Local Governments Plan for Impact of COVID-19

4 May 2020

Communities across the country have responded to the COVID-19 crisis by implementing various stages of stay-at-home practices and shutdowns of nonessential businesses. While  those practices seem to have directionally reduced the feared spikes, they leave less money for local governments to pay for expected services such as public safety, trash collection, road work, and other programs. Now, governments seek how to maintain those services in their upcoming fiscal year budgets in the face of less revenue and more expenses. “Our community’s focus should rightfully be on keeping our people safe and healthy, and our business climate competitive, which is a very hard balancing act right now. Even more so, when we are more confident of our economic recovery, fewer resources will be available. Everyone, at home, at work, and at our city and county government levels will be making tough decisions on how and what to spend” says Sharon Stroh, VP at Greater Ottumwa Partners in Progress. 

“These times will require a proactive approach to find budgeting solutions,” said Ottumwa City Administrator Philip Rath. “We will need to look at new ideas to find creative solutions and provide a service package that makes sense.”

Increased local expenses

The COVID-19 crisis has led to an increase in unexpected expenses for local governments across the nation as they bear the brunt of responding to daily events. Hazard pay for emergency responders and police, purchases of personal protective equipment (PPE) and medical equipment like ventilators and treating or testing COVID-19 patients were all unexpected budget requirements. Fortunately the city of Ottumwa has not seen a significant increase in expenses yet.

“We have needed additional PPE and cleaning supplies to keep our employees and the public safe, but it has been an overall minimal increase in expenditures,” said Rath. 

Largest concern is decreasing revenues 

The other side of financial strain for local governments is decreasing revenues as businesses close and employees lose jobs while adhering to COVID-19 response requirements. The most significant concern for Ottumwa is the loss of aid the city gets from taxes. According to the Tax Policy Center, city and county governments got approximately 40% of their revenue in 2016 from taxes. Wapello County Supervisor Brian Morgan said tax revenue coming from citizens through property taxes will remain the same.

“They cannot be changed once the budget has been set,” he said. “However, income from sources like the road use tax, sales tax and hotel/motel tax are affected in a variety of ways.”

“As people stay at home, not shopping, driving and traveling as much, we know we won’t have the revenue to the extent we’ve had in the past,” said Rath. “And we will not have as much direct revenue from closed locations like the Beach aquatic center or Bridge View Center.”

Iowa Governor Kim Reynolds signed a new proclamation on April 27 to continue the State Public Health Emergency Declaration through May 27. It loosens social distancing measures in 77 Iowa counties, including Wapello, permitting retail establishments like restaurants, fitness centers, malls, libraries and race tracks to reopen in a limited fashion as long as they have public health measures in place. Local governments hope the return toward a more normal pattern of life will provide some relief, but it really is too early to tell the extent of the impact, said Rath.

“As businesses begin opening a little more, hopefully that will create more revenue for us and that will help a lot,” he said. 

Uncertain budgeting

As local and county governments add budgeting for the next fiscal year to their focus on the immediate COVID-19 crisis response, officials will take a calculated approach to replace lost revenues. Options such as dipping into reserve funds, redirecting funds assigned to maintenance projects or capital improvements, service cuts, layoffs, pay cuts and possible state or federal assistance are all part of the decision-making process. Morgan said supervisors work diligently to keep fund balances protected.

“Nevertheless, these are cautious times, and we’re thinking carefully on how projects are fulfilled,” he said. “It is realistic to think that the loss of taxes will delay or postpone projects that are currently in a 5-year plan, such as bridge and culvert improvements, equipment purchases and technology upgrades.”

The 2016 Tax Policy Center report indicated local governments got 32% of their general revenue from state government transfers. And if states are receiving less revenue from areas like property and income taxes, they may not be able to provide for local governments at regularly-sustained levels. 

Any assistance from the federal government for local governments is still in limbo. The National League of Cities, United States Conference of Mayors and National Association of Counties has supported the federal government including $250 billion in dedicated funding for all local governments. But federal government officials are still debating the best way to proceed in assisting local governments. 

Rath said the city is fortunate because it was already seeking alternative revenue sources in its budgeting process prior to the COVID-19 presence. Taking everything in total, he said it is a matter of balancing wants versus needs, and needs versus affordability.

“We all have to make tough choices in our daily lives in those regards,” he said. “It is only fair to expect our governments to do the same.”