Title
2020-21 City Council Budget Decision
Description
This report transmits a balanced budget for fiscal year (FY) 2020-21. As presented on April 13, the COVID-19 virus has exacerbated the economic downturn across the entire globe. As a result we are expecting local tax revenues to decline from current levels. On April 13, City Council approved $27 million worth of preliminary budget balancing actions and approved $1 million in new spending for Fire 911 Dispatchers and the Office of Accountability and Transparency (OAT). All of these items are included in the proposed budget (Attachment A).
THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.
Report
Summary
On March 3, 2020, the Budget and Research Department presented a five-year General Fund (GF) forecast to the City Council. At the time the economy was strong and city and state sales tax revenues were approximately 6% higher than the previous fiscal year. For the upcoming fiscal year, GF resources were projected to be $1.466 billion. This represented an increase of approximately $42 million over current year projected resources. The 2020-21 Original GF Trial Budget expenditures were projected to be $1.438 billion. The report projected a surplus of approximately $28 million. That is, after accounting for the estimated GF revenues and estimated GF expenditures, we estimated that approximately $28 million would be available to address critical issues.
However like the rest of the country, Phoenix is feeling the effects of the economic downturn. The current economic situation is unlike anything that we have seen before because it is being exacerbated by the COVID-19 pandemic. As of April 20 the pandemic has necessitated over 316 million people in at least 42 states and countless cities to Shelter-In-Place or Stay-At-Home. Since March, over 16.8 million Americans and 345,000 Arizonans have applied for unemployment benefits. Across the county, analysts are estimating that the number of failed businesses and lost jobs will easily and quickly surpass the Great Recession.
Over 30% of the city's revenue comes from sales taxes related to retail sales and tourism and entertainment. As a result of COVID-19 and its impact on the local economy, we know that our financial situation has drastically changed from what was presented on March 3. On April 2, staff presented four different scenarios that may result over the coming months. Those scenarios were based on data from the Great Recession, local and national economists and information from other municipalities. The four scenarios project potential deficits of $26 million to $128 million depending on the severity and length of the downturn. Much of what we know at this point is based on prior experience and anecdotal information from the Great Recession as there is a two-month lag in sales tax activity and reporting.
On April 13, City Council approved a Revised Trial Budget that preserved existing City services by cautiously and strategically identifying $27 million worth of reductions and balancing actions that minimized the impact on service delivery. Each of these actions is reflected on Attachment A (Lines F, G, J, K, L) and Attachment B. The approved balancing actions totaled $27 million which was $1 million more than the $26 million target. The extra $1 million was identified to provide City Council with some resources to address items previously voted on or to address other critical issues. As approved by City Council on April 13, Attachment C reflects the extra $1 million allocated between Fire Emergency Dispatch staffing and the Office of Accountability and Transparency (OAT). Any other previously voted on item such as the International Strategy remain approved but unfunded at this time. The Council can revisit these funding decisions should revenues improve during the upcoming fiscal year.
The proposed balanced 2020-21 General Fund budget is $1,425,500,000. This is a $31.7 million or 2.3 percent increase from the adopted General Fund budget of $1,393,926,000. The increase is largely driven by negotiated personnel costs and pension. Projected General Fund revenue in 2020-21 is estimated at $1.310 billion, an increase of 4.4% over the revised current year estimate. This reflects the assumption that the impacts of COVID-19 will last through July at which time City and State sales tax and other key revenue categories will return to pre-pandemic growth levels. Additionally, the City's proposed 2020-21 combined property tax rate of $2.13 remains unchanged from 2019-20. The budget assumes that 99% of levied property taxes are collected (see Schedule 11 Footnote 1). Including revenue along with the estimated beginning fund balance of approximately $95 million, and fund transfers and recoveries estimated at $21 million, total 2020-21 General Fund resources are estimated to be $1.425 billion. For all funds, which includes General, Enterprise and Special Revenue funds such as grants, and all debt service and pay-as-you-go capital costs, the proposed 2020-21 budget amount is $5,020,460,000. Extensive budget detail for all City funds is provided in several schedules attached to this report.
