When people stay home and businesses close, it helps keep the coronavirus in check, but it also leaves local governments with less money to pay for policing, fighting fires, collecting trash and other services.
Most of that money comes from property taxes, but the sales taxes we pay when we go shopping and the local fees paid for things like parking, recreation programs and construction projects also fill a critical hole.
Occupancy taxes on hotel rooms and food and beverage taxes paid on a night out help promote tourism and visitor spending. In the Triangle, a half-cent sales tax and rental car fees help fund local and regional transit projects.
Local government officials say they haven’t been able to focus on the financial impact of the coronavirus pandemic because they’ve been responding to the immediate crisis: making sure residents can get food, housing, information and access to online education.
But this is budget season, and state law requires city and county governments to approve a spending plan by June 30 each year.
In July 2019, the N.C. Department of Revenue reported returning over $3.5 billion in sales taxes to all 100 counties during the previous 12 months. Cities and towns get over $1 billion of that each year, said Scott Mooneyham, spokesman for the N.C. League of Municipalities
No one knows the full damage the coronavirus could do to local government budgets, Mooneyham said.
The state collects sales tax revenue and returns a share to local governments. But it takes three months to get that information, officials said. That means cities and counties won’t know how much tax was collected in April until July.
The state’s stay-at-home order further complicates things, Mooneyham said, because it lets businesses delay paying their sales taxes.
Mooneyham expects financial problems for local governments well into next fiscal year, which runs from July 1, 2020, to June 30, 2021.
Shortfalls will leave positions unfilled and could cost current employees their jobs, since personnel costs make up the majority of the expenses in local government budgets. It could even put vital services, such as law enforcement and fire departments, on the chopping block, Mooneyham said.
“Ultimately, the only way even larger cities are going to be able to weather this without some federal or state help is going to be by making cuts in their budgets,” he said.
Smaller and rural towns that run their own utilities could take another hit, he said, as customers get more time to pay their bills and large, industrial customers cut back on their operations, reducing how much they pay for those services.
There is one silver lining, Mooneyham said.
“Fortunately, in this state, we have some of the most financially responsible local governments, and we have a Local Government Commission … that looks at debt, looks at these issues,” he said. “By and large, for a lot of the big and medium-size cities, they have budget reserves that can help them … weather this, but for how long? That’s the question.”
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CITY OF RALEIGH
▪ 2019-20 total budget: $1.04 billion
▪ 2019-20 general fund budget: $518.99 million
▪ 2019-20 total property tax revenue: $271.4 million
▪ 2019-20 total sales tax revenue: $106.6 million
During her first official act as Raleigh’s new mayor, Mary-Ann Baldwin announced a quality of life bond package to support affordable housing and upgrade the city’s park system. The coronavirus has changed those plans.
“We won’t be having a parks bond,” she said. “We will focus this year on the housing bond. We are going to need that now more than ever.”
The details are still being worked out, but she expects the housing bond will be about $75 million and will help the most vulnerable including those who are homeless. While the coronavirus pandemic is unlike anything Raleigh has seen in recent history, Baldwin is pulling from her experience on the council during the Great Recession of 2007-09.
“Our goal was to ensure we didn’t lay off any employees, and I think that has been a tradition and one we are going to want to keep,” said Baldwin, who served on the City Council from 2007 to 2017 before being elected mayor in 2019. “But we are going to have to dip into reserves, cut back on maintenance and new purchasing and contracting.”
If there is a property tax increase in the city, Baldwin said, it would be to address public safety staffing.
Different budget scenarios based on how long the pandemic lasts are being explored, said Mary Vigue, Raleigh’s budget and management services director.
“At some point, as an organization, we are going to have to understand all the information and make some hard decisions at city council,” she said. “And some of that will have to wait until the last minute.”
▪ 2019-20 total budget: $1.47 billion
▪ 2019-20 general fund budget: $1.47 billion
▪ 2019-20 total property tax revenue: $1.1 billion
▪ 2019-20 total sales tax revenue: $204 million
Wake County Commissioners Chair Greg Ford said he won’t support a property tax rate increase this year.
