How does the pandemic affect City Hall?

Glendale cuts spending but doesn’t project setback

Posted 5/7/20

With many businesses closed and more than half a million Arizonans on unemployment, the coronavirus is impacting a lot of people’s wallets. City governments are not immune. But while Glendale …

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How does the pandemic affect City Hall?

Glendale cuts spending but doesn’t project setback

Posted

With many businesses closed and more than half a million Arizonans on unemployment, the coronavirus is impacting a lot of people’s wallets. City governments are not immune. But while Glendale projects a drop in some revenues, it has cut many expenditures but anticipates little to know hit to the city’s general fund.

City Manager Kevin Phelps said he’d talked to other city managers in the Valley.

“I think the city of Glendale is in as good a position as any other city manager that I’ve talked to,” Mr. Phelps said, noting that some cities were in similar situations to Glendale, but some were in “more challenging” positions.

Kevin Phelps
Kevin Phelps

Glendale has had to put a hiring freeze on all non-critical staff positions and cut back planned spending, mainly in capital improvements. Staff’s early projections show the city’s general fund reserve, which sits at $43.9 million, will be drawn down $800,000 in the coming fiscal year if the city uses its entire $2 million contingency or will grow by $1.2 million if none of the contingency is used. The next fiscal year begin July 1 and ends June 30, 2021. All projections are preliminary as Glendale will not finalize the fiscal year 2021 budget until late June.

While Glendale has some information, it does not yet have a full picture on how the pandemic will affect the city’s finances. Glendale has received sales tax returns for activity in April but the Arizona Department of Revenue will not finish processing the returns for a couple weeks. Similarly, the sales tax returns for April will be filed in May but the full impact of those numbers will not be known until June. Many businesses began closing or scaling back operations in mid-March but Gov. Doug Ducey did not issue his stay-at-home order until the end of the workday on the last day of March.

Glendale suspended its planned budget meetings until this week when it held its first meeting since mid-March to try to get a little more time to understand the impact of the pandemic.

“While delaying the budget process is good because we have a little more information than we would have had had we kept going in March, we still don’t have a lot of information about where our revenues are going,” said Assistant City Manager Vicki Rios said.

Vicki Rios
Vicki Rios

From the information it has now and the steps planned and already taken to cut back on spending, Glendale staff believes it will continue to be in a good economic position.

“We think that we’ll be able to meet all of our expectations for revenue, based in large part because this Council continues to put a large focus on new construction, especially along the Loop 303 Corridor,” Mr. Phelps said.

Mr. Phelps listed several reasons Glendale is in as good a position as it is, one being that the city is prioritizing commercial developments in the largely undeveloped area around Loop 303. There are 7.6 million square feet of commercial space in Glendale’s Loop 303 Corridor either already under construction or planned to begin construction during the next fiscal year, which will bring Glendale $13.5 million in one-time revenue from construction sales tax, a big increase from the prior fiscal year. That revenue source is not drying up after fiscal year 2020-21. There are another 22 million square feet of projects planning to build over the next several years.

The pandemic is doing little to slow construction in Glendale. Mr. Phelps said the city has been in contact with all large projects underway and only two had paused construction. The StoneHaven housing development at 91st Avenue and Cardinals way halted construction for 60 days but says it will resume after that pause and the planned retail development on Glendale Avenue north of Westgate have paused construction.

Mr. Phelps said other reasons contributing to the city’s favorable economic standing, relative to a pandemic, are that until now Glendale had benefitted from “an incredibly hot local economy,” City Council has always taken a conservative approach in its budgeting, and the city acted early institute a hiring freeze and freeze any traveling or expenses that aren’t critical. Besides construction sales tax, Glendale also received $9.2 million in the current fiscal year for selling an 18-acre parking lot and selling an office building next to City Hall. In the coming fiscal year, Glendale will receive $6.5 million for selling Glen Lakes Golf Course.

“All those things kind of put together I think allows the city to consider a budget that really for the most part we feel very strong about,” Mr. Phelps said. “We feel its conservative, and yet it also puts us in a position to continue growing Glendale and going toward those goals that you have all stated.”

Businesses being shuttered because of COVID-19 for potentially the last three and a half months of the current fiscal year is causing a hit to Glendale’s sales tax revenues, but it is offset some because Glendale had been having such a good fiscal year to that point. From July 2019 to February 2020, Glendale collected $5.7 million more from its share of sales tax than in the same time period a year earlier.

Still, city staff projects its sales tax revenue for fiscal year 2020 will finish $7.8 million below what staff had projected in December.

“It’s a big drop for what we were expecting in revenue,” Ms. Rios said.

Glendale is projecting it will yield as much sales tax revenue in fiscal year 2021 as it is will in the current fiscal year and then is projecting moderate growth in fiscal year 2022.

Glendale’s state-shared revenues will also take a hit from the pandemic’s effects, but not yet. These revenues are based on state income tax from two years prior, meaning cities will not see a reduction until fiscal year 2023.

Another of Glendale’s revenues is taking a hit — debt payments for Camelback Ranch from the Arizona State Tourism Authority. Glendale was scheduled to get $1.9 million in the current fiscal year and $3 million next year from the state as back payment for the construction costs of the spring training stadium that opened in 2009. Instead, those payments from AZSTA have been reduced to $1.8 million this year and $1.5 million next year.

In addition to adding only 11 new positions, which have been deemed critical, to a city staff of about 2,000, Glendale is holding off on many staff raises.

The city is going ahead with market adjustment raises, where employees have found to be making considerably less than the market standard for their position. These raises to select employees, totaling $1.3 million, will be paid at the start of the fiscal year, July 1.

Two other staff raises are being shelved for now. A 1.5% cost of living adjustment to all employees, totaling another $1.3 million, and a planned raise system based on job performance, costing $647,000 will be allocated in next fiscal year’s budget but not distributed yet. That decision will be punted to midway through the fiscal year, Jan. 1, when city officials hope to have a clearer outcome of their financial future. If the city’s finances are not where Council wants them to be, they could decide to cancel those raises entirely.

Some on Council wanted to prioritize these staff raises, but a consensus was reached to hold off. Vice Mayor Joyce Clark from the Yucca District was the staunchest supporter of a bare-bones approach to spending until the pandemic’s impact is clearer. Ms. Clark has been on Council intermittently since 1992, including during the Great Recession, which started in 2008, during which time, she said the city had to furlough and lay off employees.

“Now we’re fighting about when to give COLAs (cost of living adjustments). It’s an insane discussion,” Ms. Clark said. “At this point, we need to hold our fire. We need to wait. We need to see what the numbers come in at and then we can make a determination.”

Joyce Clark
Joyce Clark

Sahuaro District Councilman Ray Malnar agreed to wait for more information before committing to raises.

“I don’t think that we should jump into these increases until we know where our budget is,” he said. “We don’t know. We really don’t know for sure. I believe the city manager has indicated that it looks like our budget is going to be OK, but until we get those numbers rolling in over the next month or so, we really won’t know what’s going to happen. And so, I think we need to be cautious and give (raises) when we know we have it. And I would hate to see us take away once we give it.”

Ray Malnar
Ray Malnar

Mark Carlisle can be reached at mcarlisle@newszap.com or found on Twitter @mwcarlisle.

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