Facing a level of uncertainty higher than experienced in decades, on Tuesday, April 14, the Greenbelt City Council began its review of City Manager Nicole Ard’s proposed budget for Fiscal Year 2021, which starts July 1. Business closures and other impacts from the coronavirus will significantly reduce city revenues.
Ard stated that in reacting to the coronavirus and its effects, she is “attempt[ing] to solely maintain essential services based upon anticipated return to lifted social distancing practices by June; however, this situation may evolve with a recovery window of up to 24 months.”
She also stated her goal to adjust city spending to protect current employees’ jobs.
Ard presented her proposed budget to council on Tuesday, April 14 and council met remotely for a worksession on Thursday April 16. The budget proposal was nearly complete when the coronavirus closures began. While the text in some of the budget proposal has been updated to reflect the impact, the revenue and expenditure numbers have not.
By state law, the city must adopt a budget by June 10. As key information (such as how long economic restrictions will remain in place and the nature of the reopening process) likely will not be available by then the city may need to make further adjustments throughout FY21 and possibly longer.
Revenues
The proposed budget called for estimated FY21 revenues of $33 million, a 5.7 percent increase from the FY20 budget. That estimate, however, has been overtaken by events. City Treasurer Laura Allen and Assistant City Manager David Moran presented their best estimates of the impact of the coronavirus at the April 16 worksession, providing council with a range of possible impacts.
For the current fiscal year (FY2020, which ends June 30), they estimate that revenue loss will fall between $1.4 million and $1.6 million from the $33 million projected in the proposed budget. This includes reductions in revenue from the hotel-motel tax, admissions and amusement tax, red light camera and speed camera fees, parking citations and the city’s share of the state income tax.
With the state delaying the income tax filing and payment deadline until July 15, the city might not know how much income tax revenue it will receive until later than usual.
In addition, the city will also lose disproportionate revenues from the closure of the Aquatic & Fitness Center, recreation classes, camps and similar activities, Moran explained, since March through September is when the city collects the majority of these fees.
Since it is unknown how long businesses will stay closed, estimating the impact on the FY21 budget is even more uncertain. Allen and Moran project that if the business closures remain in place until September, the likely impact will be a revenue drop of between $1.7 million and $2.3 million from the $33 million in the proposed budget. For the second quarter of FY21, they project a revenue loss based upon a partial reopening of city facilities and the economy during that period, a further reduction in revenues of $872,000 to $1.5 million.
Recognizing that many residents may have lost their jobs, Ard is not recommending increases to any city fees, including some code enforcement fees that the city had announced plans for raising during last year’s budget review.
The largest revenue reduction could potentially be the ability of commercial property owners to request a reduction (abatement) of their assessed property values. Unlike residential properties, which are assessed based on the value of the property, commercial properties are assessed based upon the revenue produced by the property. Such abatements can be retroactive and could reduce revenues for fiscal years 2020-2022. The estimated impact of such abatements, if city facilities are partially re-opened on September 1, could be as much as $1.5 million.
In total and crossing fiscal years, the potential loss of revenue from a seven-month closure (March to September) is estimated to be between $3.1 and $3.9 million. The potential lost revenues over nine months are between $3.9 and $5.3 million.
Expenditures
In addition to the drops in revenue caused by the coronavirus, the city has incurred some additional costs to permit many employees to work from home and for meetings to be virtual rather than in person. According to Allen, to date the city has spent roughly $10,000 to $12,000 for laptops and video conference licenses and at least $10,000 on other costs related to working remotely. These figures do not include other expenditures tied to the pandemic.
The city is continuing to pay all employees on the city’s payroll at the time of the closure of city facilities. In her budget intro, Ard wrote that she is assessing whether to continue paying certain part-time/seasonal workers should recreation services not return to operation by June 1.
There were a few small pieces of good news. The city’s health insurance costs, which had been projected to increase by 10 percent, will not change, saving $157,800. Further, a lower than expected interest rate on the state loan to cover dam repair will save $20,000 and a grant application that was not approved will eliminate the need to spend $33,100 in matching funds.
Recommended Plan
At the April 16 worksession, Allen suggested that as part of the budget process, the city should develop a plan defining how to adjust the budget to meet evolving conditions. She felt this would allow the city to rapidly react to changes in the coronavirus situation. In her budget introduction, Ard stated her desire to defer several actions to help reduce costs and preserve employees’ jobs.
Allen, Ard and Moran presented council with prioritized options for their consideration.
The options below are listed in priority order along with the midpoint of the range of the estimated potential savings.
In addition, the city has reserves (the unassigned fund balance) that can be used to help cover whatever gap remains between revenues and expenditures. The current reserves in the proposed budget are roughly 16.4 percent of expenditures. Ard recommends drawing down those reserves so that at least 12 percent of the balance remains. This will leave the city with the ability to sustain a longer shutdown or recovery period or other unexpected contingencies. While the city policy is to maintain at least 10 percent reserves, the Government Finance Officers Association now recommends 15 percent reserves and council has been meeting or exceeding that recommendation for the last few years.
Moran told council that if the fund balance gets down to 7 percent, it may be necessary to get a tax anticipation loan. He assured council that the city has done this before, and it is “not the end of the world.”
Note: the budget document and the estimated impacts described here are available at greenbeltmd.gov/government/ city-council/minutes-and-agendas (see agenda packet for April 16 budget worksession).
Item |
Potential Midpoint |
| Defer Compensation Study | $75,000 |
| Cancel nonessential travel and training | $116,200 |
| Leave certain positions vacant | $693,600 |
| Selective hiring freeze for future vacancies | Unknown |
| Draw down General Fund balance to 12% | $1,450,000 |
| Defer/Eliminate FY21 salary increases | $275,000 |
| Defer FY21 Capital Projects | $1,011,450 |
| Defer FY21 Replacement Fund purchases | $224,150 |