Cities prepare for COVID-19 financial hit

With March sales taxes coming due, cities could see revenues down by millions

Scott Taylor
staylor@coloradocommunitymedia.com
Posted 4/27/20

Municipal officials won’t know for sure how much of an impact the COVID-19 panic and Colorado’s stay-at-home order will have on the city’s finances, but some are preparing for as much as a $30 …

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Cities prepare for COVID-19 financial hit

With March sales taxes coming due, cities could see revenues down by millions

Posted

Municipal officials won’t know for sure how much of an impact the COVID-19 panic and Colorado’s stay-at-home order will have on the city’s finances, but some are preparing for as much as a $30 million hit on sales tax revenues.

“At this point, it’s too early to understand exactly what the hit will be, but we are trying to measure our sectors and see which businesses have been open and which have not been open,” said Larry Dorr, Westminster’s Chief Financial Officer.

In Westminster, sales tax payments from local businesses for March 2020 were due April 20. Dorr said the city will not get a good idea of how sales taxes look for the month until later this week.

“We still have a lot of work to do to organize and analyze what happened in March,” he said. “Keep in mind that bars and restaurants were open until March 16 and the stay-at-home order became a factor ten days later.”

Similarly, Thornton is expected to see a $25 million reduction in sales tax revenues for the month of March.

“And some of this depends on how long it takes us to reopen,” Thornton Finance Director Kim Newhart said. “If everything reopened tomorrow, that doesn’t mean we’ll get our full sales taxes right away.”

March sales tax payments for Thornton businesses are not due until the end of April, so Newhart said she won’t know the true extent of the state shut down until well after that.

“And we won’t know the extent of April payments until almost June, so that’s when we’re going to have a clearer picture of what happened,” Newhart said.

Sales tax payments in Northglenn needed to be postmarked on April 20, according to city Finance Director Jason Loveland. Staff is still working to process those payments.

“That has been a challenge for us, waiting for good information,” Loveland said. “We are in the process of processing.”

Northglenn’s budget calls for $17.5 million in sales tax revenues, and he said the city is expecting a revenue decline of between 7% and 17% — roughly $1.2 million and $3 million.

Restaurants and bars

Restaurants closed their doors to all but delivery and takeout orders beginning March 17, and bars and other non-essential businesses were closed for about half of the month.

“The more consequential month is going to be April because that entire month will have had closed restaurants and bars and people in a stay-at-home order,” Westminster’s Dorr said. “But where we will really understand the hit is when April sales taxes occur in May when we will have had an entire month of closed stores and restaurants.”

At the same time, the COVID-19 pandemic has seen more spending at grocers and much more frequent dining deliveries that could lift sales.

“We believe that people really spent a lot on groceries in March,” he said. “There were these lines and the shelves were emptied of canned food and toilet paper. So we are expecting grocery sales to have increased.”

The city has been forecasting, however.

“What we have told the City Council is that the hit could be as much as $30 million to our treasury before this is all over.”

Sales taxes represent about 70 percent of the Westminster’s overall general fund revenues, so a $30 million reduction could have serious implications. Westminster does have $32 million in reserves it can tap into, plus another $25 million in a fund future capital projects that can be postponed, however.

“It’s disappointing to have to use city reserves, but that’s what we’ve built them for,” Dorr said. “We think that can help us keep our workforce intact and, in turn, position Westminster to emerge from the pandemic ready to preserve public safety and a good quality of life.”

Thornton, too, has reserves to cover the potential losses, up to $30 million, Newhart said.

So far, none of the three cities has had to layoff staff or eliminate any jobs. City operations continue, although many city buildings, libraries and recreation centers have been closed,

Westminster implemented a hiring freeze on all but essential personnel — police and fire staff — but has not had to furlough or lay off any city employees. Both Thornton and Northglenn have as well.

Dorr said Westminster has attempted to take advantage of the change in the economy wherever possible. The city is working to lock in a low wholesale price on gasoline while the retail prices are low. That could give the city inexpensive fuel to power its police cars, fire trucks and public works vehicles for the next year, even if prices rise.

“It’s not unusual for a large-scale organization like the City of Westminster,” he said. “When you buy as much as we do annually, you can enter into a futures contract to buy a certain amount — much more than any of us would buy on our own. We think we can save a couple $100,000 on this.”

Dorr said the negotiations have just started and won’t be settled for weeks.

“But we are going to be using our fire trucks and all of our vehicles,” Dorr said. “But we know how fuel we use, generally, each year and it’s fairly stable. So we can predict what we need.”

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