City implementing changes due to decrease in revenue because of coronavirus
Things will look different in Brookings this year because of COVID-19, but the total impact isn’t known yet and won’t be for some time, said City Manager Paul Briseno and Chief Financial Officer Erick Rangel.
The COVID-19 pandemic has always had two components: the health side, which is still ongoing, and the financial side, which will continue to be felt well into the future – some predictions say 18 months or more.
Businesses were closed or operating on a limited basis for almost two months. That means a steep drop in sales tax, which is the life-blood of funding for the city.
“The success of the business ultimately impacts the success of the city,” Briseno said.
Less sales tax means less money in the city’s coffers and less money to provide services to the public, Briseno and Rangel said.
Sales tax is about 6.5% for most South Dakota cities, with 4.5% going to the state and 2% going to the city, Briseno explained. Drinking and eating establishments have an additional 1% sales tax that goes to the 3B fund (bed, booze and board).
Of the 2% the city gets, 1% goes into the general fund and 1% goes to capital, Briseno said.
“The largest revenue we have is sales tax, and that’s about 45%. That pays for your parks, your streets, your fire and police, and everything we love about Brookings,” Briseno said.
The list includes community development, engineering, and subsidies, with close to $500,000 going to not-for-profits, Briseno said.
He straightened out one myth about property tax.
“Most people assume all the property tax goes to the city. In Brookings, it’s fairly unique in that we only get 16% of people’s property taxes, so really, it’s a small percentage,” Briseno said.
The city doesn’t get the sales tax right away: it goes to the state “and then about a month later, it gets re-distributed to the municipalities,” Briseno said.
The city gets very few details about exactly where that money is coming from because not all the companies reporting are public, Rangel said.
“It’s a general report, not very detailed,” Briseno said.
The Brookings City Council passed an ordinance March 23 to close or alter how businesses operated in town. In April, the city received the numbers on the sales tax.
“The March numbers didn’t actually look too bad, but we have to remember the impact of COVID didn’t happen until the very end of March, so those numbers weren’t quite skewed from COVID,” Briseno said.
The April numbers, which came in during May, totaled a negative 1.5%, Rangel said.
While that doesn’t sound so bad, some numbers were offset by others, he explained.
“You see the retailers going down 7%, but then there’s other industries like services, like equipment, computer equipment and all that, that went up,” Rangel said, so there is a decline in some industries, but other industries were adjusting to COVID.
Some funds, like the 3B which relies on tourism, took a huge hit, Rangel said
“That one did decline 31%,” Rangel said.
“Pillow tax has not been doing the best this year, but it declined 34% in March,” he said.
“So, from the travel and tourism industry, we saw probably a 30% decrease,” Briseno said, adding those numbers will impact revenues for the Swiftel Center, Brookings Convention & Visitors Bureau, Chamber of Commerce, Brookings Economic Development Corporation, and other agencies funded by the city.
“We give about $1.1 million between the 3B and Pillow Tax,” Briseno said.
“We’ve been in communication with those entities. Right away, Erick and I sat down with them and said, ‘Hey guys, this is what we’re projecting,’” Briseno said, adding they encouraged the organizations to emulate the city and evaluate all their finances and make adjustments now to avoid a negative impact.
‘Tightening our belts’
Essential services will continue, and they will spend money on “critical infrastructure projects,” Rangel said, so they don’t fall behind and spend more money later.
“It’s also focusing on using local developers and labor to also help the economy of our city,” Rangel said.
But both made it clear the city, like everyone else, will be “tightening our belts.”
“If we know early on in the process, we all can start making incremental changes to stay afloat,” Briseno said.
“Erick’s done some phenomenal forecasting and analytics for all entities,” Briseno said.
In late February, Rangel and the department heads started working on a 10-step strategic plan which looks at the entire operation, revenues, reserves and capital projects, Briseno said. The plan is reviewed every two weeks and adjusted as necessary.
Rangel is also working with experts at South Dakota State University to understand the overall impact.
“It’s a big unknown for us,” Rangel said.
He thinks the picture will become clearer as more numbers come in. Unemployment numbers, stimulus funding, even when individual businesses open again, all need to be weighed in the balance, Rangel and Briseno said.
“What we see right now in terms of tax for April is we don’t have the entire COVID picture,” Rangel said. “These factors are not the same in May, so we do think that we will see (more of an) impact of COVID in May.”
What the public will see – or not
“We’ve tried to minimize the impact to our services to our citizens,” Briseno said, but “there will be some impacts.”
The downtown area is known for big planters with bright, blooming flowers, but they will only be on Main Avenue, not the side streets this year, he said.
“Certain parks, you won’t see every square inch mowed. Maintenance will be decreased in certain areas,” Briseno said.
The city usually hires about 150 seasonal workers who do those jobs, but so far, they’ve hired only about 15, he said. They are utilizing non-essential staff to fill those roles, what he calls “cross utilization” of employees.
Other activities will be evaluated based on the risk of passing COVID-19 to others; that’s one of the reasons the Hillcrest Aquatic Center pool will be closed all season. Other expenses will be evaluated with keeping in mind a balanced budget.
“Anything we do anymore, the costs are driven because of COVID. It takes more staff hours to manage,” Briseno said.
Both know COVID-19 will affect Brookings for a long time yet and they are already working to lessen the impact.
The city cut an additional $850,000 from this year’s budget to prepare for “the COVID effect in our revenues,” Rangel said.
“Last year … we cut $1.2 million out of our operations and we kept not-for-profits and our outside agencies close to the same levels that we always have. Now, we’ve challenged all of our department heads to go back and cut even more operations because of the reductions and that’s difficult because we’ve cut and created a conservative budget, so there’s not much more left on the bone to cut,” Briseno said.
Rangel and his staff are keeping an eye on local, state, national and global information.
“Right now, the Wall Street Journal is predicting a 7.1 contraction in the U.S. economy for 2020 and the consensus is that the recovery won’t happen until a year and a half from now,” Rangel said, adding full recovery means the economy being back to where it was before COVID.
Of course, if there’s a second wave of COVID, that “critically” changes all predictions, he said.
Rangel has to take all those factors into consideration as he and his staff plan for the future.
“We actually have budgets due for ’21 on June 1,” Rangel said.
“We’ll have our largest deficit this year and probably start to rebound next year,” Briseno said, “and then probably not a full recovery until 2022.”
Briseno remains hopeful as he looks around Brookings and sees the businesses, manufacturing plants and SDSU with its “great economic analysis instructors that we can engage.”
“We’re kind of lucky here in Brookings … we also are very resourceful and resilient as a community,” he said.
Contact Jodelle Greiner at email@example.com.
COURTESY OF: The Brookings Register