CHEYENNE – The economic effects of COVID-19 have municipalities across the country bracing for impact as they attempt to work out budgets for fiscal year 2021.
Anticipating large drops in sales tax revenue and increases in insurance premiums, Cheyenne’s mayor, City Council and other city leaders discussed ways they could both increase revenue and cut expenditures at a budget work session Wednesday.
As it stands now, the city is looking at an $8 million budget deficit.
“These are certainly unprecedented times, not only for our community, but for communities around the country,” Mayor Marian Orr said. “And if there’s any time where a collaborative approach is necessary and needed for our community and the funding of government services, it’s now.”
As Councilman Jeff White put it, the budget work session was “very sobering.”
Before COVID-19 rattled the economy, City Treasurer Robin Lockman had completed revenue projections for the city’s budget. But now, she must account for significant cuts across the board.
Local sales tax revenue is projected to drop 25%, which amounts to a $6 million loss. The city was expecting to receive about $100,000 less in state funding a year due to a decision at the Legislature, but now they’re expecting to lose $350,000 next year due to the pandemic.
The only streams of revenue that haven’t been affected are property taxes, cigarette taxes and vehicle registration, according to Lockman.
Some of the biggest industries in Wyoming, including energy and tourism, are “unpredictable and volatile,” Lockman said, making projecting revenues even more difficult, especially as almost every sector faces negative impacts from COVID-19.
“The golden rule of revenue forecasting is to be conservative. This will lessen the danger of spending money that we do not have based unattainable revenue projections,” Lockman said.
With the situation at hand, the city has to increase revenue, as well as cut costs. Orr offered two suggestions for ways to bolster revenue.
The first is to increase the Solid Waste Fund Transfer for a one-year period and divert the funds to the general fund. If the city were to raise the fees from 5% to 9.3%, it would generate an additional $2.3 million in revenue.
The second option is to divert the Belvoir Ranch wind energy lease payments from the Solid Waste Fund, the Board of Public Utilities and the Belvoir Recreation Fund to the city’s general fund for a one-year period. The switch would generate an additional $1 million in revenue.
Even if the city takes those routes, significant expenditure cuts will still be necessary to balance the budget. Lockman said the process won’t happen “without some very painful sacrifices.”
Across the board, the city cut 13% of its expenditures, though the cuts vary from department to department. For the mayor’s office and the Community Recreation and Events Department, the cuts totaled around 19%. But for the police and fire departments, the cuts totaled around 8%.
Three-quarters of the city’s general fund budget goes toward payroll, and Orr said the city sent surveys to employees to help city leaders decide where else to cut, which she called a “painful conversation.”
Orr advised against cutting the salaries of employees, since those are harder to raise when cut, but suggested the possibility of four-day work weeks or weeklong furloughs. Another suggestion is that city employees could take on more costs associated with health benefits. The city currently contributes 90% of the employee’s share, but that could be lowered to 80% to save costs.
Unfortunately for the city, a solid portion of the budget has little flexibility in spending.
Three-quarters of the budget goes toward payroll expenses. Another 21% of the budget goes to mandatory services, including jail costs, election expenses, grant matches and utility payments for facilities.
“But the remaining 4% of our budget, we pay for various office, maintenance and medical supplies. These line items are slightly more flexible than the previously mentioned mandatory items,” Lockman said. “As a result, they were targets of major cuts.”
In the Treasury Department alone, Lockman cut 70% of her office supply budget. In addition, professional development, including funds for police and fire training, was cut by 65%. They’ve only budgeted $66,000 for capital purchases, which Lockman said doesn’t come close to addressing the needs outlined in the Capital Improvement Plan.
On top of facing significant budget constraints, the city’s reserve fund also sits much lower than Wyoming’s other large cities. Lockman said it is suggested that municipalities have at least 60 days of operating expenditures in its reserves. The city of Cheyenne can currently fund 68 days of operations with its reserves.
“We have the lowest reserve level compared to the other 10 most populated cities in Wyoming. The city of Casper has 120 days. The city of Gillette has 150 days, and the city of Laramie has 290 days. Laramie County has 352 days of unrestricted reserves,” Lockman said. “They are all much better prepared for a recession, and we are not.”
Lockman compared the city’s reserves to a personal savings account. When you have an emergency, you can use your reserves or go into debt, both of which are short-term financial options.
“The city is not different. We can use our emergency reserves, and it clearly qualifies as an emergency,” Lockman said.
However, Lockman asked for caution when decisions are made to use reserves in order to preserve the city’s financial health into the future.