Municipal budgets likely to be adjusted to account for revenue loss

The city of Fairhope is currently operating under a $30 million general fund budget, a third of which is paid for by local sales taxes. But as the COVID-19 pandemic grips the nation, retailers, restaurants and lodging are closing their doors, cutting off not just services to the general public, but vital revenue for municipalities.

The financial impact of the pandemic won’t be fully known until well after it has passed, but Fairhope Treasurer Kim Creech said early indicators could be available as soon as April 20.

“Right now there are a lot of people shopping,” Creech said, adding many restaurants are offering takeout orders while grocery stores and big-box retailers have increased sales to people who are choosing to stay at home. “I don’t think we’ll notice it from the March sales so much, but it’s too early to tell.”

Still, in her report after the Fairhope City Council meeting Tuesday night, Mayor Karin Wilson said Creech and the finance department had already identified nearly $2.6 million in currently budgeted items that could be delayed or canceled to keep the ledger balanced.

“We went through everything, line by line, and determined what was essential right now until we know what we look like after the crisis,” Wilson said, identifying potential cuts to nearly every department including police and fire. “This is the beginning. It’s the low-hanging fruit and with every purchase we make regardless of the cost, we’re going to really look at these and make sure if it’s something we need right now.”

One example, Creech said, was more than $70,000 in vehicle orders for the utilities department approved by the City Council on March 12. Those purchases are currently on hold. Perhaps more ominous is a $5 million contract for drainage and infrastructure improvements along Church Street, one of several ambitious projects the city is pursuing to improve water quality.

A low bidder for the project was identified, but Creech said it has not been approved by the City Council and the bidder allowed the city to place a 90-day extension on the award until finances could be further evaluated.

“We’re trying to prepare ourselves to make sure if those revenues aren’t going to come in, we’re going to push those expenditures off,” Creech said.

Fairhope has a $7 million rainy day fund, which can be tapped at the council’s prerogative. Municipalities are not required by law to have cash reserves, Creech said, but school systems are. As a best practice however, guidelines suggest it should be at least 20 percent of the annual budget.

Creech accepted the job with the city of Fairhope last year, after serving nine years as clerk/treasurer for Baldwin County. There, she was a staff member through the 2008 recession and the 2010 BP oil spill.

“I try to look at it like the BP oil spill,” she said. “The tourists left, we had what I call a small bump, but the county has large reserves, so they should be fine. But if this extends into the summer months, that’s when it would be more of a problem for the city of Fairhope and the county.”

Baldwin County Budget Director Ron Cink said in a text message Monday he was “dusting off the BP stuff” to review, but it would be a few days before he could analyze it and make any projections.

“It’s kind of similar to [the pandemic] where economic activity slowed but there was no infrastructure damage,” he wrote.

Meanwhile, on Tuesday, the city of Gulf Shores announced it was postponing sales and lodging tax payments for local businesses engaged in “NAICS Sector 72” business activities, which includes restaurants and food service providers, all local businesses that currently collect and remit lodgings tax and any local business whose retail sales during the previous calendar year averaged $62,500 or less per month.

“We understand some of the public health decisions that are having to be made to help curb the spread of COVID-19 are going to have a significant impact on our local businesses and employees. It is our hope that this action will help ease the burden for local businesses who may be financially impacted by this health emergency,” Mayor Robert Craft said in a statement. The waiver is consistent with a similar action taken by the Alabama Department of Revenue to waive late payment penalties for state sales and lodgings tax payments, and “applies to sales and lodgings taxpayers who are unable to timely pay their February, March and April 2020 sales and lodgings tax liabilities.”

Normal filing deadlines still apply, but qualified businesses do not have to pay the municipal or state sales and lodging tax reported as due. Late payments are waived through July 1, according to the city of Gulf Shores.

While the financial impact remains unclear, further adjustments should be expected in other municipal budgets nationwide.

“The one thing I can say is the leadership at the county during [the 2008 recession], they started seeing what was going on with housing and we started cutting our expenses back,” Creech said, noting the Commission immediately moved to place $5 million into reserves. “They even got to the point where if you needed to hire somebody, you had to go to a separate committee. They looked at every line item closely and we were able to cut along the way, way before the major hit happened.”