After enduring a two-month period in which it may have lost upwards of $5 million in tax revenue, the Orange Beach City Council will consider applying for a $10 million line of credit Tuesday to help cushion the financial effects of the COVID-19 pandemic. Mayor Tony Kennon likened the line of credit to an “insurance policy,” saying the city was hoping to take advantage of low interest rates and, if revenue doesn’t rebound, avoid depleting its cash reserves.
City Finance Director Ford Handley elaborated, adding it’s a “non-taxable line of credit that will allow us to pay for specific capital projects that we have already in the works, and we may or may not actually use it.”
Handley said the April financials have not yet been compiled, but during a 10-day period the city was effectively shut down in late March, it lost a little more than $1.5 million in tax revenue.
“The city has done a great job over the years making sure that we have enough cash in what I call our checking account to fund anywhere from three quarters of a year to a full year of operating operating expenses,” Handley said. “And basically what this line of credit is going to do is, the city is very close to being debt free in our general fund and the line of credit does not go against that debt limit. While the rates are as low as they are, it was a prudent play for the city to go ahead and secure [the line of credit], just in case this lasts longer, or if there’s another wave. That way we could still have cash to pay operating expenses, but then have this available for any capital projects that are either ongoing or may come up.”
The city’s major revenues — including sales tax, lodging tax, ad valorem tax, building permits, alcohol tax and gas tax — make up nearly 90 percent of the city’s nearly $60 million annual revenue, Handley said. In April, the city’s occupancy rates were below 10 percent, resulting in a projected loss of $2 million to $3 million, and similar losses are expected for the first half of May.
“The information that we are gathering from our partners like the [Alabama Gulf Coast Convention & Visitors Bureau] and Brett/Robertson and the other major lodging carriers is that they’re not back to normal. So until we see that, the city will continue to lose money over the next couple months,” he said.
Handley said the city was studying what relief may be available under the federal government’s $2 trillion CARES Act. In a budget amendment approved by the Alabama Legislature Monday, local municipalities stand to split $250 million of the state’s portion of the relief, although the formula has not been determined.
“Basically the city is going through their business like we will not receive anything,” Handley said. “That will be great, but we are monitoring all of our budgets and all of the departments are tightening up. And we’re monitoring personnel, overtime, like we would in any kind of disaster standpoint, and also tracking expenses related to COVID-19.”
Meanwhile, no capital projects have been delayed or canceled due to revenue shortfalls, Handley said.
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