FOR IMMEDIATE RELEASE
At City Council’s lunch workshop Tuesday, City Manager Gage and Finance Director David Holtmann presented a review of the City’s General Fund projections for the remainder of the 2019-2020 fiscal year, which ends June 30, as well as revenue projections for FY2021.
A Stay-at-Home order enacted March 24-May 3 required many Springfield businesses to close and residents to only engage in essential activities to reduce the spread of the coronavirus. An expected drop in sales tax revenue, one of the City’s main sources of revenue, may not be realized until the City receives its June sales tax check. That check will reflect sales made in late March and April.
“Given the current economic situation we are experiencing with the COVID-19 pandemic, we are anticipating sales tax to decline approximately 20% for the remainder of the fiscal year (sales tax collections received in May, June, July, and August).”
“My first priority in developing the proposed FY2021 budget is to the greatest degree possible maintain the City’s labor and financial resource capacity to continue to provide essential municipal services to our citizenry as we come out of the COVID-19 pandemic,” Gage said.
Gage implemented several cost-saving measures to reduce expenses for the remainder of the current fiscal year in anticipation of the decrease in revenue.
The cost-saving measures include:
- Hiring freeze for “non-essential” employees, subject to City Manager review: $218,000
- Freeze for “non-essential” work travel and training: $191,000
- Reduction in FY 2020 General Fund unencumbered capital expense: $457,000
- Reduction in workers’ compensation rate transfer from the General Fund by 50%: $267,000.
TOTAL IMMEDIATE FY2020 GENERAL FUND SAVINGS IMPACT (est.): $1,133,000
“While the cost-saving actions we’ve taken are significant in nature, they are meant to ensure the City remains financially intact and able to move forward when these extraordinary times have come to an end,” Gage said.
These activities are funded by four major General Fund revenue sources: sales and use tax, payments in lieu of taxes (PILOTs), other taxes, and licenses and fines. The General Fund is the primary focus of the City’s annual budget process because it funds many of the high-profile citizen services (e.g., those listed above) and is the revenue source that provides the most flexibility in use by City Council.
For FY2020, sales tax revenue was budgeted to grow 1.5%. Sales tax revenue is exceeding last year’s actuals to date (April 2020) by .9% (or $346,000). Given the current economic situation we are experiencing with the COVID-19 pandemic, we are anticipating sales tax to decline approximately 20% for the remainder of the fiscal year (sales tax collections received in May, June, July, and August). This represents a reduction of sales tax of approximately $2.3 million of the budgeted $15 million in sales tax for the remainder of the fiscal year (since July and August are accrued back into FY2020).
The City’s second largest general revenue source is Payments in Lieu of Taxes (PILOT). PILOT revenue is generated as a percentage of the gross receipts collection from City Utilities, the City’s municipally owned utility. Currently, the City’s PILOT revenue is tracking well below last year due to the milder weather experienced during the current fiscal year. Revenue from PILOTs for FY2020 is projected to be $14.7 million, or $1.3 million below budget. PILOTs are a challenging revenue source to project due to its dependency on the weather and the fluctuating costs of natural gas.
The decline of gross receipts tax (license tax) on telecommunication companies continues to be a concern. The financial impact to the General Fund has been significant over the past nine years, resulting in a loss of revenue just under $2 million during this time. The City collects license tax from telephone and cable television services companies. The City Charter requires all telecommunication companies to pay a license tax of 6% of the gross receipts from such business, and cable television service providers to pay a license tax of 5% of the gross receipts from such business. Most likely, telecommunication companies have been shifting the base of revenue from cell phone usage to data usage.
Licenses, fines, and other fee-based revenues are meeting the budget estimates and are very similar to FY2019 actuals, generating $7.9 million in revenue. FY2020 total revenue, including transfers, is expected to generate $81.9 million. This is a significant decrease from FY2019 actuals by 4.2% (or $3.6 million) and FY2020 budget by 4.9% (or $4.2 million). This size of decrease has not been seen since the Great Recession. This is accounted for in the FY2021 budget projections.
Revenue outlook for FY2020-2021
The largest individual segment of the City’s operations is supported by the General Fund, (approximately $80.9 million), which covers most police and fire operations, public works, planning and development, building development services, and all administrative support services.