“The board has not discussed this as a whole, so I can’t speak for them,” he said. “But I will say I will not support any tax increases for fiscal year ‘21. And I can’t imagine many other elected officials supporting a tax increase. To raise taxes in this climate would be irresponsible.“
The county has already frozen all vacant positions, and more cost-saving measures are being considered, Wake County spokesperson Dara Demi stated in an email.
“As a result of this sudden and significant reduction in economic activity associated with COVID-19, Wake County is projecting property and sales tax revenues for Fiscal Year 2020 and FY 2021 to be much lower than estimated,” she wrote. “This unexpected decrease in revenue leaves the county with significant budget gaps for both fiscal years.”
On Monday, the Wake County commissioners agreed to take $8.8 million from the county’s fund balance to pay for personal protective equipment for staff, overtime for employees in the county’s COVID-19 call center and other expenses. Some of that money, which comes on top of $2 million approved in March, could be reimbursed by the federal government.
CITY OF DURHAM
▪ 2019-20 total budget: $477.8 million
▪ 2019-20 general fund budget: $215.8 million
▪ 2019-20 total property tax revenue: $108.46 million
▪ 2019-20 total sales tax revenue: $68.71 million
If the financial impact of the coronavirus impact lasts a year, the city of Durham, with a budgeted general fund reserve of about $40 million, might be able to manage the disruption over time, City Manager Tom Bonfield said.
“If this is something that we truly believe is going to have a multi-year impact, I think that is going to require us to take some more drastic looks at things like cuts and employee layoffs,” he said.
What projects might end up on the chopping block will be up to the City Council, but Bonfield said the city likely won’t move forward with a plan to hire 16 firefighters next year.
Property taxes provide about 39.2% of the city’s revenue.
Beyond concerns about the sales tax — the biggest anticipated loss — the coronavirus also will likely result in loss of revenues tied to parking and entertainment venues owned or supported by the city.
The pandemic could lead to long-term changes in people’s travel and social plans, from shows at the Durham Performing Arts Center and the Carolina Theatre to support of the Durham Arts Council and city festivals.
“I think for some time there is going to be a real tamping down of a lot of large-gathering events,” Bonfield said.
▪ 2019-20 total budget: $658.22 million
▪ 2019-20 general fund budget: $501.84 million
▪ 2019-20 total property tax revenue: $306.89 million
▪ 2019-20 total sales tax revenue: $87.37 million
Durham County Manager Wendell Davis said too many evolving factors are at play to predict how the pandemic will affect county finances.
People have lost jobs and wages. Many will receive federal relief checks, but it’s unknown how many will have trouble paying their property taxes. And then there is the lost sales tax revenue from the closing of The Street at Southpoint and other shopping destinations.
“I think it is too early for us to jump out there and say what is going to be the outcome given all the uncertainty with just trying to deal with COVID-19,” Davis said.
The best-case scenario right now, he said, would be for the county to move forward with a flat budget and then re-evaluate revenues and adjust later.
County officials also will have to re-evaluate planned projects like parking decks and school construction.
“All of that stuff will have to be evaluated or re-evaluated once we have a better understanding of really what is happening on the revenue side of the ledger,” Davis said.
Orange County’s local governments aren’t counting on anything, their managers said.
Carrboro Town Manager David Andrews sees a potentially small sales tax boost from increased shopping at home improvement and garden stores. Otherwise, small businesses are hurting, the managers said.
That especially applies to restaurants and shops that rely on UNC’s students, faculty and visitors, Chapel Hill Town Manager Maurice Jones said. Without the big boost from Mother’s Day and graduation parties this year, many restaurants face an especially difficult time surviving the town’s slower summer season.
In Carrboro, residents and businesses have banded together to support local restaurants. The town has worked with the Carrboro Farmers’ Market to ensure local food producers can keep selling, Andrews said, and will provide businesses and nonprofits with no-interest loans. The town is reviewing 45 to 50 applications now, he said.
In March, the Orange County Board of Commissioners also approved a grant and loan program for small businesses across the county. The deadline for applying to that program is April 10.
“Everybody in Orange County, from the elected officials to the staffs of the various jurisdictions, the business community, the nonprofits, everybody has just pulled together to do an outstanding job at every level,” Andrews said. “But there’s still more work to be done, because if we’re like everyone else, we’re moving toward the peak.”
