With the COVID-19 pandemic wreaking havoc on the economy, the city of Peoria was bracing for a big hit to sales tax receipts, which makes up about 34% of the city’s general fund revenue.
City officials still plan to take precautionary budgetary measures, such as possible department cuts, but the local economic picture isn’t quite as gloomy as initially thought.
Sales tax revenues were up 8% in May and 14% in June compared with the same months in 2019, and June experienced the most city sales tax revenue of any month other than December 2019 in fiscal year 2020.
As the pandemic ramped up, revenues went down 5% in March and 13% in April.
CFO Sonia Andrews said the recovery has been faster than expected and the city is more optimistic about fiscal year 2021.
However, she said, the recession is deep and there is still much left unknown, so the budget team will remain conservative in its financial outlook.
“We are excited about the fast recovery in the last three months, but there are still many uncertainties that remain that could shape the recovery,” she said.
“Part of the reason we believe we have the strong recovery in sales tax is because we are not negatively impacted by those sectors that are still in a deep recession. We don’t have significant sectors in travel and entertainment. In fact, we depend on stores like Walmart, Target, Amazon, grocery stores and auto dealers. Those are the major payers of our sales tax and as we know Walmart and Target never shut down, and in fact, they have probably increased in revenues from panic buying and household essentials people are spending their money on right now.”
In April, city officials projected between a $9 million and $13 million structural deficit during the next few years. However after more recent data collection, the projection is between $6 million and $9 million. Officials project flat growth during fiscal year 2021, with modest revenue growth in the following years, up about 2% to 3% every year.
To help cover the deficit, Deputy City Manager Andy Granger said possible budget actions in the future could include $0.10 of the property tax shifted to the general fund and a shift of $500,000 in right-of-way maintenance expenses to the sales tax bucket. The right-of-way expenses would then be funded with the city’s Transportation Sales Tax fund.
These two options would address about $2 million of the structural deficit, Mr. Granger said.
After that, if deficits remain, the city could consider the following:
• Cuts of 1% to 2% across the board for city departments, which could include travel expenditures or vacant positions. Mr. Granger said as of now this would not include cuts to current positions.
•Employee compensation adjustments that could include reduction of future increases.
•Refinancing the city’s public safety pensions — the city pays out at $8 million annually to address unfunded obligation.
City Manager Jeff Tyne said Peoria is well positioned to handle the recession with $37 million in reserves.
“We have significant reserves should something happen in the economy that would disrupt us,” he said.
Gross domestic product is the total goods and services made within the U.S. during a specific period, and economists use it as an indicator of how deep a recession is.
Ms. Andrews said GDP decreased by about 11% in the first quarter, a steeper drop than during the Great Recession. This was because of a sharp decline in consumer spending, which makes up 70% of GDP.
However, consumer spending has increased during the past three months, but it is still down 8%, she said.
“Consumer spending has been really interesting during this recession,” Ms. Andrews said. “Spending dropped by more than 30% in April. People were not spending money, they were staying home and also receiving stimulus money at the same time. So household income and saving increased, which is unusual because they usually drop during a recession. Then the stay-at-home order lifted in May, with extra money in the bank, and pent-up demand we saw a sharp bounce back in consumer spending. The stimulus was a catalyst, but the level of activity is still below pre-pandemic levels.”
Because of low consumer spending, small business are still hurting. And although unemployment filings have steadily decreased since March, more than 15 million Americans remain out of work.
Many economists predict unemployment will remain above 7% through 2021.
Small businesses are the lifeblood of the economy, instrumental in job creation and making up about 50% of GDP. At the end of July, more than 18% of local business were not operating fully or not operating at all, compared with January before the pandemic, another indicator of the depth of this recession.
To help ease the pain, city is offering grants to Peoria businesses and nonprofits to assist with rent, utilities and COVID-19-related equipment and supplies, with awards up to $20,000 based on need.
To apply, go to azfoundation.org/PeoriaRelief, English and Spanish is available.
“We don’t know how many businesses will make it, and jobs may be permanently lost. Employment is improving but it is still really bad,” Ms. Andrews said.
Peoria relies heavily on sales tax revenues for its operations, with local sales tax making up about 34% of the city’s general fund revenues. Retail (non-grocery), restaurants, auto, travel and entertainment sectors have been the most impacted. So when the pandemic first rolled in, city budget officials projected a structural deficit of $13.2 million for fiscal year 2023.
Mr. Granger said the projection was based on the prediction of a severe recession from almost every economist at the time.
But he said the city has not seen the impact once predicted, and has adjusted its estimates at $6 million to $9 million structural deficits over the next few years, with a $5.8 million structural deficit projected for fiscal year 2023.
The decrease is primarily because of the stimulus package, Mr. Granger said.
“We thought we would have a bigger hit on our sales tax revenue,” he said. “But it is unknown what will happen when the stimulus ends and if there be another stimulus package."
Philip Haldiman can be reached at 623-876-3697, firstname.lastname@example.org, or on Twitter @philiphaldiman.