City governments brace for long-term COVID impact

Officials in Albuquerque project that some economic conditions may not return to normal until 2024. (Roberto E. Rosales/Journal)

Copyright © 2020 Albuquerque Journal

After the COVID-19 pandemic began, Roswell City Manager Joe Neeb began keeping a crystal ball on the edge of his work table for passersby to use.

Neeb said the atypical desk decoration was a testament to an economic downturn that’s proved uniquely difficult to forecast.

“I guess it’s indicative of (the situation) we’re in, trying to determine the right steps to make the right decision,” Neeb said.

Roswell isn’t alone. Across New Mexico, the pandemic has wreaked havoc on gross receipts taxes, lodging taxes and other mechanisms local governments use to raise money.

With no end in sight and the long-term economic implications still unknown, cities are looking to tighten their belts and bracing for 2021 to be worse than this year.

Some cities, including Albuquerque, have projected that economic conditions may not return to normal in some respects until 2024.

“My personal opinion is that I don’t think we’ve seen the worst of it yet,” said Rob Mayes, city manager of Farmington.

A downturn like no other

While economic downturns are nothing new, many city officials who spoke with the Journal said they haven’t encountered anything like the slowdown associated with the pandemic.

Leeann DeMouche, chief budget officer for the city of Las Cruces, said the unique state-level shutdown and specific impacts on certain industries set this downturn apart from similar events.

“What do I have to compare this with?” DeMouche said.

Farmington’s economy depends heavily on the energy sector, especially on the San Juan Generating Station and Westmoreland Mining. (Eddie Moore/ Albuquerque Journal)

Reilly White, associate professor at University of New Mexico’s Anderson School of Management, said this downturn differs from the Great Recession in a couple key respects.

He said that property tax receipts haven’t been hit as hard this time around due to a stronger real estate market but that severe impacts to the tourism and energy industries have hurt New Mexico cities that rely on those sectors.

Spending on hold

The virus and associated shutdowns reached New Mexico in March, when most cities had already begun building budgets for fiscal years that begin in July. As a result, different cities took different approaches.

Albuquerque delayed its budget approval process by several months, using its previous budget month to month until revenue stabilized. The Albuquerque City Council will vote on whether to adopt a $1.15 billion proposed budget Monday.

City Economist Christine Boerner said the extra time gave the city a chance to incorporate more data on the pandemic’s impact. Drawing on research from UNM’s Bureau of Business and Economic Research, Boerner helped devise three scenarios – baseline, optimistic and pessimistic – that will guide how the city responds in the next several years.

Joe Neeb

Other cities had less time to react. With data on the impact of the virus slow to come in, cities including Roswell and Farmington that passed budgets earlier in the year took a conservative approach.

Mayes said Farmington budgeted for gross receipts tax declines of 20%, choosing to put off projects such as street maintenance and purchases that include new police and fire vehicles.

“Everything is put on hold in terms of proactive, preventative maintenance,” Mayes said.

In Roswell, Neeb said the city reduced its budget in July by $31 million from just over $130 million the previous year, with the understanding that the downturn in oil and gas would have long-term impacts on the community.

Both cities acknowledged their approaches would only work in the short term. Roswell Mayor Dennis Kintigh told the Journal the city eliminated about 60 unfilled positions and offered buyouts to some employees. That meant leaving some roles – including the city’s fire chief – filled only on an interim basis. He said the path forward may require significant restructuring.

“This has become an opportunity to do serious re-evaluation of our city staff,” Kintigh said.

Dennis Kintigh

In Farmington, Mayes said deferrals included routine roofing replacements and road maintenance, which can’t be put off in perpetuity.

“The public hasn’t experienced yet the full … negative impacts that COVID has brought to our economy,” Mayes said.

What’s ahead

According to a recent National League of Cities report, a higher percentage of city officials nationwide were more concerned about their fiscal situation in 2021 than 2020 – and with good reason.

White said the previous fiscal year brought a single quarter of bad financial news: the last quarter, which ran from April through June. If conditions don’t improve, the current fiscal year – through June 2021 – could feature four bad quarters.

Most other cities won’t begin their formal budgeting process for the 2021-2022 fiscal year for a few months yet to come, and White said there are a few indicators they should be looking at in an uncertain moment. He said new weekly unemployment claims provide a quick snapshot of how the local economy is faring.

White said an uptick in retail sales shows consumers have confidence in the economy, and can be a good sign for small businesses.

In Albuquerque, the city is bracing for a long road to recovery. The city’s baseline scenario assumes a 9.1% dip in national gross domestic product in 2020, followed by growth the next three years. However, Boerner said employment in metro Albuquerque is unlikely to return to pre-COVID levels until fiscal year 2024, an acknowledgment that Albuquerque often comes out of economic downturns more slowly than the rest of the nation.

“A conservative look at it is that Albuquerque might not recover as quickly as the rest of the country,” Boerner said.

In the short term, Albuquerque is planning to use the remaining $103 million from a federal CARES Act grant provided earlier this year, while planning hiring freezes and a moratorium on salary increases across all departments, according to the proposed budget.

In Las Cruces, DeMouche said she’s monitoring the Consumer Price Index and data from the Bureau of Labor Statistics. She said another key will be state restrictions on indoor dining, which will affect the tax collections the city will be able to work with.

“We’re looking for any tidbit that we can get,” DeMouche said.

Mayes said he’s looking at the energy sector, which directly contributes around 20% of Farmington’s GRT revenue. Mayes said the city’s cuts mean that the city can handle a steep drop in revenue this year, but wholesale changes would have to be made if the dire economic conditions linger.

“Everything would be on the table,” Mayes said.

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