Usually around this time of year, meetings and negotiations on the city’s budget are heading into the homestretch as the the fiscal year draws to a close at the end of June. But this year – very little is going as usual – and Mayor Michael Cinquanti has not yet released his proposed budget, which was due in early April.
But that’s not without good reason – city leaders face unprecedented challenges and unknowns this year due to the economic upheaval that has occurred due to the lock-down orders issued across the country in an effort to slow the spread of COVID-19.
Two of the biggest unknown factors are to what extent revenue from sales tax and state aid will be affected.
While city officials have said property tax payments have held steady, sales tax collections in April plunged by 24% relative to last year in Montgomery County, according to the New York State Comptroller’s office (link to Excel Spreadsheet). In the 2019-2020 budget, city officials projected $4.9 million in revenues from sales and use tax.
Will sales tax continue to be depressed or will we see a rebound? Who knows. But it’s not hard to imagine a six digit decline in this yearly revenue line as it remains to be seen how many people start purchasing again even as restaurants and retail slowly reopen to the public.
The effect of historic unemployment levels on spending is also a big unknown, and much will depend on how long expanded unemployment benefits and federal assistance can be maintained.
What will happen to state aid? Governor Andrew Cuomo has said that local governments could see a 20% drop if the state is unable to receive a federal bailout. In the 2019-2020 budget, city officials projected approximately $3 million in total state aid. A 20% cut could mean about $600,000 in lost revenue.
On top of all that is the existing problem of the city’s fund balance deficit. The latest audit report confirmed numbers released last October that the deficits in the general, golf, transportation, and sewer funds at the end of the 2019 fiscal year totaled approximately $7 million. Cash from other funds, including the water fund and capital projects fund, was used over the years to cover the deficits.
Earlier in the year, the city was approved by the state to borrow $8.3 million in the form of issuance of municipal bonds to pay back the deficits. However, with the city’s currently bad credit rating, and given the current financial market conditions, so far the city has not been able to find buyers for the bonds.
At a council meeting two weeks ago, Cinquanti said he was waiting to release the budget given there was some hope that the city might receive a federal bailout as part of a new $3 trillion COVID-19 relief bill passed by the House of Representatives on May 15. However, the Senate has not taken up the bill yet and chances are negotiations will not be as rapid as they were for the last four relief bills which have totaled approximately $3 trillion so far.
Cinquanti said at the last council meeting that he does not expect the bill to be passed by the Senate before the end of the city’s fiscal year in June and therefore will proceed with the budget process.
The process is going to need to be accelerated, however, in order to finish it before the end of the fiscal year. A special meeting is scheduled for this Friday at 3pm to discuss a revised timeline for finishing the budget. The proposed resolution sets the timeline as follows:
- June 15 – Mayor releases proposed budget to council and the public
- June 22 – Public hearing on budget
- June 25 – Deadline for council to pass their version of the budget
- June 29 – Deadline for mayor to issue objections (line-item vetoes)
- June 30 – Deadline for council to override objections with a 4/5 majority vote
With so many different factors in play, this budget may be the most difficult the city has ever had to prepare. While I think it’s likely some form of additional federal aid will be approved eventually, the amount is far from certain and I believe city officials must be conservative in their estimates, otherwise Amsterdam may find itself in an even worse financial condition.
Conservative estimates will undoubtedly mean higher taxes, which won’t be popular with anyone. While the mayor has already furloughed 24 workers, I wouldn’t be surprised if some permanent layoffs are part of the proposed budget as part of expense cutting to keep the tax increase down.
Given all the adverse circumstances, it’s hard for me to believe the city will be able to service $7-8 million in debt to fix the entire deficit, even if it can find buyers for its municipal bonds. At the beginning of the year, Cinquanti estimated the cost of servicing that amount would be in the neighborhood of $1 million per year and proposed funding 60% of that amount through cuts, and 40% through revenue increases. Finding an additional $400,000 in revenue on top of trying to compensate for other revenue drops seems unlikely to me without an exorbitant tax increase.
As long as the city has adequate cash flow and doesn’t utilize any further inter-fund loans, the deficit shouldn’t affect everyday operations. Although it does affect our ability to borrow for capital projects, most notably for projects related to the Downtown Revitalization Initiative grant, it’s questionable as to whether the state can even fulfill it’s obligation to reimburse for those projects this year anyway. At the last council meeting, City Engineer Michael Clark said the city has not yet received confirmation from the state on it’s CHIPS funding for our annual street paving. That’s not a good sign.
If Amsterdam can finish the next fiscal year in mostly the same shape as it is in currently, without an astronomical tax increase, I will count that as a win for the city. If we do end up getting some sort of federal bailout later in the year, so much the better!