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Santa Fe faces $100M deficit in FY21

Colin Murphy, from Santa Fe, walks along an empty Palace of the Governors’ Portal Monday May 18, 2020. The portal along with state museums are closed and the major events for the Santa Fe Plaza have been cancelled due to the COVID-19 pandemic. (Eddie Moore/Albuquerque Journal)

SANTA FE – The city of Santa Fe is projecting an “unprecedented” shortfall for fiscal year 2021 – around $100 million – as revenues continue to plummet amid the COVID-19 pandemic.

Mayor Alan Webber announced the projection during a virtual news conference Monday and said the cancellation of such big-money events as the Santa Fe Indian Market, the Traditional Spanish Market, the International Folk Art Market and the Santa Fe Opera’s summer season have especially hurt city revenues.

Tourism in Santa Fe, a city heavily reliant on visitor spending, has cratered since the pandemic hit the state in March. Even as some businesses begin to reopen in a limited capacity, the outlook for the city remains dire.

“We’re deeply affected by this summer’s cancellations of major income-producing events,” Webber said, adding that such events will be among the last parts of the economy to restart.

The deficit represents about 30% of the city’s total budget. City officials said a “worst-case estimate” would feature a $150 million deficit, triggered by a potential second outbreak of the virus in the fall.

Webber said the deficit covers nearly all of the city’s revenue-generating funds. Gross receipts tax revenue, which accounts for nearly 70% of the total budget, would be hit especially hard and drop an estimated $37 million compared with the previous year, Finance Director Mary McCoy said.

The city’s general fund, which finances services and salaries for many city employees, would lose $31 million.

Other funds, such as lodgers tax and recreation fees, are forecast to lose 40% to 50% of their revenues from the previous year.

McCoy said the city’s credit rating could also drop, thereby increasing the cost of issuing debt for capital projects.

The historic level of Santa Fe’s fiscal crisis means city officials will be adjusting the normal budget-making process.

“We’re going to be doing things very differently,” Webber said.

This includes the Finance Department providing quarterly reports to city councilors and other department heads reviewing their own budgets for the next year.

A Monday memo written by McCoy states the city will hold budget hearings in July before submitting the revised numbers to the state.

Samuel Marcus, from California, and Mandi Makala, from France, shop through the businesses now open on the Santa Fe Plaza on Monday. The state museums are closed, and the major events for the Santa Fe Plaza have been canceled due to the COVID-19 pandemic, but several shops have reopened. (Eddie Moore/Albuquerque Journal)

McCoy said the city could receive $35 million total in federal funding over the next two fiscal years from the Health and Economic Recovery Omnibus Emergency Solutions Act, which awaits approval by the U.S. Senate, but added that the likelihood of that figure remaining intact is “highly uncertain.”

How the city would cover the remaining deficit still needs to be decided. Webber said reducing transmission of the virus and making tourism safe again will be key to reinvigorating the city’s economy.

Webber said he does not think that raising taxes would help but that the city is evaluating how raising taxes to certain rates could affect finances.

“It’s not a very good idea to add a tax burden at a time when people are thrown out of work,” he said.

The deficit projection comes in addition to the estimated $46 million shortfall for the current fiscal year, which ends June 30, that the city announced in April.

The city already has instituted a spending and hiring freeze, saving an estimated $27.5 million. The City Council narrowly approved furloughs, either four or 16 hours per week, for more than 1,000 city employees.

Despite the massive cuts, McCoy said the city still has not yet covered the shortfall for the current fiscal year.

Webber said that any decision regarding additional furloughs or layoffs will come during the budget-making process and that no decision had been made as of yet.

“That’s why we’re having a budget process, to figure out what response the governing body believes is the best way to go forward,” Webber said. “When you’re faced with scarcity, you really have to make hard choices.”

Webber also said he did not want to “unnecessarily alarm” city employees and Santa Fe residents.

Representatives from American Federation of State, County and Municipal Employees Local 3999, the union representing many city employees, said they had heard furloughs and layoffs are being discussed.

“We have heard that the city is talking about layoffs and further furloughs for the next fiscal year,” Local 3999 Vice President Gil Martinez said in a Monday phone conversation.

The city previously came under fire for giving longer furloughs to lower-paid employees.