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Lost tax revenue to have ‘brutal’ impact on ABQ city budget

Copyright © 2020 Albuquerque Journal

The city of Albuquerque could get around $150 million in direct assistance through the federal government’s new coronavirus relief package, according to city estimates.

But the money does not address one of the city’s biggest forthcoming fiscal challenges: the gaping budget hole expected due to flagging tax revenue.

“It’s going to be brutal,” according to Albuquerque Chief Financial Officer Sanjay Bhakta.

The $2 trillion CARES Act includes $150 billion for payments to state, tribal and local governments. Each state is guaranteed at least $1.25 billion, but local governments with more than 500,000 people can seek their own direct share from their state’s pot.

Bhakta said he believes the city could qualify for around $150 million, though the number is not official.

Bernalillo County also plans to seek assistance through the CARES Act, a spokesman said, and is talking with city of Albuquerque and state of New Mexico officials about how any such money should be allocated.

A spokeswoman for U.S. Sen. Tom Udall, D-N.M., said the local governments must file requests that are then certified by the U.S. Department of the Treasury.

“We expect the Treasury Department to finalize funding allocations for the CARES Act soon,” Annie Orloff from Udall’s office said in an email Monday.

But the legislation restricts the funding to “costs that are necessary expenditures incurred due to the (coronavirus) public health emergency” between March 1 and Dec. 30. The money is not for expenses outlined in existing budgets.

The city’s previously approved fiscal year 2020 budget is for $1.1 billion.

Bhakta said it remains unclear how much the city will have to spend reacting to and battling coronavirus. There will be new costs associated with cleaning and cleaning supplies and services for children and seniors. He said he believes some existing operating costs may also apply, citing the amount of time the city’s police officers and firefighters are currently devoting to coronavirus-related matters.

But the federal relief is not intended to make up for lost tax revenue, which will have a significant impact on the city’s budget.

Gross receipts tax fuels city government, accounting for 67% of general fund revenue and helping to pay for basic municipal operations such as police, street repair, animal welfare and parks maintenance. The city has averaged about $41 million in gross receipts tax revenue each month for the current fiscal year.

Widespread, mandated business closures meant to slow coronavirus’ spread have affected gross receipts tax activity, though the scope remains unknown.

Bhakta said he will have a better sense of the dropoff in mid-May when the city gets its March GRT distribution from the state Taxation and Revenue Department.

But Bhakta said he already has seen some troubling signs elsewhere.

Lodgers tax – collected by hotels and due to the city March 25 for the month of February – came in 29% lower than the same date last year, according to Bhakta. He said that is not a reflection of February activity; instead, he blames it on the depth of the hotel industry’s more recent struggles.

“I know for a fact that the hotels did better in February 2020 than in 2019, so what I’m seeing is that people collected the tax but they are so hard-pressed on their cash flow that they did not send the money to us,” he said.

Lodgers tax is designated for specific purposes – including marketing the city to tourists – and is not meant to pay for basic city services.

But Bhakta said he’s concerned that what he’s seen with lodgers tax may also happen with GRT, namely that a revenue decline he expected to start with March collections actually starts with February’s.

The CFO said the city has a slight cushion due to higher-than-expected GRT revenue over the past seven months but it’s not enough to absorb the expected losses. The city has about $50 million in operating reserves set aside. Then the challenge is having an adequate reserve for the fiscal year that begins July 1, which is mandated by city ordinance.

Though the entirety of the city’s losses will not be known for months, Bhakta said there is little chance the city can plan on a $1.1 billion spending plan next fiscal year.

“Unless the federal government says ‘we will fill your revenue decline in whole and just give you lump-sum money,’ ” he said. “But I don’t see that as likely.”

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