By Jen Fifield for The Arizona Republic
Up until this month, many Arizona cities were riding high on good times.
Populations were growing, jobs were booming, and cash was flowing in.
Cities were preparing to put a bow on the optimistic budgets they had worked on since the fall for the next fiscal year starting in July.
Then, the new coronavirus came along.
Now, the stock market is tanking. Restaurants are restricting operations and other businesses are closing temporarily under Gov. Doug Ducey’s order. Tourists have altogether vanished, and snowbirds are heading home early.
Phoenix City Manager Ed Zuercher told department heads the impact on the economy is “unknown, but significant.”
The sudden loss of sales taxes and other revenue is leading city officials to make quick decisions about how they can cut back this year and budget for what may be a more dismal year ahead.
Cities have put a full or partial freeze on city hiring, and Buckeye, Gilbert and Phoenix are freezing nonessential spending.
Buckeye has already decided to cut spending in each department by 10 percent for next budget year, said city spokeswoman Annie DeChance.
Leaders in many cities are considering postponing city projects.
Businesses close; Sales Tax Expected to Drop
Under Ducey’s order, restaurant service is limited to takeout and drive-thru only, and bars, theaters and gyms are temporarily closed.
Cities rely on sales taxes from businesses to pay for their day-to-day operations.
Usually by this time in the year, city officials have hammered out revenue predictions and planned spending for the next year. Now, cities are going back to the drawing board.
Glendale relies heavily on the sales tax from its Sports and Entertainment District, which, at last count in 2016 was nearly $12M. With sports canceled, and bars and restaurant dine-in closed, some of that money is lost.
City staff members are updating the city’s budget projections to account for a potential reduction in sales tax revenue, said Vicki Rios, an assistant city manager.
Glendale Councilwoman Joyce Clark said she expects sales tax to decline “a great deal.” The severity depends on how long the coronavirus spread takes hold, she said.
Because of the uncertainty, she said she thinks the city should freeze all unnecessary spending and be conservative with revenue estimates.
In Phoenix, Zuercher asked the department heads not to send department-wide emails about budget forecasts as they would “stir unnecessary anxiety with staff.”
All nonessential spending is to cease, according to the email.
Last Downturn was ‘Just Financial’
Both Scottsdale and Glendale officials said that their emergency reserves could be used to cover shortfalls, if needed.
But in Glendale, leaning on rainy day funds was what led to some of Glendale’s financial problems in the past. Clark said she doesn’t want to go down that path again.
The Great Recession is still vivid in her mind, and the minds of other city leaders in the Valley.
Avondale Vice Mayor Pat Dennis joined the City Council nearly a decade after the Great Recession.
She fears a repeat of what happened then. “We’re combining financial and health issues in one scenario,” Dennis said. ”Before, it was just financial.”
Avondale will see discussions about how much tax revenue the city is losing, where it needs to cut back on spending and what improvement projects need to be pushed back.
Scottsdale is reviewing open positions and postponing some recruitment, city spokesman Kelly Corsette said. The city will continue to recruit and hire for public safety positions and those in critical infrastructure areas such as water and wastewater.
Projects Could be Postponed
City capital projects like road repairs and new fire stations and parks could go on hold if money falls short.
Tempe is now looking at scaling back capital projects and stowing away cash.
City staff members proposed a five-year budget to the City Council for capital improvements — the largest capital budget ever considered by the city at just over $800M.
The budget was put together prior to the health crisis and likely will be significantly altered to reflect the current downturn, said Ken Jones, Tempe’s chief financial officer.
Jones said staff recommends postponing proposed projects that were to be paid with cash. Those funds would instead go for day-to-day operations, if needed.
In Glendale, Clark predicts Arizona Highway User Revenue Fund money that cities get from the state will take a nose dive, and city street projects rely on those dollars, she said.
In Scottsdale, voters approved a $319M bond package to fund 58 potential construction projects, ranging from road improvements to public space upgrades.
Now, Councilwoman Virginia Korte said she thinks the city needs to take a closer look at how and when it moves forward with those projects.
Read more at The Arizona Republic.