After some good surprises, city’s revenue shortfall for 2020 now projected to be less severe than anticipated
photo by: Chris Conde
As the coronavirus pandemic and related health orders closed and limited businesses, the City of Lawrence planned for multimillion-dollar revenue losses. However, that worst-case scenario did not occur, putting the city in a stronger-than-anticipated position going into 2021.
Though the city did see significant drops in several revenue streams, some were not as bad as expected, and the pandemic created some surprise revenue increases in other areas. Ultimately, after preparing to spend up to about $7 million of general fund reserves to make up for revenue losses in 2020, the city now projects it will have to spend only about $1.53 million of reserves, according to a recent financial projections report prepared by the finance department.
The new projections will positively affect this year’s budget, giving city leaders more flexibility than anticipated as they prepare to make amendments to the “placeholder” budget approved for 2021. Based on the larger amount of spending from reserves, Finance Director Jeremy Willmoth said the city budgeted to start making payments of a few million annually beginning this year to start replenishing the reserves. With that no longer necessary, the city will have more flexibility when it amends the 2021 budget in the coming months.
“I would say predominantly what it means is we won’t have to be as stagnant on new programs as we originally anticipated,” Willmoth said.
In addition to property taxes, charges for service and other sources, about 20% of the city’s revenue comes from sales taxes, which can be a volatile revenue source. In the first months of the pandemic, the City Commission decided to prepare for the city’s worst-case scenario revenue projections, which estimated overall revenue losses of 25%, amounting to several million dollars. However, sales tax collections fared much better. As of December, overall sales tax collections are down by only about $961,000, or by about 3.7%, compared with the same period in 2019, according to the December sales tax report.
Mayor Brad Finkeldei said the city decided to take a conservative course because it was not known how local industries would respond to shutdown orders and other restrictions. But Finkeldei said many businesses found effective ways to adapt, and that has made a difference for the city.
“The businesses that rebounded, adapted, adjusted — and worked their tails off — to make it work really helped the bottom line from the sales tax point of view,” Finkeldei said.
While many sectors did see significant declines in sales, Willmoth said that some businesses, such as restaurants, have lost significantly less revenue than the city initially projected. A few industries also saw increases in sales during the pandemic, meaning the city actually saw sales tax collection increases over this time last year in those sectors. Willmoth said those less-severe decreases and the increases helped offset losses in other sales tax collections.
Specifically, three of the 13 sectors saw increases. Sales tax collections at building material and garden supply stores — which would include home improvement and other similar stores — as of December are up about $262,000, or by about 15% compared with the same period in 2019, according to the city’s December sales tax report. Collections from another winner of the pandemic, grocery stores, are so far up about $201,000, or by about 6% compared with 2019. Collections from construction are up by about $57,000, or by about 10%.
The food services sector is so far down about $302,000, or about 12% compared with 2019. While it is a significant decrease, the city projected restaurant losses to be much worse, more than double the current projections. Willmoth credited restaurants with quick adjustments to how they did business that made those losses less severe.
“Our local restaurant industry’s ability to pivot and offer options to people that were socially distanced and safe really helped what was going to be a 25% loss be a 12% loss,” Willmoth said.
With many local events canceled and travel discouraged, the sector with the biggest losses has been the hotel industry. Sales tax collections from hotel accommodations are down about $217,000 as of December, or by about 21% compared to the same period in 2019. Other sectors with decreases, though not as severe, include motor vehicle and parts dealers, retail trade and wholesale trade.
The city also collects what is called a use tax for sales or services made outside the city but with Lawrence residents or businesses as recipients. Overall, the total use tax is up by about $394,000 as of December, or by about 12% when compared with the same period in 2019. The sector with the biggest increase has been use taxes charged for nonstore retailers, which Willmoth said includes purchases made on Amazon and other online sales. Collections from those sales have so far increased by about $250,000, or by about 40%.
All things considered, sales tax collections being down by less than 4% compared with 2019 was far better than anticipated when compared with the city’s initial conservative outlook, according to the report.
Other revenue streams
The finance department also recently put together a projections report comparing overall revenue and expenditures between 2019 and 2020, as well as to the city’s revised 2020 budget.
Willmoth said significant revenue decreases came from the loss of recreation fees, parking enforcement fees and the liquor drink tax.
The city recreation facilities were closed or limited for much of the year, and the city ceased issuing parking tickets downtown for several months at the beginning of the pandemic. The public parking fund was down about $555,000, or by about 38%. The recreation fund was down about $1.7 million, or by about 29%.
As many bars and other establishments selling alcoholic drinks by the glass were closed or limited much of the year, the city also saw substantial decreases in collections from the liquor drink tax. Collections for those sales were down by $742,000, or by about 32%, according to the projections report.
However the overall picture is still better than once feared, as Willmoth said the city had expected to have to spend about $7 million of general fund reserves to make up for revenue losses in 2020. Some expenses also came in lower, with the city spending about $2.6 million less than anticipated, according to the projections. All told, the city now projects it will have to spend only about $1.53 million of reserves.
Looking forward to the rest of 2021, Finkeldei said it was still unknown exactly what the new year would look like when it came to sales tax collections. However, he said the better-than-anticipated projections for 2020 put the city in a better position as commissioners prepare to amend the 2021 budget.
“Part of that budget included starting to pay back a potentially $4 (million) or $5 million loss (in the city’s reserves), so now we won’t have as much to pay back over time,” Finkeldei said. “That just off the bat makes our budget better.”
Revenue figures for 2020 are still projections, as final figures will not be known for a couple of months. Regarding the current year budget, Willmoth said once the commission started making amendments, it would go from a placeholder budget to a strategically prioritized budget. He said the commission would be making amendments each quarter, with the first to occur in March or April.