City projections estimate multimillion-dollar revenue loss due to pandemic; Lawrence leaders to consider budget changes

photo by: Mike Yoder

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

Revenue projections estimate the City of Lawrence will lose millions — more than $8 million in the most optimistic scenario — due to the coronavirus pandemic, and city leaders soon will discuss potential changes to the budget as a result.

As part of its meeting Tuesday, the Lawrence City Commission will receive updated 2020 revenue projections due to the pandemic and resulting economic slowdown and direct city staff regarding several policy decisions impacting the budget. Those include how much of the city’s savings commissioners are willing to spend down, what service reductions they would consider, and what fee or tax increases they would or would not consider.

Finance Director Jeremy Willmoth emphasized that the numbers are only projections at this point, as the first data on sales tax collections impacted by the pandemic won’t be known until late May. Willmoth said the projections are based on financial models and trends, and aim to give the commission and the public a feel for what the city is anticipating.

“We’ve been trying to track and monitor as best we can the national trends, even some international trends, to try to get an understanding of what we think is going to be the impact,” Willmoth said. “Clearly Lawrence has never seen an event of this kind. I’m not sure anybody has.”

Revenue projections

A significant part of the city’s revenue comes from sales tax collections, and the revenue projections take into account restaurant, bar and retail closures, as well as other impacts to city revenue streams related to the virus, according to a city staff memo to the commission. The projections currently include three potential scenarios, based on an economic slowdown that lasts either three, six or nine months. Willmoth said at this point the projections do not consider what could happen should there be a second wave of infections in the fall, as some health officials have said is possible.

The projected hit to general fund revenue is about $7.8 million for a three-month slowdown, $9.8 million for a six-month slowdown and about $12 million for a nine-month slowdown. Though the general fund will see some of the biggest financial impacts, projections are also made for nine other funds, including, among others, the capital improvement reserve, guest tax, public transportation sales tax, recreation and housing trust fund.

For the guest tax fund, the projected revenue loss is about $380,000 for a three-month slowdown, $750,000 for a six-month slowdown and $1 million for a nine-month slowdown. For the recreation fund, the projected revenue loss is about $1.6 million for a three-month slowdown, $2.4 million for a six-month slowdown and $3.3 million for a nine-month slowdown. The memo includes revenue and reserve projections for each of the 10 funds.

Reserve balance projections

The projected fund balance in the general fund, which essentially functions as the city’s savings account, is also estimated. The city’s policy regarding its savings level in the general fund aims to keep reserves equal to approximately 25% of its expenditures. The 2020 budget originally projected general fund reserves of about $20 million, or about 24% of expenditures.

According to the policy, the fund balance in the general fund may be reduced to a level below the 25% target to provide temporary funding for emergency needs in the case of a natural disaster, prolonged economic downturn, or other non-recurring need at the governing body’s discretion. The memo notes that fund balances affect the city’s debt ratings, and that better debt ratings lead to better interest rates.

The projections estimate that the general fund’s reserve balance will fall to about $17.7 million for a three-month economic slowdown, about $16.8 million for a six-month slowdown and about $14.6 million for a nine-month slowdown.

The city also has a significant fund balance in its capital improvement reserve fund, which the 2020 budget originally projected to be about $9.7 million. The projections estimate that the capital improvement reserve fund’s balance will fall to about to about $8 million for a three-month economic slowdown, about $7.8 million for a six-month slowdown and about $7.4 million for a nine-month slowdown.

Budget questions

The resources used to revise the city’s financial forecast and provide the new projections included models endorsed by the Government Financial Officers Association, best practices identified by the GFOA and the International City/County Management Association, and review with industry leaders in forecasting, prioritization and budgeting during financial hardships, according to the memo. As part of Tuesday’s meeting, city staff will ask commissioners to provide direction on several policy questions regarding the current year’s budget and the upcoming budget for 2021.

For the current year budget, staff want to know how much fund balance commissioners are willing to spend down from the general and other funds; how quickly they want fund balances reinstated; and whether they have any concerns with the assumptions staff used to determine the financial impact. For the 2021 budget, staff want to know what service level reductions commissioners would consider; what fee or tax increases they would and would not consider; and whether they continue to support market-rate pay for primary city employees, police, and fire and medical employees.

The projections will be the best information city leaders have to go on for at least a couple of weeks, if not more. The state distributes sales tax revenues to cities about two months after they are collected, meaning that collections from March are not received until the end of May.

Since local stay-at-home orders and widespread business closures didn’t occur until the second half of March, Willmoth said the sales tax collections the city will receive at the end of May will only show preliminary revenue impacts. Willmoth said the city wouldn’t see the more widespread impact until the sales tax receipts from April are received at the end of June.

The City Commission will convene virtually at 5:45 p.m. Tuesday, with limited staff members in place at City Hall, 6 E. Sixth St. The city has asked that residents participate in the meeting virtually, if they are able to do so, using temporary meeting procedures put in place to help stop the spread of the coronavirus. Directions for submitting public comment and correspondence are included in the meeting agenda that is available on the city’s website, Lawrenceks.org.

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