Despite possible economic fallout from COVID-19, KC Council approves budget increase
Kansas City Council members voted Thursday to boost city spending by $49 million over last year even as they acknowledged the spread of the novel coronavirus means the city’s financial outlook is uncertain at best.
After more than two hours of debate over whether to add even more police officers, reduce police forces in favor of public transit or sacrifice street maintenance funds to fund public transit, members voted 12-1 in favor of a $1.7 billion budget that looks substantially similar to the version that passed committee last week.
And while they differed on priorities, council members were united in their fear that the city won’t have enough money to fund all of its commitments.
“None of us know how much money is going to come in over the next few months...” said Councilwoman Teresa Loar, 2nd District at-large. “Christmas treeing this budget right now is the wrong thing to do.”
The budget that council members passed Thursday maintained several priorities proposed in February by Mayor Quinton Lucas and interim City Manager Earnest Rouse. It adds $4.8 million toward making bus transit 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 won’t open in April as expected because the coronavirus, or COVID-19, has essentially shut down the city’s tourism business.
Council members also added another $100,000 for Children’s Mercy Hospital, which was facing cuts in the proposed budget. They separately provided $125,000 in emergency funds to help reStart maintain bed space for homeless adults and promised up to another $125,000 in the coming months. And they approved $500,000 to support small businesses harmed by stay-at-home orders issued to combat coronavirus.
The City Council also voted to institute a temporary hiring freeze and other cost-containing measures meant to shield the budget from a potential recession caused by the fallout from the coronavirus.
Kansas City’s Charter requires the council to pass a budget by the end of March, which turned out to be an inopportune time this year because of the global economic uncertainty caused by the pandemic. City finance staffers notified the council Wednesday it might need to cut $115 million in spending over the next five years to deal with the economic impact of the virus.
A forecast prepared by council staff said the city could expect a “light recession” followed by a “relatively quick recovery.”
Some members were skeptical those projections were conservative enough.
“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.”
Officials predict any budget impacts would be less severe than those weathered during and after the Great Recession. The city’s well-funded emergency reserves will “dampen some of the major economic impacts,” the report said. But analysts included a boldfaced caveat: “It is too soon to tell.”
The council voted unanimously to extend the April 15 tax deadline into July, as the IRS did for federal taxes. That means nearly $30 million in earnings tax revenue won’t be collected in the final days of the current fiscal year, which ends April 30. To make up that shortfall, the city will have to dip into its reserves. It has nearly $110 million in general fund reserves in this year’s budget.
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 up to $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 $45 million from its general fund — the most flexible pot of money council members have to pay for programs and policy priorities — to subsidize funds generally supported by sales and property taxes, including those for conventions and tourism, the Fire Department, health, parks and public safety.
Council members passed a budget that doesn’t reflect any of that, but will likely return to make adjustments as the city’s financial picture becomes clearer.
Lucas was worried about the city’s financial picture, but advocated passing the budget as it was and making adjustments when the city knows more about its economic outlook.
“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.”
