COVID-19 hit Kansas City’s budget hard. What happens when rainy day money is gone?
Kansas City’s proposed 2021-2022 budget is full of difficult and controversial proposals: a hiring freeze, no wage hikes for some workers, closing Hale Arena, cuts to popular outside programs.
The budget blueprint also includes the use of nearly $13 million from the city’s fund balance to make the books balance. Kansas Citians should worry about that choice.
Nearly a year ago, we suggested City Hall would face a major shortfall because of the pandemic, a warning that was disregarded by Mayor Quinton Lucas and others on the council. Spending continued more or less as usual.
We now know why there was little actual belt-tightening after COVID-19 hit. City officials depended on the fund balance — sometimes called a “rainy day” fund — to make up shortfalls in spending.
City Hall spent roughly $50 million of the fund reserve in the current budget year. That cut the rainy day fund in half. Now budget officials say they need another $13 million from the fund to plug holes in next year’s budget.
That means roughly two-thirds of the rainy day fund will have disappeared because of the pandemic. If the City Council approves the decision, the city’s fund balance will drop to its lowest level in a decade.
“We really need to work hard … to figure out how we make some substantial changes to this budget so that we actually don’t end up next year with no reserves on hand,” finance committee chairwoman Katheryn Shields said, correctly.
City budget officials have defended using the fund because, well, a pandemic is the ultimate rainy day. Revenue, particularly from the earnings tax, drops in the new budget by almost 8%. Sales tax collections are roughly flat, but only because the levy was raised for the fire department.
If you can’t spend reserves in such an environment, they say, there’s no point in having a rainy day fund.
There is some merit to this argument. The impact of COVID-19 on the budgets of local government has been unprecedented. The public health disaster is just the kind of emergency that fund balances are built for.
But it’s a one-time thing. City officials can’t take $50 million out of the bank every time there’s an emergency. Using another $13 million in the next budget will worsen the balance.
And a dramatic drop in the fund reserve can only mean more difficult problems down the road. The lack of budget discipline in 2020 and 2021 may mean smaller raises or layoffs in 2025 or 2026, because the fund will be depleted.
The alternative is higher taxes. But because of the unique nature of Missouri law, raising taxes requires, in almost all circumstances, a public vote. It isn’t something budget officials can rely on.
We believe the federal government should step in and help. Last year’s aid was limited to pandemic-related expenses. This year’s relief package should provide cities with more flexibility to address spending shortfalls.
If that money doesn’t come through, the mayor and City Council should examine every possible budget item for cuts that could reduce the money taken from the reserve. They should also commit to a hard cap: If they need the full $13 million in the next budget year, they should promise to rebuild the fund in 2022 and beyond.
In some years, city budgets are routine discussion items — considered and passed without much fuss. This isn’t one of those years. The mayor and council will argue over salary structures, an early retirement proposal, a pullback in police funding and more.
But they should find money wherever they can to keep the rainy day fund as full as possible. COVID-19 has been a disaster, but we know this: It will rain again, someday.