With business closures across the state, a drop in tax revenue could lead to millions of dollars in lost revenue for municipalities, Reno Finance Director Deborah Lauchner said in a presentation to the City Council on Wednesday.
Although city staff are looking at three scenarios including a “doomsday” case, Lauchner said it is still too early to tell how large the hit to city services will be.
When asked by Councilwoman Neoma Jardon how long the city would be able to “keep the lights on” assuming that the downturn drags on, Lauchner said it was too early to say.
“We don’t know what’s going to happen with the revenues,” she said.
The city’s largest revenue source — 35 percent of the general fund — is the consolidated tax, known as the C-Tax. The C-Tax largely comprises sales tax, and there is no definitive data yet on how widespread business closures across the state will reduce those revenues. The data lags because it is generally received about two months after it is collected.
But she said finance directors are expecting to see a “significant drop.” She said local agencies are forecasting a scenario in which C-Tax allocations decrease on a curve hitting bottom in April:
- 25 percent decrease in March
- 50 percent decrease in April
- 35 percent decrease in May
- 25 percent decrease in June
Those estimates are based on year-over-year revenues. The drop would leave a roughly $6.5 million hole in the current budget, an 8.9 percent drop in C-Tax revenue. There would likely be similar repercussions in other local jurisdictions because cities generally rely heavily on C-Tax.
Lauchner said that she also expected to see reductions in property tax, the second largest general fund revenue source. Property tax accounts for about 27 percent of the city’s general fund. Lauchner said she expected businesses to transfer to an income approach in calculating property tax that would result in less revenue. The downturn could also slow new development.
As an interim response, she said the city had instituted a hiring freeze on 41 vacant non-safety positions and 17 safety positions, such as police officers or firefighters. She also suggested declining the SAFER grant, a federal grant for local firefighting. Lauchner was concerned that the grant is tied to minimum staffing levels and she said “we need to be able to be nimble and move things around as needed.”
But she noted that one scenario shows about a $30 million shortfall in general fund revenues, what would amount to a “significant hit.” Lauchner suggested moving forward with the budget that the council had already discussed, largely passing a budget that kept services stable. But she said that departments would need to be flexible and should focus on their core services.
“Everything we do, we feel is essential,” Lauchner said.
But she added that the city and its agencies “really dig down into core service and work out from there and have a couple of different scenarios so that we can look at making sure we provide the services the community needs, not necessarily [what] the community desires.”
Most council members urged a conservative approach to budgeting and asked Lauchner about passing a modified budget or options for extending the state’s June 1 budget deadline.
She argued that the best approach was to proceed with the current budget. That, she argued, was what most municipalities were doing and would provide the most flexibility for adjustments. She said that it would be prudent, given that future revenues remain uncertain until late May.
Lauchner stressed that the projections were not yet backed by hard data, given the lack of data and information about how long the economic slowdown will last. In presenting information from major banks about the economic outlook, she told the council that financial forecasts varied.
“I have seen probably 30 different projections come out from various different agencies in the financial sector,” she said. “This is just to give you an idea and again, it’s all over the board. Nobody really knows.”