The economic effects of COVID-19 and stay-at-home orders are hitting budgets for people and businesses around the state. And as the Hutchinson City Council discussed during a budget workshop meeting May 26, the city’s coffers have been hit as well.
According to the most recent figures, the city’s updated 2020 budget forecast projects a $212,058 deficit in the General Fund. That includes a projected loss of nearly $946,450 of revenue, and cuts of $734,393 in expenditures.
“I would say this is our early look. … As we’ve seen, there is still a lot to come on this,” said City Administrator Matt Jaunich, who indicated a more clear budget picture may be available later in June.
A large chunk of the city’s projected revenue losses is due to the cancellation of many Park and Rec programs. It is estimated that this will cost the city approximately $184,000. Another significant area of lost revenue is due to the DMV being shutdown, which is estimated to cost the city $62,000.
While the lost revenue hurts, the city is able to offset some of it with reduced expenses, especially in the area of wages and benefits. Many seasonal employees have not been hired to fill positions in the Park and Rec department, such as staff for the Aquatic Center.
Another economic impact is a projected loss of $221,100 of sales tax revenue to the city’s water and wastewater funds, and Jaunich said that estimate could be low.
“It really just depends how long the economy is closed down,” he said. “Every 5 percent decrease in local sales tax revenue amounts to a $70,000 loss in revenue. We may have to use some of our cash reserves to cover our debt payments. We have healthy cash reserves, so we can handle this for a year or two.”
Lastly, the city has had to spend about $40,600 in other expenses related to the pandemic. That includes about $20,000 to purchase personal protective equipment, cleaning supplies and signage, plus about $20,600 for service counter safety improvements (glass and plexiglass shields) at city facilities such as the liquor store, DMV, administrative counter and more.
Financial assistance
While the city is looking at its financial forecast, it’s also looking at possible county, state and federal sources for emergency funding. Unfortunately that picture has also not come into focus yet.
“The one thing we just don’t know is in regards to potential FEMA aid and/or CARES Act funding,” Jaunich said. “It’s really unclear at this time what type of reimbursement we’re going to get.”
The CARES Act — or Coronavirus Aid, Relief, and Economic Security Act — was signed into law by Congress back in March. As part of the legislation, Minnesota received more than $2 billion with the suggestion that 45 percent go to local governments. But that is not required. Walz has said he plans to distribute some of the money to cities on a per capita basis. Using one such per capita disbursement formula that has been discussed, Hutchinson would received up to $1.2 million.
There is a catch, of course. The money can only be spent on coronavirus-related expenses incurred between March and the end of 2020. It can’t be spent to replace lost revenue, and any money not used must be given back.
“The only thing I can see for us that we can reimburse ourselves for is unemployment benefits we’re paying out, and I believe the service counter improvements we’re making,” said Andy Reid, the city’s finance director. “Otherwise that is the extent of what I can see we can use the money for. Other purposes laid out in the information I received include grants to help prevent eviction and homelessness, emergency assistance to individuals and families due to loss of income due to COVID, and small business grants due to COVID as well. So those are items we can think about if we do receive this $1.2 million from the state.”
