Best guesses about budget, including tornado, COVID-19 impact

Last year, before the Mayor announced his budget proposal, I estimated that it would be $2.335B. It ended up being $2.332B — so I missed it by only $3 million. I’m using the same methodology this year in preparation for the Mayor’s budget being announced on March 31.

Even before the tornado and COVID-19, predicting this year’s budget was more difficult. Mayor Cooper has worked hard, and continues to work hard, on squeezing recurring revenue out of downtown. Also, contrary to conventional wisdom around the courthouse, I have believed from the start that the Mayor would propose a tax rate increase.

Now that we have to deal with the financial impact of the tornado and COVID-19, I am going to go ahead and tell you what I had been projecting for my own planning purposes, and the possible impact from the tornado and COVID-19. 

My pre-March 2020 guess for the size of the FY21 budget absent any rate increase was $2.438B. Based on the Mayor’s public statements about what he wants to do next year and some data already available, I also have estimated a range of possible new costs. Using the same worksheet that I used last year, this led me to conclude that the Mayor would need a rate increase in the range of $0.48 to $0.79 cents to balance his proposed budget. (This all assumed a limited amount of non-recurring revenue and no silliness like selling off major assets).

In the last few days, I have attempted to include the impact of the tornado and COVID-19. For today, I am assuming an impact of $125,000,000. I don’t think many people are going to say that I have low-balled it. You could easily find people who think this estimated impact is too low. For the investments I’ve guessed might be in the Mayor’s upcoming budget, this would suggest that the range of a possible property tax rate increase might be $0.88 to $1.20. 

With COVID-19 suppressing the city’s sales tax revenue, if the Mayor proposes anything in this range, I think many people will be disappointed in how few new services and employees this will cover. 

Budgeting during a global pandemic that is attacking the city’s sales tax revenue is a major challenge. I assume the Mayor will seek and get the agreement of the State Comptroller for the budget to have a much smaller reserve than everyone wanted just a few weeks ago. That would help suppress the size of a needed rate increase. I am recommending that the city plan conservatively, but not for the absolute worst case scenario. It’s going to be a work-in-progress over the next few months to figure out exactly what that means for the budget.

I will also mention that, if the national economy goes into recession or worse, this Mayor and Council are going to find themselves in the same spot that Mayor Dean and the Council circa 2009 to 2011 found themselves — trying to decide whether to re-finance a substantial amount of debt to free up money for the operating budget. (I’m not advocating this!!! I am pointing out that, if you look at a balance sheet with falling revenue, the long term debt line item is one of the few numbers big enough to make a difference and re-financing may perhaps start to look more attractive at some point.)

Finally, a disclaimer. While I am using the same methods I used last year to predict the size of the budget very accurately, it might be way off this year. This Mayor is working hard on finding alternative revenue, and economic conditions are changing so rapidly, these thoughts and comments may have a very short shelf life.