JoCo cities face difficult decisions as they work to close budget gaps caused by COVID-19

With many stores closed during stay-at-home orders Johnson County cities are experiencing a hit to their sales tax income, which usually generates between 20 and 50 percent of their revenue.

As businesses close in response to the coronavirus pandemic economic impacts are beginning to ripple beyond their shuttered front doors and windows.

Sales tax typically generates between 20 to 50 percent of revenue for cities in Johnson County, financing general funds, stormwater projects and public safety efforts. But with the stay-at-home orders in place, this typically reliable revenue source is thrown into question, and municipal budgets, most of which were planned half a year in advance, are being restructured.

Essential services will continue

To offset funding gaps Johnson County cities have largely been working towards cutting operational expenditures and capital improvement budgets, and some have said they will consider dipping into reserves if necessary.

“The path we’re going to follow is (first) how much can we glean by reducing existing costs. The next step is contingency funds. And then the third step is money from reserves,” said Wes Jordan, Prairie Village’s City Administrator.

As of early this month, Prairie Village had $500,000 in contingency funds and $7,480,651 in reserve funds, representing 25 percent of their general fund.

Most cities in Johnson County have substantial reserve funds, or “rainy day” funds, that represent 20 percent to 45 percent of their general fund, depending on the city. This money is meant to fill in any budget gaps during emergencies or economic changes.

“I would say the best thing about what the city is done is that we’ve built up those reserves with the idea that there was another recession coming, we just didn’t know when,” said Don Cawby, Shawnee’s Finance Director. “We were planning for those rainy days, and this just happened to be the one that came up.”

In Overland Park city officials expect to see a total budget gap of $25 million, and have already made $17 million worth of cuts.

“Right now, the city projects a shortfall of $8 million,” said Overland Park spokesman Sean Reilly. “That $8 million would come from the reserve fund, which is about 15% of the reserve fund.”

During the Great Recession, Overland Park maintained city services by laying off 42 city staff, implementing a salary freeze from 2008 to 2011 and reducing the capital improvement and maintenance budget from $250 million to $80 million. The city also spent $40 million of $60 million in reserve funds. They’ve since rebuilt the general reserve fund to around $48 million.

‘Difficult Times and Difficult Decisions’

Sales tax revenue data will not be available for two months, so cities don’t yet know exactly the amount of loss they’re facing.

“Every city has a different mix of dependency on what percentage sales tax is,” said Penny Postoak Ferguson, the County Manager for Johnson County. “There are different levels of impact because of that mix.”

Overland Park, which relies on sales tax to generate 36 percent of total revenue, instituted a 5 percent citywide operating expense reduction and furloughed 200 community center workers as well as over 100 part-time and full-time Overland Park Convention Center employees.

“These are incredibly difficult times and difficult decisions are going to have to be made,” said Overland Park City Manager Bill Ebel in a city council meeting last Monday.

Overland Park’s also had to stop all unsigned design contracts and construction contracts going through the approval process, and undertake a reduction in public works and parks and recreation capital maintenance programs.

“The idea is to that these cuts will allow us to maintain critical services,” said Overland Park spokesman Sean Reilly.

Other cities also noted that capital improvement projects were some of the first to go after cuts to city operations.

“We may not be able to fund as much in infrastructure that we normally would like to,” said Wes Jordan, Prairie Village’s City Administrator.

Merriam, which relies on sales tax to generate 51 percent of total revenue, was scheduled to spend $300,000 on improvements to the City Hall’s exterior façade this year. The city has had to delay the project, with equipment purchases postponed until later this year or next year.

‘Too early to tell’ if park, library services will be affected

Johnson County is projecting a 10 to 30 percent reduction in their sales tax revenue. Thus far the county has relied on $21.1 million in operational budget cuts and project deferments to defray a loss in sales tax revenue. The cutbacks are being achieved through 246 employee furloughs, a hiring freeze and reduction of overtime pay.

But the county may lose as much as $38 million, meaning officials may have to find almost $17 million more in savings.

“We will look first to see if we can make additional expenditure reductions that won’t have significant impacts to service,” wrote Johnson County Budget Director Scott Neufeld in an email. “If it goes beyond that, the question of services/project reductions versus use of reserves will be a policy decision for the Board (of County Commissioners).”

If the Board of County Commissioners chooses to reduce services as opposed to using reserve funds, they will decide which services to cut. During the Great Recession, the county was able to keep most services intact, besides returning the responsibility of restaurant inspections over to the state, Neufeld wrote.

“If there are service or project demands that have been, or come to be, diminished under our new normal, those would likely be candidates,” Neufeld wrote.

In addition, county library and parks funds cannot be redirected to the general fund to fill any budget gaps. These services are funded with separate taxing districts and mill levies that are set annually through the regular budget process, which have already been set for 2020.

“It is too early to tell if park and library service levels will be impacted financially long-term by the pandemic,” Neufeld added.