Cities, counties face budget crunch due to COVID-19 shut down
The economic shutdown due to COVID-19 will take a bite out of the budgets of local governments.
Money will be tight in 2021.
How tight? No one is certain, but cities, counties, school boards and any other entity that runs on tax dollars will be looking not just to hold the line for next year's budgets, but be ready to make cuts if – when, really – the tax revenue for the local government body comes up short compared to 2020.
"We know tax revenues are going to be down," said Beth Kadoun, vice president of tax and fiscal policy for the Minnesota Chamber of Commerce.
Kadoun noted that taxes come in many forms, from state income taxes to state and local sales taxes, lodging taxes and license fees. And, of course, property taxes.
"Property tax, that's set," she said, referring to 2020. "I'm sure there are going to be some people who aren't going to be able to make those payments."
How money ends up as local government revenue can be a mixed tale. Cities get Local Government Aid from the state – for counties, there's a similar payment called County Program Aid – and local governments also levy their property owners for property taxes.
Bill Schimmel, Stewartville's city administrator, said LGA and property taxes are the top two revenue contributors for that city. It's the same story for most cities and counties in southeast Minnesota.
That's the money that pays for everything from city services, road projects, infrastructure upgrades, and police, fire or ambulance. For counties, that's the money that pays for social services, county health services, environmental programs, courts, law enforcement and roads. And so much more.
How much, how bad?
But until Tuesday when the state releases figures on revenue collection and projection, there's no way to know how bad the 2021 outlook will be. Even then, many counties have extended property tax payments that normally are due May 15 to July 15. The second half of property tax payments are set for Oct. 15.
Kadoun said the state chamber of commerce has asked that property tax payments for May be extended statewide since many property owners will have cash-flow issues due to the COVID-19 economic shutdown. The bigger concern is finding a long-term solution to help property owners who will be feeling a financial pinch.
"What we need to do in the short term is to keep our businesses viable," Kadoun said. "Minnesota's long-term economic future depends on getting those businesses going."
Preparing for the worst
Most cities and counties don't start their budget processes until July or August. However, knowing 2021 will be a year unlike any previous year, local governments are already looking at contingencies.
"This is all new territory for everyone," said Pine Island City Administrator Elizabeth Howard. "We'll see a decrease in property taxes, whether that's a decrease in values or people just can't pay them."
Howard said Pine Island is looking down the road and rethinking projects that might wait a year – to 2022, for example – in order to cut spending in 2021. For example, the city will likely forego any amenity upgrades at the pool for a year if money is tight. Some paving projects could be put on hold, but the city plans to go head with its planned Second Street and Kenly Court reconstruction project.
"We need to supply a public service. We've done a good job maintaining our public infrastructure and we want to keep moving forward with that," she said. "Plus, the infrastructure is breaking down, and we can't ignore it."
And the city needs to show residents that it continues to invest in the infrastructure that helps businesses succeed, Howard said.
Going slow on spending
In St. Charles, City Administrator Nick Koverman said an open position on the city staff will remain unfilled for the time being. An ongoing city project to move power and cable lines underground might wait in 2021.
"We're kind of holding off on some projects, or more slowly approaching them for 2021 to see if we may need to scale back," Koverman said. "We're going to keep a look out for the future of just what we need."
A big concern, he said, is just how much will the city's business community suffer due to the COVID-19 quarantine.
"If there are projects where you say we can get by without doing this for a year or two, we have to take a look at that," Koverman said.
Right now, said Wabasha County Administrator Brian Buhmann, the collection of property tax is still comparable to 2019. A bigger concern is the amount of state and federal money being redirected to COVID-19 emergency uses, because the state and federal governments only have some much money, and what's being spent on COVID-19 is money that won't go toward programs that are typically funded to help counties.
Even if the county were able to levy property taxes at the same level in 2021, there's a concern County Program Aid or state highway funds will take a big hit. And, if so, how will the county make up the difference.
"It's just a ripple effect, from federal to state, and the state to counties," Buhmann said. "We'll still be responsible for the delivery of those services locally."