“Moving into FY2021, we anticipate a modest staggered improvement of retail activities resulting in sales tax projections 13% lower in the first quarter; 5% lower in the second quarter; 3% lower in the third quarter, and flat revenue in the fourth and final quarter,” Gage said.
This staggered progression results in sales tax totaling $44.3 million estimated in FY2021, approximately $2.9 million less than budgeted in FY2020. The City will monitor monthly our actual experience against our estimates to determine if deeper budget modifications will need to be made. The use tax is projected to remain slightly below last year through the end of FY2020. PILOT revenue is projected to continue well below budget (at 8% below) through the end of the FY2020 and estimated to remain flat for FY2021.
The decline in gross receipts tax revenues on telecommunication companies has continued in FY2020. It is anticipated this revenue, along with the other revenue sources, will continue to decrease approximately $300,000 in FY2021. Licenses, fines, and other fee-based revenues have exceeded budget expectations for FY2020 but are anticipated to slow in FY2021 to $7.7 million, down from $7.9 million in FY2020. FY2021 total revenue, including transfers, is expected to generate $80.9 million, down from $86.1 million budgeted in FY2020 representing a 6% decrease.
With the anticipated decline in sales tax revenue, similar sales tax reductions from the prior budget will occur in the 1/4-cent Capital Improvements Sales Tax (approximately $675,000 reduction), the 1/8-cent Transportation Sales Tax (approximately $325,000 reduction), the Police-Fire Pension Sales Tax (approximately $2,083,000 reduction), the Law Enforcement Sales Tax (approximately $605,000 reduction), and the Springfield-Greene County Park Board (approximately $634,000 reduction).
Property tax provides a stable source of revenue for the Springfield Art Museum, Springfield-Greene County Park Board, the Springfield-Greene County Health Department and for voter-approved municipal purposes, City facilities and public safety initiatives. Although property tax revenue does not typically show significant growth, the stability of this revenue source adds a small level of diversification to the City’s revenue sources. In FY2021, property tax is expected to generate $22.3 million. This is a 1% (or $272,000) increase from projected FY2020 revenue.
About the City’s budget process
The annual budget is a plan – a financial proposal that directs the provision of public services and facilities. The services provided by a public organization are based on the available revenues (funds) from all sources as approved in its annual budget.
The City’s budget process is led by the City Manager, who is required by the City Charter, to present a proposed balanced budget to City Council by May 1. The series of budget workshops allow City Council time to review and discuss the City Manager’s proposed budget and to approve the budget before the new fiscal year begins on July 1 each year.
The following general principles have been followed in the financial management of the City and in the development of the annual budget. These policies have been developed to guide the City in delivering a consistent level of service, while maintaining a stable financial position and equitable tax structure.
- Financial planning policies (including operating with a balanced budget)
- Revenue policies (such as fees for services paid for by those receiving the services to recover the cost of providing the services)
- Expenditure policies (such as providing the best service possible given revenue constraints and maintaining adequate cash reserves.
The FY21 proposed budget attempts to address funding needs within all areas of the organization. However, consistently over the past eight years, law enforcement and public safety have been the clear funding priority.
Throughout the budget workshop process (May 1-June 30), the public has access to both the proposed budget and later, the adopted budget, at https://www.springfieldmo.gov/Budget and at https://www.springfieldmo.gov/OpenData (the City’s data portal). Printed copies of the proposed budget are available at the cost of printing.
The City Council lunch workshops are open to the public, broadcast live on CityView’s channels on Mediacom and U-Verse. They are livestreamed from the CityofSGF Facebook page and at cityview.springfieldmo.gov.
“City Council’s priorities of public safety, fiscal sustainability, quality of place and economic vitality have guided my efforts in the development of the proposed FY2021 budget. Specific emphasis is placed on continuing City Council priority of public safety, which is as important through the pandemic as ever,” Gage said. “In support of City Council’s priority of fiscal sustainability, this budget preserves the City’s financial stability, while continuing to provide quality vital services to our community. In addition, continued emphasis on improving the efficiency and effectiveness of the development review process to enhance our overall development competitiveness and significantly improve our nuisance abatement and dangerous structures process to ensure neighborhood stability and addressing City Council’s priority of quality of place.”
“The City continues to be financially sound and prudent in our mission to serve our citizens and we have earned the reputation of being a good steward of our community’s tax dollars,” he added.
For more information, contact Cora Scott, Director of Public Information & Civic Engagement, at 417-380-3352 or [email protected].