Friday, August 14, 2020

City Looking to Adjust 2020 and 2021 Fiscal Year Budgets Based on Revenue Projections

City of Southlake CFO Sharen Jackson provided a financial outlook during the May 19 City Council meeting.

Just like other organizations around the world, COVID-19 has impacted the City’s finances and operations. Two key revenue streams for the City of Southlake have been significantly affected, sales tax and hotel occupancy tax, also known as HOT. Sales tax revenue for March 2020 was down 7% from what was anticipated, while HOT revenue was down 62% from City projections. Sales tax revenue for March reflected a partial month of normal activity. It is anticipated that future collections will be significantly less than projected with the adopted FY 2020 budget beginning with the April report.

“Based on our projections, we probably will not collect any HOT taxes for a while going forward,” Jackson said during the meeting.

In March, the U.S. government passed the CARES Act to help with expense reimbursements, however this does not provide for revenue loss relief.

The State of Texas received $11.2 billion in CARES Act funds, with Tarrant County receiving more than $200 million in direct funding. The City expects to receive some of the funds delivered to Tarrant County as part of an interlocal agreement at an estimated rate of $55 per capita.

Jackson reminded the Council during the meeting that the City has the right to request these funds, but that funding is not guaranteed. These funds are required to be used as a reimbursement of costs due to COVID-19, but are not for replacing revenue lost due to decreases in sales, hotel and other taxes.

The City could also receive funds from Denton County for the small percentage of the city limits located in the county.

Jackson said the City will also apply for other government program grants to make up for any funding gaps. She anticipates a slow economic recovery period before sales and hotel tax revenue improves.

City Manager Shana Yelverton is expected to propose an amendment to the fiscal year 2020 budget in June to offset the decrease in revenue. This will be paired with reduced expenses and programming to balance the City’s budget.

To address the potential of decreased revenue, the City froze travel and hiring in March, as well as furloughed 150 employees in April. Large projects were deferred to stabilize the budget. Some community events were also canceled.

Yelverton will propose an FY 2021 budget that takes into consideration decrease revenues of sales and hotel taxes, as well as decreased revenue received from property taxes due to an expected rise in owners protesting property values.

“Early on, we made decisions to address any potential for decreased revenue so we could continue to make sure Southlake is a great place to live and work,” Yelverton said.” “We applied fact-based decision making and management best practices so that we remain good stewards of the funds we’ve been entrusted with. These decisions aren’t always easy, but they’re in the best interest of moving the City forward and responsibly managing our budget.”

Jackson said there are ongoing discussions on the federal level of additional legislation to appropriate revenue replacement funds for local governments.

“We went through our financial audit two months ago and we had fund balances even in excess of the stated goal of 25%,” Mayor Pro Tem Shawn McCaskill said. “Fortunately, we’ve been saving our pennies in the good times to cushion the blow in the bad times.”

During the meeting, Southlake Mayor Laura Hill discussed the perfect timing of previously approved tax breaks for Southlake.

“We also had a tax rate decrease in the current year. That was a tax break for all of our homeowners and also our businesses,” she said. “On top of that, we did the 20% homestead exemption for our residents.”

The City’s principles of planning ahead set the City to be on a good path by saving funds for a rainy day. The consistent planning and constant vigilance of the City’s staff and City Council will ensure that Southlake is prepared for what the future holds in a post-COVID-19 world. Watch the full presentation and Council meeting here.