KC budget experts prep for ‘light recession’ from COVID-19. Some officials fear worse
An economic downturn brought on by the spread of the novel coronavirus could knock $115 million out of Kansas City’s municipal budget over the next five years, according to an analysis prepared by city staffers.
The report, which City Council members received Wednesday, provides a path forward should the city go through what finance experts called a “light recession” followed by a “relatively quick recovery.”
Budget officials predict any budget impacts would be less severe than those weathered during and after the Great Recession and note that the city’s well-funded emergency reserves will “dampen some of the major economic impacts.” But the report includes a caveat written in boldfaced type: “It is too soon to tell.”
“With new announcements and impacts coming out daily, the results could be significantly more or less than what is modeled here,” the report says. “The truth is we just do not know with any certainty what will happen in the next several months, much less several years.”
The council was set to vote Thursday afternoon on a $1.7 billion budget that predicted strong revenue growth when it was released last month. It adds $4.8 million toward making bus transit fare-free citywide, $10.7 million for police, $6.4 million for the fire department and a lump sum to support the Loews Kansas City Convention Center Hotel, which now won’t open in April as expected because of the spreading coronavirus, or COVID-19.
Several elected officials still expect the budget to pass mostly intact, but they worry about the coming months.
“I hope our finance department is correct that the disruption is going to be minimal,” said Councilwoman Katheryn Shields, 4th District at-large. “I, as I said, am not as optimistic as they are.”
Shields, who chairs the council’s finance committee, said she was concerned the council may have to come back and make budget cuts if revenues decline more than expected.
Mayor Quinton Lucas said that he was worried declining revenues could threaten spending toward the city’s policy priorities, but that Kansas City was “as prepared as one could be.” He wants to pass the budget as council members planned and look at adjustments down the road.
“I would like to make sure that we can actually handle this crisis without any staff reductions, and that’s pretty much what I’m going to commit to,” Lucas said. “What that means for me is that we need to cut literally every consulting contract in the city right now, and I would do that long before we actually have any impact upon our staff.”
City officials are considering extending the April 15 tax deadline into July, as the IRS did for federal taxes. That means nearly $30 million in earnings taxes will be collected next fiscal year instead of in the final days of the current fiscal year, which ends April 30. To make up that shortfall in this year, the city will have to dip into its reserves.
The report shows that if the city didn’t move its tax deadlines, city earnings taxes would fall short of previous estimates by more than 8%. When the city prepared its proposed budget, it expected to bring in $292.3 million in earnings taxes, its largest single revenue source. Next year’s collections are now projected to be $268.3 million plus $28 million in late taxes.
The report says capital maintenance funds would need to be cut by $23 million over five years. The city would have to pull from its general fund — the most flexible pot of money council members have to pay for programs and policy priorities — to the tune of $45 million over that period to subsidize funds generally supported by sales and property taxes, including those for conventions and tourism, the Fire Department, health, parks and public safety.
But Lucas said he wasn’t as worried about the earnings tax impact as the effects a coronavirus-related downturn would have on sales tax resources. Kansas City collects taxes on hotel stays and restaurant visits, which are being hit hard by stay-at-home orders that have essentially shuttered the city’s tourism industry.
The City’s Convention and Tourism Fund is expected to lose $6 million immediately because of the shuttering of restaurants and entertainment, according to the report. That fund and others typically made up of city sales taxes may have to be bailed out by the general fund, which Lucas said may threaten other city priorities.
“What I don’t believe it will do is actually completely eliminate any of our planned investments,” Lucas said, “but I think it has the (potential) to create some percentage reductions.”
Lucas anticipated a long budget hearing Thursday afternoon but expected the proposed budget to pass without drastic changes.
Shields and Councilwoman Melissa Robinson, 3rd District, however, were more concerned about passing major spending increases at such an uncertain time.
Shields said she has advocated using the city’s current fiscal year budget for another year, which would eliminate spending increases for police and fire and fare-free transit. But she suggested adding some newer priorities, including funding for tenant advocacy, into that budget.
Robinson favors a “bare essentials” budget, but wasn’t sure there was appetite among her colleagues for such sweeping changes. She said the priorities in the budget should be the city’s safety-net providers and health resources and zero-fare transit to support Kansas Citians who need to get to work.
But overall, she said the city needs to watch its spending, noting that it is also obligated to cover substantial debt because of incentive deals.
“The time for us to be conservative is now,” Robinson said.
To find out more about Kansas City’s response to the coronavirus, you can text “COVIDKC” to 888-777 or visit the city’s website at kcmo.gov/coronavirus. The federal Centers for Disease Control and Prevention has information at cdc.gov/coronavirus, and the Missouri Department of Health and Senior Services has a hotline at 877-435-8411.
This story was originally published March 26, 2020 at 12:24 PM.
