The Dallas City Council was briefed today on the city’s economic outlook, and it doesn’t look good. City staff projects a $25 million drop in sales tax revenue, which drives a total revenue drop of $33 million for the year 2020. Other general fund revenue sources taking a hit are franchise taxes and service charges. And while property tax revenue is not expected to decrease for 2020, since valuations are based on the market as of January 1, 2020, staff believes that could change in 2021.
Even with the city’s current hiring freeze and planned reductions in spending, city staff is still projecting a $24.4 million budget shortfall for 2020.
In addition to the city’s general fund, multiple municipal agencies are also facing huge shortages. The aviation department forecasts a $40 million revenue drop as air traffic at Love Field slows to a trickle, decreasing from an average of 14,000 bookings per month to only a few hundred in April. The Convention and Event Services Department, which oversees the hotel occupancy tax that funds the convention center, VisitDallas, and a portion of the Office of Arts and Culture budget, is looking at a $47.7 million revenue drop thanks to empty hotels. Decreased activity at office buildings, restaurants, retail stores, and other commercial properties is reducing water consumption, and the water department expects a $68 million drop in revenue in 2020.
The City Council will have to decide how to make up for those loses. Among the options put forward by staff include expanding the current hiring freeze, restricting the use of temporary staff, and eliminating overtime. Savings may also come by cutting services and facilities that are not being performed or used during the pandemic. This includes eliminating budgets for events and recreation activities and limiting the number of city facilities that reopen as the stay-in-place orders relax. City staff also proposed cutting general fund dollars for street and alley improvements, as well as bike lanes.
The funding for street and bike improvements is a relatively new addition to the city’s general budget, as recent councils have sought to find ways to fund more street improvement projects outside of general bond elections. But new seems to mean expendable in today’s environment. Bond projects are also not safe. Staff floated the idea of postponing planned capital improvement projects that were included in the 2017 bond package given the unstable nature of the current debt markets. Multiple council members pushed back against this proposal, citing the city’s obligation to deliver the street improvements long promised to constituents as well as jobs that could be created by the construction projects.
“Voting [to approve the bond] came with a commitment that these projects would be completed in five years,” Oak Cliff Council member Casey Thomas said.
While the budget outlook was severe, the news didn’t come as a surprise to anyone on the council. The likelihood of a budget crunch in 2020 was floated at previous briefings and meetings related to COVID-19 federal assistance programs. The city received federal funds as part of the CARES Act stimulus program, but those funds can only be used by cities to pay for COVID-19-related expenses. The federal government has left cities to figure out their general fund shortfalls on their own, and Senate Majority Leader Mitch McConnell has floated the idea of bankruptcy as another option for cash-strapped cities.
Part of what will make the council’s job difficult moving forward is figuring out how cash-strapped the city will be – and for how long. As Texas begins to reopen, there is still a risk that a second round of COVID outbreaks could force additional shutdowns. The continued lack of availability of testing – let alone a vaccine, which could take years to develop – means that public officials are making decisions about public health and economic recovery without the kinds of tools other countries have used to successfully manage their containment of the virus. The lack of uniformity of mobility and travel restrictions across regions and states creates additional economic uncertainty, making forecasting even more challenging.
Even city staff’s numbers displayed divergent visions of what the future may hold. For example, North Dallas Council member Lee Kleinman pointed out that the Aviation Department’s forecast showed the airline industry rebounding in a year, and he challenged the department head to develop a few less optimistic scenarios. Downtown, Uptown, and East Dallas Council member Dave Blewett pressed Dallas CFO Elizabeth Reich about the loss of property tax revenue that may not hit the city’s income statement until 2021 and 2022, when loss of rents in the commercial real estate sector will impact property tax valuations. But the reality is no one knows at this point what the future holds, and there is no real precedent that can help guide efforts to create reliable forecast models.
“We looked at the last recession, but using that as any economic indicator is just impossible right now,” Reich said. “I think when I get the April numbers we’ll really know what we are in for.”
And so, as with so much about this pandemic, the answer is once again “wait and see.” For now, council members floated a few ideas about where the city may find money, including some early suggestions like reducing the frequency of bulk trash pickup and working to make departments, such as the permitting office, more efficient. But it is not going to be easy.
“We’re going to have to reimagine the way we deliver services,” Preston Hollow Council member Jennifer Gates says. “It is going to be a tough budget process.”