The extent ultimately remains to be determined, but the coronavirus is already eating significantly into the city of Independence budget plans. City Manager Zach Walker this week told City Council members of projected hits of 6 to 16 percent in the general fund, which covers a wide range of services.
To help shore up a projected deficit after a couple months and to avoid giant cuts in the near future, City Manager Zach Walker is looking at drawing from the city’s fund balance and borrowing from the electric and water utility reserve funds to create a fund for plugging various gaps that arise.
The City Council’s Audit and Finance Committee unanimously recommended this week borrowing $25 from the two utility funds to set up a COVID-19 relief fund.
In addition, the Public Utilities Advisory Board majority recommended Friday giving electric ratepayers a rebate, with the size to be determined. Board member Mark McDonald said he would leave it up to city officials to decide how much or for how long.
Both items should be on Monday’s council agenda. The meeting will be conducted virtually via GoToMeeting, with council members and city staff joining in from their homes and other locations, and the public can view a live feed.
PUAB member Garland Land was the lone dissenting vote regarding the rebate. He said if the city would use IPL funds to help ratepayers in the current crisis, he would prefer they be used in a more specific way, such as the electric ratepayer assistance fund in partnership with the Community Services League.
“We do have a targeted way, if we want to assist people,” he said.
Land’s motion for that did not gain any support, but the board voted to place it on the next agenda after they gained more information.
Before the second week of March, when coronavirus cancelations started to happen everywhere, the city had shortfalls with projected revenue and had been looking at an approximately $500,000 deficit in the general fund for the fiscal year ending June 30, Walker reported to Council Members Karen DeLuccie, John Perkins and Scott Roberson, the council’s Audit and Finance Committee.
That would bring the general fund balance down to about $6 million, or 7.7 percent – half of the city’s ideal long-term target, Walker said. City officials know all the various public health measures to stop coronavirus spread will further hamper the usual revenue streams, particularly sales taxes.
The general fund covers all city departments not including the three utilities.
“Virtually every one of our city revenues (for the general fund) are anticipated to take a hit in some form,” Walker said. “If we make no changes, we will deplete the general fund balance in about 2½ months,” Walker said, and that’s presuming no other separate emergency pops up.
In the most optimistic scenario, with the virus peaking in late April in Missouri and tapering off before the local economy starts to recover in the summer, Walker projects the city would lose about 6 percent in sales tax. That doesn’t appear likely, though, he said.
Under the second scenario, with a mid-May peak and tapering off in June before recovery later in the summer, the city will lose about 16 percent of sales tax revenue and the general fund balance would be depleted without any changes.
In the third scenario, with a fall recovery, the city would have an additional 5 percent sales tax loss in the 2020-21 budget cycle on top of the earlier 16 percent.
Walker said he’s looking at somewhere in between scenarios 2 and 3, but “I’ve told our department directors we need to emotionally prepare and begin to plan for this third scenario.” He’s hoping a dip into the fund balance and some last-second budget slices can cover the current fiscal year through June, but an interfund loan would also help.
The proposed $25 million matches what the Power and Light and Water departments had set aside in case the council reconsidered the smart meter project it ultimately shelved last spring after voters gathered enough signatures to put the matter on the ballot.
The loan would be paid back from the general fund with greater interest than if those funds were invested in the private sector. Walker said the city charter allows an interfund loan if there’s a business purpose – in this case, greater return of investment. The city used a similar approach with the Parks and Recreation funds a few years ago borrowing from the Water Department to pay for the Uptown Market. The current crisis, Walker said, presents a more urgent opportunity.
Walker said he would prefer not to let the city’s general fund balance dip below 5 percent, as that could harm the city’s bond rating.
DeLuccie said the city should receive about $480,000 in the latest federal stimulus package that would be used as Community Development Block Grant funds with a variety of city programs.
Any federal relief dollars from disaster and emergency declarations won’t come to the city for a couple years, Walker said.
The council members recommended that the proposed relief money from utility funds come with monthly reports and that individual expenditures be approved by the council.
“My hope is we don’t need all of this,” Walker said of the proposed $25 million, “and repayment comes rapidly.”