The Chapel Hill-Carrboro school board also acknowledged the coming financial difficulties during Thursday’s discussion of the Project Advance program. The professional development program that started in 2016 will end when the grant funding runs out June 30. The board is considering options for how to keep paying teachers the bonuses they earned through that program.
“I have some general concerns that revenues from taxes will be lower in the coming year and we have to really rethink how we offer instruction given the environment that we’re in,” board member Rani Dasi said. “I would encourage us to maybe spend some more time looking at the budget before we make a final decision on this.”
Here’s how Orange County, Carrboro and Chapel Hill could be affected by COVID-19:
▪ 2019-20 total budget: $271.17 million
▪ 2019-20 general fund budget: $237.12 million
▪ 2019-20 budgeted property tax revenues: $171.42 million
▪ 2019-20 budgeted sales tax revenues: $29.44 million
In Orange County, sales taxes pay for roughly 11% of the $237 million general fund expenses, while property taxes pay about 70%. The remainder includes service fees, grants and other non-local resources.
Roughly 31% of this year’s county budget paid for public safety — the Sheriff’s Office, courts and emergency services — while another 37% paid for human services, including housing, social services, senior programs and libraries.
Orange County already has a hiring freeze, except for health and public safety positions, Deputy County Manager Travis Myren said. It’s also cut back on discretionary spending and postponed contract work that wasn’t critical.
Now, staff is scouring department budgets and anticipated construction projects for more savings, Myren said. The budget cuts aren’t expected to affect $40 million in projects that the county commissioners will consider Tuesday, including $29 million in debt for a new county jail, agricultural center and Parks and Recreation office under construction at the Northern Campus on U.S. 70 near Hillsborough.
▪ 2019-20 total budget: $57.99 million
▪ 2019-20 general fund budget: $24.58 million
▪ 2019-20 budgeted property tax revenues: $12.98 million
▪ 2019-20 budgeted sales tax revenues: $4.65 million
Carrboro has also put a hiring freeze in place and tightened its belt, Andrews said. Larger-ticket plans, including the new library at 203 S. Greensboro St., are being evaluated.
Property taxes pay roughly 53% of the town’s $24.58 million general fund budget, and sales taxes pay about 19%. Public works is the biggest expense, representing 45% of the total $57.99 million budget, followed by police and fire at 12.9% of the budget and general government at 12.1%.
The town already has decided that next year’s budget won’t include a planned half-cent increase in the property tax rate to support affordable housing projects or a $15 stormwater fee increase, Andrews said.
▪ 2019-20 total budget: $113.45 million
▪ 2019-20 general fund budget: $68.48 million
▪ 2019-20 budgeted property tax revenues: $45 million
▪ 2019-20 budgeted sales tax revenues: $14 million
Chapel Hill relies on property taxes to cover 48% of its expenses, followed by sales taxes, at 21% of its revenues. Jones said it’s been hard to plan, because the town doesn’t know yet how big a hit its occupancy and sales taxes, and parking and permit fees will take.
It’s also not clear how the shutdown will affect major plans, such as the 2200 Homestead Road affordable housing project and the East Rosemary Street parking deck, he said.
Staff is looking now at where to save money, and a hiring freeze could be implemented at least through June 30, Jones said. At the same time, the town is assuming a large expense for personnel, equipment and supplies to deal with the pandemic, he said.
Just over 56% of the town’s current budget pays for the Chapel Hill Police Department, Chapel Hill Fire Department and public works, which includes trash collection and town maintenance. Another 19.6% pays for housing, planning, engineering and inspections staff, while the general government — including administration, public affairs and human resources — costs another 23%.
They are preparing for multiple possible outcomes, Jones said, but at best, the town’s budget next year could maintain the status quo.
“It depends on how long this crisis lasts. We just don’t know at this point,” Jones said. “You hear about if we flatten the curve over the course of the next month or so, and get through that, we know we are going to have a tremendous loss in this country, which will devastate us from a human standpoint, but then there’s the possibility that we keep hearing about a bounce-back later this fall or the winter.”
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