Representatives from the City’s Office of Management and Budget (OMB) updated the City Council and Mayor Quinton Lucas on the status of Kansas City’s budget amid the COVID-19 pandemic in the Aug. 6 Business Session.
The city’s earnings tax showed a decline of 3.1% in April and May, which to date is lower than the decline expected of 5.2%.
Sales tax expectation was a drop of 10% for the entire year. In April and May, the city saw a drop of 20%.
The use tax showed online sales trending up, however, it does not make up the difference lost in other taxation revenues.
Hotel and restaurant tax plummeted, as expected, with hotel and motel tax revenue coming in at 82.5% below average. Restaurant tax dropped about 44%, which was about half the reduction expected.
OBM presented a targeted reduction of $50 million across all governmental funds to mitigate the damage of the COVID-19 crisis. On top of a $38 million, or 4.5%, cut from all non-enterprise departments, $12 million will come from the General Fund balance.
This plan was put in motion with the intent of retaining 10% of the General Fund balance at the end of Fiscal Year 2020-21.
OMB presented reduction strategies to be included in a future mid-year budget amendment. The strategies lay out a 4.5% budget reduction for non-public safety departments, a 2.25% reduction for the Kansas City Fire Department (KCFD), and a 2.25% reduction for the Kansas City Police Department (KCPD), adding up to $25.6 million in reduced spending.
A hiring freeze is in place for positions making $20 or more per hour. Ordinance No. 200646 would amend Ordinance No. 200399 to expand the freeze to positions making $15 or more per hour, which would be an additional 317 vacant positions. Positons making $20 are currently under a hiring freeze. This strategy has the potential to save an additional $4.8 million, according to OMB.
Resolution No. 200647 would direct the City Manager to develop a furlough plan within seven days. The furloughs, which would be a minimum of one week, would not include the International Association of Firefighters Local 42 and KCPD. It would provide flexibility to allow employees to take it in increments to minimize the per-paycheck impact. Additional measures, like a moratorium of when the time must be used, would be included. This measure is estimated to save the city $2.4 million.
“Our hope is that it would be as flexible as employees need in order to minimize the impact on them,” Finance Director Tammy Queen said.
If all are accepted, these strategies would save the city an estimated total of $32.8 million for the current fiscal year, which is moving closer to the OMB’s goal of $38 million.
Even if all the reduction strategies are adopted for FY 2020-21, the General Fund balance would be depleted by FY 2022-23. Over the next five years, the city would face a $148 million budget shortfall. According to OMB, about $56 million will need to be cut during the FY 2021-22 budget process.
Queen said her department anticipates a $79 million surplus from last year’s budget cycle, which ended April 30, 2020. At least $12 million and up to $20 million will be used to balance the budget for this fiscal year, which will leave the city with about one month of reserve funds.
While OMB will continue to monitor revenue and expenditures monthly, Ordinance No. 200646 and Resolution No. 200647 had their first reading at the Aug. 6 City Council Meeting. They were referred to the Finance, Governance and Public Safety Committee.