Michael N’dolo, Director of Economic Development for MRB Group was featured on WAMC to discuss the impacts on local government budgets that the COVID-19 pandemic is having. To listen to the full interview, visit the WAMC Website
The transcript of the interview is below:
D’Nolo: Well, it’s a bit of a mixed bag. Certainly there are certain clients that have a high reliance on the sales tax in particular, and on other economically sensitive revenue streams, and they’re having a harder time. They’re having to make more cuts and more drastic cuts than the folks that have more stable revenue streams.
Levulis: And to that point, what are some of the actions that governments are taking now to improve their financial standing?
D’Nolo: Well, most often, what folks are doing is they’re drawing down reserves, which means to say they have their rainy day fund or their emergency fund, and they’re dipping into that right now, a lot of these communities are dealing with fixed budgets that have been fixed for now for six years, six months or a year. And, and really they don’t have any choice in that very short term. So other than drawing down reserves, the things that people are doing are, they’re freezing discretionary spending, certainly anything that’s related to travel or conferences, that kind of thing. They are typically postponing voluntary type of expenses, such as purchasing equipment, or hiring new staff filling positions, or doing big capital projects. Those are typically the things that they’re doing. Other actions that they could be taking that other folks are doing are raising tax rates, that’s certainly starting to happen. And any kind of pay increases or benefit increases are also on the table for discussion. Sometimes through negotiation and sometimes just through fiat. And then there are a few folks that are cutting non-essential services or scaling back, I should say, non-essential services.
Levulis: The MRB Group study did uncover some differences in how larger governments such as counties and cities are responding to the current fiscal stress compared to towns and villages. Can you detail those differences? And maybe a little bit as to why there are some differences?
D’Nolo: Yeah, absolutely. I mean, you hit the nail on the head really size and type of government matters quite a bit about how you’re dealing with the situation. Counties and cities are typically rely very heavily on things like the sales tax, or hotel occupancy tax, and other types of fairly volatile revenue streams. And so some of the counties we’re dealing with, they’ve had a as high as a 35% reduction in the amount of sales tax that they’re collecting in the most recent quarter. So they’ve had to take very drastic budget cuts. Towns and villages, by and large, are reliant mostly on property tax revenues, to some extent on other kinds, but mostly on property tax revenues. And property tax revenues are fairly stable. You’ll have some people that won’t pay the going to tax foreclosure, but most people most of the time will pay. So the villages and towns are more concerned about things like are they going to have their state aid cut? Is the state going to take longer to cut those checks to them? Are they have other Do they have other sort of minor revenue streams that are going to change throughout there but fairly stable in general, they don’t have to do drastic things. Cities and counties on the other hand, because of the changes to the revenue streams in the very immediate term, have been doing things like furloughing staff, citizens. Counties will, will most likely be furloughing staff. If they haven’t already done it. Almost all of them have already done that. They’ve also not been filling positions, if they’ve gone vacant. They’ve been doing counties in particular have been looking at employee buyouts, is there a way for them to reduce simply by buying out those staff? And then, you know, cities and counties in particular are looking at raising existing tax rates for property tax and other. Interestingly enough, we’ve started to hear from communities that they are considering exceeding the property tax cap this year. And that’s something that I think will very likely see, more and more often in the next 12 months is communities proposing budgets that exceed the property tax cap.
Levulis: Most of what we’ve been talking about so far have been short term strategies, what long term strategies are being considered by these governments to right The shift in the future?
D’Nolo: Well, you’re exactly right. I mean, right now folks are reacting. They’re reacting to what’s, you know, what are they going to do to pay this month’s bills or next month’s bills, they’re starting to think about, you know, the next fiscal year. And you’re right, you can only do, you can only do short term fixes for so long. And so I think the longer term fixes are going to be more structural at these at these different government levels. Certainly, we think there’s going to be a serious discussion on the public side about existing services do are all the existing services we do. Are they all essential? Or can we cut some of them? Or maybe the discussion is, the tradeoff is we either cut services or we raise taxes, as a community? What do we prefer to do? I think that that discussion is going to happen more and more on there. There’s also different service delivery models that I think people are considering. Which means to say outsourcing of certain functions, or interestingly, shared service models, right? Maybe we don’t all need to have an engineer on staff, maybe we should, you know, split the cost of an engineer between two communities or a tax assessor. Or maybe we should consider establishing a district where we can share a particular service delivery across several municipalities or share equipment, or something to that effect where we can run our operation leaner into the future.
Levulis: One of the interesting things that I thought was particularly of note was when the study looked at asking governments How does this compare to the Great Recession 2008 2009 it was split about, you know, one-third says that it was the same, a third said it was better, and a third worse. Now understanding the Great Recession is a larger time period and we’ve been able to wrap our arms around in a sense, but what did that tell you about how local governments across the board are viewing this current situation in regards to the Great Recession?
D’Nolo: Yeah, I was definitely surprised by the result of about a third and a third and a third thinking it’s better, worse should the same than the Great Recession. I attribute that largely to the difference in the types of governments that are out there. Again, I’m thinking, you know, your typical village, they’re probably doing actually better than the Great Recession, because of the stability of their tax revenues. The other thing I think, is a clue to why this response was so split, was the perspective about how long this is going to last. There are some folks out there who believe that this is just one budget cycle, that once we get through this budget, you know, whatever their fiscal year is, once we get through that the next fiscal year will have bounced back. There are an equal number of folks that think that that’s not the case that it’s really going to take two or more budget cycles before revenues are back up where they were previous to the pandemic. And I think that’s what’s really driving this. A lot of times when we ask questions of these communities, what they’re saying is, well, we just don’t know, is this downturn in sales tax? Is that temporary? Is that just the next couple quarters? Or are we going to start to see this take longer and longer is there going to be another surge in cases as that are happening elsewhere in the country that are going to come back and it’s going to affect our economy and therefore our tax revenue into the future? I suspect that as folks get to the end of summer, that clarity about how long this is going to take is going to is definitely going to be a greater at that point. And therefore, we’re going to get a better picture about how this compares to the Great Recession. At that point.