our budget, but it’s very preliminary at this time. We’ve really got our hands full with trying to get current operations stabilized and plan for this event, as long as it lasts.”

The local health department has prohibited public gatherings of more than 10 people and ordered all restaurants, dining facilities, bars, taverns, nightclubs and movie theaters closed to the public to help prevent the spread of COVID-19. Restaurants can still provide drive-thru, pickup and delivery services. The pandemic also caused the cancellation of the Big 12 and NCAA basketball tournaments, typically a busy time of year for Lawrence businesses.

As people stay home to reduce the spread of the virus, it could mean less spending and diminished sales tax collections citywide. Compounding those factors is the cancellation of in-person classes at Haskell Indian Nations University and the University of Kansas, meaning that potentially thousands of students will not remain in Lawrence.

Owens said he expected to see “a version” of the economic impact that cities dealt with during the 2008 recession, but that it was still a question of magnitude depending on how long the pandemic lasts. He said the city will have to build scenarios that deal with both short and prolonged recessions.

Part of the discussion will be sales tax collections, which make up a significant part of the city’s revenue. The city’s 2020 budget assumes a sales tax growth of 2% and projects sales tax revenues of about $42.3 million, which amounts to about 20% of the city’s total revenue. However, due in part to the city’s heavy reliance on sales tax collections, the city also has policies that aim to ensure a certain level of savings.

The city’s policy regarding its savings level aims to keep the money in the city’s general fund reserve equal to approximately 25% of its expenditures. The 2020 budget projects general fund reserves of about $20 million, or about 24% of expenditures. Getting a gauge on where those numbers sit today, though, is not necessarily straightforward.

Finance Director Jeremy Willmoth told the Journal-World via email that the current general fund balance is about $34 million, but that figure is skewed higher because of the timing of revenue deposits and expenses. More specifically, he said the city’s property tax is predominantly received in the first few months of the year but expenses occur all year long. Additionally, he said the capital improvement reserve fund has about $9.7 million.

Willmoth said he will be presenting the City Commission in April with a first-quarter update on the city’s finances, which can then be compared with the same time period in 2019. He noted that sales tax collections in January through March are for sales that occurred November through January, so the city will not know the full financial impact of the virus until May and June. He said the city will have the most accurate picture of its reserves in the fourth quarter.

Owens said conversations have begun regarding the options on the table for addressing the economic impacts of the pandemic and an eventual economic recovery, and that will involve Douglas County’s emergency planning, the chamber of commerce and the city. When it comes to the city’s finances, Owens said the city’s upcoming budget process will include multiple options for the Lawrence City Commission to consider.

“We’ll definitely have some scenarios that appraise the impact possibilities,” Owens said. “But everybody who lived through (the 2008 recession) will remember that those were uncertain times and we didn’t know how long the impacts were going to go and so we had check-down lists of how we would address those (scenarios).”

Owens said it’s too early to say whether options put before the commission would include spending reserves or what other specific options might be on the table.

“It’d be too early to really project on what we would do, but those scenarios will include a long list of options and ultimately that’s a community conversation and a conversation the commission will have,” Owens said.

The city’s budget process is currently scheduled to begin on June 9 and the overall budget is scheduled for adoption on Aug. 11, according to the city’s schedule. However, some commission agenda items and other meetings have been postponed, and Owens has told the commission that the budget schedule may need to be adjusted as a result.