By Corey Morris
The city of Issaquah is forecasting a dire budget impact from the COVID-19 pandemic.
Worldwide, countries, states/provinces, and municipalities are grappling with how to address the economic impacts brought by COVID-19. While the virus has little to do with economics, mitigating the spread of the virus through social distancing and government stay-home orders means people have lost jobs and income (either temporarily or worse), and businesses are losing revenue.
As people spend less to survive their own economic perils, sales tax and other revenues in local governments have declined. Further, many cities rely on recreation programs and their related fees to fund their parks departments, and they operate facilities for large gatherings (like weddings and reunions) that collect fees to fund those departments.
During an April 6 Issaquah City Council meeting, city finance director Beth Goldberg noted that Issaquah — like other municipalities — is facing a fluid and unusual situation.
“We’re basically, in many respects, flying blind because we’ve never seen in modern history a sudden and near complete shutdown of the economy. We just don’t have good benchmarks to guide what might be happening,” Goldberg said during the council meeting. “We’re in an economic and financial environment that’s changing rapidly.”
In an April 6 staff report, Goldberg noted a $9.9 million (or 20%) reduction in general fund revenues based on an initial analysis of the potential impacts of the COVID-19 pandemic.
The analysis includes a 10% reduction in property tax (about $953,000).
“As the financial consequences of the COVID-19 pandemic impacts the pocketbooks of homeowners, we may see an increase in the non-payment of property tax,” the staff report notes.
Sales tax, which represents 32% of the general fund’s revenue, sees a predicted 30% drop in the analysis. The analysis used data from the 2008 recession when the city saw a 30% drop. While the economic impacts of the recession were slow growing and long lasting, the impact from the COVID-19 pandemic was almost immediate and the duration is unknown.
“It is important to note that this initial estimate is subject to change as the city has never seen a sudden and nearly complete shutdown as is happening today. As real-time data rolls in and there is a better sense of the duration of the Stay at Home orders, staff will monitor and adjust these assumptions,” the staff report notes.
In a phone interview on April 9, Goldberg noted that some of her past experience could help as she guides the city through the upcoming financial pains, and she said the projections can change with time.
“I was the budget director for the city of Seattle during the Great Recession, and one thing we did then — and we have to do it this time around — is we have to closely watch the numbers as they come in and be prepared to adjust quickly as we get the data points,” Goldberg said. “We’ll be watching the numbers really closely.”
Goldberg noted the city pulled out of a potential shortfall to close out 2019 as well.
“In this kind of environment, I think the same thing applies,” she said.
And the COVID-19 economic situation continues to develop each day, Mayor Mary Lou Pauly noted.
“We had a discussion several weeks ago about doing a rental assistance program, and we had that discussion before aid packages were finalized and detailed at the federal level. Cities that are having that discussion now have much more information about what aid is going directly to homeowners and renters that wasn’t going when our council was making that decision — literally, two weeks ago,” Pauly said. “The rapid pace of changes in aid, it’s astounding how that can impact your recovery plans, or whatever you want to call it. Weekly, significant things are happening. The pace is stunning.”
The $9.9 million shortfall in revenue is concerning, but the city started its year with more than $15 million in beginning cash. Beginning and ending cash — in terms of municipal budgets — often can be used as rainy day funds. Pauly cautioned against seeing it as the solution to the shortfall.
“The ending fund balance is there now, and when you spend it, it’s gone. If you don’t have revenue to replenish it, you just bring it down and you have nothing. Our council in particular has spent the last 10 years using the ending fund balance for one-time expenditures,” Pauly said. “Unfortunately, the biggest part of our budget is salaries. Those are ongoing. If you use your ending fund balance to pay salaries for six to nine months, but you only have half your workforce back, you don’t have that option because you not only don’t have the same amount of revenue coming in, you don’t have any surplus revenue.”
“It’s possible to do that, but there’s so much uncertainty about how fast we’ll get back to normal, how fast we’ll get back to providing the services that we used to. It’s hard,” she added.
Already residents will notice “counter service” they used to receive for city services is gone with the pandemic. But discussions continue on how services are changing in the face of the COVID-19 pandemic and how services will function when the pandemic wanes. Pauly said the city is trying to educate the public on what the new normal feels like.
“We want to go through the process of explaining to (the public) that number one, we’re still open, and number two, it feels different or looks different, and here’s what’s different,” Pauly said.
But when life returns to normal, the Pauly doesn’t expect normal to be the same.
“We have no idea how fast of a restart we’ll have with the economy and with people’s confidence in the economy…Even if we see a fairly fast ramp up back to the new normal, that doesn’t mean that things that they’re used to will all just come back online — for example, recreation programs,” Pauly said. “Nobody’s put this in my mayor’s handbook. The town may still feel different even during the ramp up to the new normal, because we may still not have a lot of facilities open. There’s a lot of things cities have to do, and a lot of things cities want to do. We probably are only in the financial position to do the ‘have-tos’ and not the ‘want-tos.’”
Pauly said recreation programs fall into the “want-tos” category.
Goldberg said the city will look to adjust its expenditures as the situation changes.
“We’re all watching the news with baited breath to figure out when things will start to open up again,” Goldberg said.
While the world is in a holding pattern waiting for the pandemic to eventually end, the city holds with it.
“It’s a challenge not to feel bad after you listen to the news. This is very surreal that we’re going through this. We’re losing community members and families are having to go through job loss and the loss of security of their job and the loss of wages — it really is a lot of negative stuff,” Pauly said. “I think we have a very strong town. I think Washington has a lot of strong towns. We’ve built a really good base of support. We have nonprofits out there, we have community groups that are bending over backward to get things done…
“We are strong. We are a caring community. We’re going to get through this. We’ll get a handle on it. We’re gonna help. We’re going to leverage every resource we can get from every other level of government, and we’ll get through this,” Pauly added. “Stay strong. Go outside every day and enjoy the beautiful weather, just from six to 10 feet away from everybody else. We will get through this.”