Most Arkansas cities have not had to lay off or furlough employees in the ongoing fiscal turbulence caused by the COVID-19 pandemic.
How long that remains the case is a good question, said Mark Hayes, the executive director of the Arkansas Municipal League. Cities depend on sales taxes to run their departments and pay their employees, and when businesses were shut down statewide beginning in March, that source of city revenue was threatened.
The challenge for cities, Hayes said, is coping with uncertainty on exactly how much tax revenue will be affected. The state reports city taxes 60 days after collection, quite a lag time. For example, cities find out later this month what their tax revenue was in April, the first full month of pandemic restrictions.
“Because the information is 60 days behind on sales tax money, we are taking a guarded approach right now,” Hayes said. “A lot of cities have already cut anywhere from 5% to 20% out of their budget just to be safe. There have been some places that have had to lay off some people, including police officers, which is obviously a problem. Right now everyone is holding on as best they can.
“I would anticipate, particularly in light of the [infection] numbers going up over the past week, that we will probably see by the end of the summer a better financial picture for cities — as in clarity, not as in more money. I would think at that point there will be some very hard cuts and furloughs and layoffs.”
Gov. Asa Hutchinson’s announcement last week that phase two of the easing of business restrictions would begin today may brighten the fiscal picture. Imposing fewer restrictions presumably means more revenue for businesses and more tax revenue for cities.
But the recent increase in the number of people diagnosed with the virus, especially in northwest Arkansas, is a cause for concern. Fewer restrictions may increase business but also extend the pandemic by allowing it to spread more easily.
Essential Services
Cities, just like businesses, have responded to the pandemic by instituting safeguards in the workplace and having employees capable of doing so work from home.
Cities had added challenges because most city work can’t be done on an employee’s personal computer, and many jobs require workers to be out in the community. Trash pickup is an obvious example of something that can’t be done from home.
The city of Bentonville got lucky because the pandemic hit at the same time the city was changing out laptops in many of its police vehicles. Rather than scrap the old laptops, the city formatted them to be used by office workers from home.
“We’re not an employer that can automatically do a work-from-home process very easily,” said Jake Harper, Bentonville’s director of finance and administration. “We were able to take those and recycle them to provide 56 laptops for office-type workers to work from home with. We did not have on hand 50 to 60 laptops to roll out because we’ve never been built to work from home.”
CFO Paul Becker of Fayetteville said his city had not planned to have a large group of workers stay at home, which caused some issues, but none that were “insurmountable.”
Wyman Morgan, Springdale’s director of finance and administration, said his city didn’t face too much of a shortage in revenue because Springdale doesn’t collect a local restaurant tax, so that’s not part of its budget. Restaurants were one of the industries hit hardest by the business shutdown.
“Most of the workers are coming in to work,” Morgan said. “We have a few secretarial or administrative staff that have been doing work from home. Most of the reason they are staying at home is because they have young kids and didn’t have day care or a place for them to go.”
Hayes said cities have taken what precautions they can, but some tasks just have to be done, contagious virus or not.
“The vast difference is because of the absolute necessity of some of the services that cities provide, it means we can’t have a cop telework, we can’t have a firefighter telework, and we can’t have an EMT telework,” Hayes said. “Any of those truly essential services continue. That is a far harder challenge for us. You think about what you’re doing in your day-to-day life to protect yourself; well, that only goes so far if you are a police officer or a firefighter or an EMT or someone who fixes a water main leak that runs through someone’s property.”
Becker said that, based on current information, he doesn’t foresee any furloughs or layoffs among Fayetteville’s employees.
“Obviously, if this lasts for a longer period of time we are going to have to make adjustments,” Becker said. “I have not seen the numbers from April and will not see the numbers from April with a full month of cutbacks in the business community until the end of June. Certainly that hurts my planning.
“You have to tell me how deep it is going to be and what the duration is going to be. I don’t know how bad the hit is going to be or how long it is going to last. There are so many unanswered questions. I’ve never faced a thing where I have had so little information to make a judgment.”
Becker and other city officials in northwest Arkansas said their cities have enough financial reserves to weather the next couple of months without drastic cuts to employment or services. And Hayes said he hopes that pending federal legislation will include aid for cities that have had to future — furlough or lay off workers, or will have to in the future.
“If our revenue goes down because no one is eating out and we have to cut some people, we don’t have the ability to ask for that revenue from the CARES Act,” Hayes said. “They just didn’t put revenue in. We are asking the Treasury Department to loosen that up a little bit, and I think there is still a chance that will happen.”
Until there is such relief, cities will have to manage their own way through the uncertainty. Hayes hopes that tightening belts and relying on reserves to bridge a short-term hiccup in sales tax revenue will be sufficient.
“Most cities have already begun to set money aside and have budgeted in a way to cut back — no new spending, no new hiring, let’s take a wait-and-see approach but keep our money as close to us as we possibly can,” Hayes said. “Let’s cut everything down to the bare minimum right now, and that will give us a cushion if we need it when it really gets bad. I do think we are going to see some scary numbers by the end of summer, but we just don’t know how scary at this point.”
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