City budget crunch

By Dave Dolle

City of La Crosse officials are preparing for a sharp downturn in tax revenue as a result of the COVID-19 crisis that could lead to significant cutbacks in city programs and hiring.

City Finance Director Valerie Fenske is forecasting a $5.9 million shortfall in revenue to the city for this year. Revenue to the city from room taxes, citations, fines, the closure of city facilities and a drop in state funding are expected to fall to create an 8.6% decline in revenue compared to what the city budgeted for 2020.

“I am not aware of a recent similar downturn like this, especially because of the suddenness of the pandemic, the shutdown and loss of economic activities,” Mayor Tim Kabat told the La Crosse independent. “Most of the $5.9 million gap is from the loss of revenues due to the closures.” 

To compound the crisis, it appears the city must deal with the crisis on its own. The state grapples with its own fiscal issues, and calls to Congress for help have so far failed to produce the kind of bailout for small cities that have been used to support many corporations and the financial system.

“We are facing this budget gap alone, as earlier attempts to advocate for direct assistance to cities were not supported by Congress,” Mayor Kabat said.

At the La Crosse Common Council meeting on May 14, the council approved an Economic Recession Plan that was backed by the mayor with a goal of developing a plan to mitigate the effects of the downturn.

The plan lays out five possible scenarios that range from a mild fall in revenue, to a more severe reduction, which would likely put the city’s budget into deficit territory, and prompt furloughs for city employees and deep cutbacks. 

At present, the city is expecting what city officials are describing as a “significant” downturn, represented by the expected $5.9 million shortfall, which is the third of the five scenarios or stages outlined in the Economic Recession Plan. 

At its May 14 meeting, the council authorized city officials to implement “Stage 3 and higher remedial measures as outlined in the plan to address the current estimated revenue shortfalls.” 

“We are preparing for a multi-year impact on revenues and operating budget,” Mayor Kabat said. “Since most of our operating budget is personnel, staffing and services will be directly impacted by the COVID-19 pandemic.”

The plan is intended to provide guidelines for city officials to address the expected decline in revenue, although there are still few details as to what exactly that will mean in terms of the impact on city staffing and programs.

SMALL CITIES FROZEN OUT

An infusion of federal funding, or support from the state, which is dealing with its own crisis, could alleviate some of the city’s pain.

At the federal level, Democrats in the House have pushed for rescue funds for smaller cities like La Crosse that have been frozen out of the four previous COVID relief bills. One of those earlier bills did include funding to support cities with populations greater than 500,000, and there’s some bipartisan support for funds to shore up the budgets of smaller towns and cities, which have been hammered by the pandemic. 

Republicans in the Senate, however, are seeking to keep the price tag of the next coronavirus bill under $1 trillion and with so many competing interests, it’s unclear if bailout money for smaller cities will make the cut.

“We are always looking for grants and other assistance; however, there are no Federal or State funds available to cities at this time,” Mayor Kabat noted.  “The City of La Crosse did receive about $518,000 in additional CDBG funds, which we used to provide small business relief grants and funding for homeless prevention and housing assistance.” 

The state of Wisconsin has received $2.2 billion in federal funding as part of the CARES relief bill rushed through Congress. How those funds will be disbursed is still being worked out, but it’s unlikely any will be distributed to cities who need to patch budget holes.

“The CARES funding does not allow for communities to plug revenue shortfalls due to the pandemic,” Mayor Kabat noted.  

While the recession plan approved by the La Crosse Common Council sketches out the broad contours for how the city will deal with the crisis, many details are yet to be filled in.

Mayor Tim Kabat

The city has already bypassed the first two of the five stages of the recession plan. The third stage, the guidelines for which the council has authorized the city to implement (see link to resolution here), includes a likely hiring freeze on all but essential health, safety, and welfare positions. Other actions could include the suspension or reduction of services and programs. The individual programs or services most likely to be impacted is unclear.

The fourth stage of the city’s recession plan would be activated if there’s a reduction in revenues in excess of 10% but less than 20%, or $6.1 million to $12.2 million.

In this scenario, the city would likely be forced to dip into its financial reserves, and consider a furloughing of employees, starting with temporary, part time, and contract workers, while suspending all salary increases. 

The fifth stage or “crisis” stage in the recession plan would be triggered by a decline in budgeted revenue of over $12 million. At this juncture the City would implement what are described as severe fiscal actions. These could include a furlough of its workforce across all departments, an elimination of programs and services, and a full stop to all capital improvement projects and purchasing. 

It’s worth noting that any of the five scenarios will have ripple effects across the local economy, as vital public services may be scaled back, and the spending power of the public employees that support local businesses may be curtailed. 

City spending supports our police and fire departments, libraries, parks, the maintenance of our streets, public transport system, the La Crosse Center, and various programs that support local businesses and nonprofits. In addition, the city government itself is one of the biggest employers in La Crosse, providing good quality jobs.

More details on how the city will deal with the impact of the economic downturn on its budget are expected to be announced in the coming weeks.

“We are still working through various scenarios to plug our $5.9 million gap and hope to have recommendations developed soon,” the mayor said.

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