The COVID-19 pandemic continues to wreak financial havoc, with Madison now projecting a $30 million budget shortfall for 2020.
The sobering projection is mostly driven by a sharp and unexpected decline in revenues resulting from the economic impacts of the new coronavirus crisis, Mayor Satya Rhodes-Conway told city managers Tuesday morning.
As a result, Rhodes-Conway is implementing actions including a hiring freeze on all positions with exceptions for essential services, additional review and approval for seasonal hiring, and a halt to purchasing of all nonessential supplies and services in order to reduce spending in the $341 million operating budget for this year.
The revised projections show huge drops in fines, fees, investment performance, hotel room taxes, Metro Transit fares, parking revenues and more.
“These are unprecedented times for our city, state, country and world,” the mayor said. “We have risen to the challenges presented over the past seven weeks and have much more to surmount in the days, weeks, months and years ahead.”
The actions won’t be enough to close the shortfall, and other measures are under review, including service reductions, furloughs and use of the city’s $52 million “rainy day” fund and emergency federal funding for transit, Finance Director David Schmiedicke said.
“This is the first action; others will follow over the summer,” Schmiedicke said. “We hope to avoid layoffs, but permanent reductions are unavoidable given the severity of the economic impacts.”
The mayor also released instructions for the 2021 capital budget, calling for austerity with a focus on recovery needs.
Meanwhile, in consultation with Public Health Madison & Dane County, County Executive Joe Parisi announced Tuesday that he’s extending the emergency declaration that currently runs to May 15 until at least July 15. The County Board on Thursday will vote to ratify extension of the declaration, which ensures the full resources of county government are available to meet community needs through the pandemic and positions the county to be eligible for federal and state assistance.
“For however long COVID-19 threatens the well-being and safety of our citizens, science will guide our decision-making in Dane County,” Parisi said. “Right now, that science says we need to prepare for potential waves of illness and remain vigilant and ready in our preparedness and response.”
Tightening the belt
The city actions announced Tuesday include:
- Placing on hold indefinitely any hiring for any new, unfilled positions in the 2020 budget.
- Not filling positions that don’t address certain criteria unless there’s a compelling justification. Possible exceptions are positions needed to perform activities associated with COVID-19 response and recovery, positions that generate revenue and other key positions identified by the mayor.
- Considering changes to provide services with fewer positions before filling positions that may result in overtime.
- Subjecting all hiring requests to mayoral approval.
- Submitting seasonal staffing requests to the mayor’s office for approval.
- Wherever possible, redeploying city staff to perform duties usually performed by seasonal hourly staff.
- Focusing spending on COVID-19 response and related changes in the work environment.
- Submitting management and consulting contracts to the mayor’s office for approval.
- Closely monitoring purchasing cards used by agencies for smaller purchases and asking agency heads for justification of nonessential expenditures.
In the short term, services are not expected to be affected, Schmiedicke said. But work may take longer to complete, and internal projects, such as information technology enhancements, may be delayed, he said.
The mayor is reviewing many other options, including reopening labor contracts, Schmiedicke said.
In her message to managers Tuesday on the next capital budget, Rhodes-Conway said she remains committed to the priorities of more affordable housing, mitigating impacts of climate change, diversity and eliminating racial disparities, but said COVID-19 has forced new priorities.
“COVID-19 has touched every corner of our organization and completely changed the way we are providing services to our residents,” she said. “As we have worked to adapt over the past months, I have seen countless ways we have remained focused on the priorities laid out one year ago. I remain committed to making investments in these areas, but know that we will identify new areas of need resulting from the impacts of COVID-19, and must prioritize those.“
All agencies are being encouraged to find ways to decrease spending in the 2021 capital budget that won’t unduly impact essential services, she said. Agency requests should be prioritized and requests for existing projects must be consistent with the five-year, 2020 Capital Improvement Plan. Requests for new or longer-term projects may be submitted, but a full budget proposal must be ready for them, she said.
Continuing the status quo is not a sufficient justification for capital spending, the mayor stressed, adding that she’ll be looking for proposals that help support the city’s COVID-19 response and economic recovery. “Creativity and innovation are a must,” she said.
Overall, the city has many financial strengths, including a $1.8 million contingent reserve budgeted for 2020, the $52 million “rainy day” fund and a top bond rating, Schmiedicke has said. But even before the new coronavirus struck, the city was anticipating a shortfall to continue services and satisfy labor agreements in 2021.
The city must be prudent in tapping the rainy day fund, Schmiedicke said.
Reserves will be tapped to close part of the shortfall this year, he said. But COVID-19 impacts are expected to last several years. Also, reserves are a one-time revenue source so the more they’re used in any year, the larger the necessary cuts in future years. The city has a reserve goal of 15% of spending, and once that money is used, the city must begin rebuilding toward that targeted amount. Bond rating agencies will ask the city about its plans and review the city’s bond rating accordingly.
Use of the reserves will be focused on budget shortfalls this year that might be one-time in nature or on balancing the budget in anticipation of longer-term actions, such as program reductions, in next year’s budget, he said.
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