The City Manager's Proposed Budget was presented for information and discussion at the May 5, 2020 City Council Meeting. Following Council's budget action on May 19, both the City Charter and State law require subsequent public notification, advertising, and City Council actions. The May 19 Council action provides staff with direction and sufficient time to prepare the required legal publications for the following actions:
Date Event
June 3, 2020 2020-21 Tentative Budget Ordinance Adoption
June 17, 2020 2020-21 Funding Plan and Final Budget Ordinance Adoption
July 1, 2020 2020-21 Property Tax Levy Ordinance Adoption
Responding to COVID-19 and The Coronavirus Aid, Relief and Economic Security Act (C.A.R.E.S.)
The C.A.R.E.S. Act provides many types of funding for which local governments can apply for funding to offset COVID-19 related expenses. The Finance Department has provided guidance on tracking expenditures related to the Coronavirus Relief Fund so that we may seek reimbursement. The Coronavirus Relief Fund is intended to cover only those costs that are necessary expenditures incurred due to the public health emergency with respect to COVID-19 and that were not accounted for in the budget. There are other types of funding that are intended to supplement existing grants, such as CDBG or LIHEAP, and some that can be used to pay for a variety of services including operating costs for specific activities. Some funds have already been awarded using standing formulas and others are in the process or will need to be applied for. We are setting up a process to ensure that we have a full accounting of all of the C.A.R.E.S. related funding that the City has received, is eligible for, and has applied for. Our intent is to provide the City Council with regular updates on all COVID-19 and C.A.R.E.S. Act related activities and funding.
Future Actions That May Be Required
As mentioned earlier in this report, staff has modeled four different economic scenarios. For budget adoption we are only asking City Council to address the first scenario which shows a manageable $26 million dollar GF deficit. The next three scenarios show the GF deficit growing to as high as $128 million. Because we will not have actual sales tax revenue for March until Mid-May we want to take a measured approach before we make further budget reductions. We have asked all GF departments to prepare possible cuts of up to 25% for Management and City Council review should the economy make this necessary. These draft reductions were due to Budget and Research by April 24. Budget and Research staff are currently analyzing and reviewing each draft submittal and will develop a potential list of reductions for City Council and community input no later than the first week of June. At that point the list of proposed reductions could be taken out to the community for input prior to City Council action. In mid-July, Budget and Research staff will have March, April and May revenue data which will allow us to update our financial status based on real data rather than anecdotal information. Following community input and using the updated status provided by Budget and Research, City Council could take action on the list of proposed reductions in late July or early August.
The current COVID-19 and economic crisis is expected to have a negative impact on all City funds, including Enterprise and Special Revenue funds. Over the coming weeks and months, staff from Aviation, Convention Center, Planning and Development, Streets, Transit, Water and other Enterprise and Special Revenue funded departments will be closely monitoring their revenues. Any required actions to those departments, funds and or programs will be communicated with City Council in a timely manner.
We recognize this process will be difficult and challenging as the full economic impact of the COVID-19 crisis on the City's budget is uncertain at this point. The city has a history in times of economic downturn of responding swiftly and responsibly. The process laid out in this report is critically important so we can achieve our fiscal responsibility of adopting a balanced budget for next fiscal year as required by State Statute and City Charter, while at the same time limiting the negative impact as much as possible to the programs and services we deliver to the residents of Phoenix.
ATTACHMENTS
- Attachment A - City Manager's Proposed GF Budget Summary
- Attachment B - Council Approved GF Budget Reductions & Balancing Actions
- Attachment C - Council Approved GF Budget Additions
- Attachment D - Detailed Budget Schedules
- Attachment E - Budget Adoption and Reduction Calendar
Department
Responsible Department
This item is submitted by City Manager Ed Zuercher and the Budget and Research Department.