BISBEE — Cochise County Administrator Ed Gilligan and county Budget Manager Daniel Duchon painted a financial picture for the remainder of the 2019–2020 and the new 2020–2021 fiscal year with many shades of gray in a work session Thursday with supervisors Tom Borer, Ann English and Peggy Judd.
The good news is all the county departments have managed to stay under budget through March, they said. The bad news is the shutdown due to the COVID–19 pandemic will drastically impact revenues not just now, but going forward.
The impact of the shutdown to tourism, retail sales, restaurant and bar businesses, as well as Highway User Revenue Funds, has resulted in a downward trend of much-needed revenue, and could create problems over the next few months.
Duchon said both retail sales taxes account for 37 percent of the county’s annual revenue.
Gilligan and Duchon explained the situation, saying it is hard to tell just how bad the financial picture is going to be for the two remaining months in the fiscal year, May and June. The county’s half–cent retail tax, budgeted at $6.9 million, and the state shared retail tax revenue, budgeted at $13.2 million, may not meet those projections.
Duchon said, “Right now, our sales tax is more than we’ve had in the past and may be enough to get us through this year.”
Gilligan added, “We get around $6.87 million in sales taxes annually. This year could see a $2 million drop. It would be the lowest revenue we have ever collected.”
He noted when the highly populated cities of Arizona do well, the county sees those benefits through state shared revenues. However, “Phoenix’s slowdown is our slowdown.”
Since sales tax receipts have a two-month lag, meaning April’s revenue will not be known until June, the best they could do was present an accounting of the possible difficulties ahead and what will need to be done.
As for HURF, the funds used to maintain, repair and improve roads and streets, travel traffic is down by some 40 percent, pointed out Gilligan. “We will be facing some problems there.”
And, as people are urged to stay home and unemployment grows, the vehicle license tax collected on new cars will also decline, Duchon added.
He continued, “We won’t know how bad or how long this will last. It’s a long road ahead, but with the updated data coming in May and June, we’ll be able to make the right decisions.”
A ray of sunshine in the picture is the property valuation, which has increased again and will boost property taxes though the tax rate will stay the same. Property tax accounts for 47 percent of the revenues, said Duchon.
Yet, the tax has to be paid by property owners, which may prove difficult for those who are unemployed.
Budget projection problems
With some of the much needed data unavailable until the county’s budget process is underway, Gilligan and Duchon are remaining cautious and have already asked department directors and elected officials to rein in spending and even cut costs.
Though many grants provide the county with funds for positions and projects, most are reimbursable which means the county has to lay out the money first to get paid. Those grants could become a problem if the county does not have the money to spend upfront.
“This is the reality of grants,” Gilligan stated. “We have to spend the money out of the general fund and wait for reimbursement. If we pursue grants, we increase our spending. We have to scrutinize every grant opportunity, but we need to be very cautious about new grant agreements.”
In a letter to directors and officials, Gilligan asked for a budget reduction of two percent to 15 percent in each department to make up for the drop in revenue.
“While you may hear many numbers tossed about, keep in mind nobody can predict the extent of the economic damage yet, so we have to be prepared to pivot,” he wrote.
“For funding requests, every ‘add’ is a ‘take.’ Nothing can be added to the budget without being cut from somewhere else. We are facing a dilemma of the most difficult type.”
English commented, “Looks as though we need to be in belt–tightening mode. Finances are unstable right now. Employees need to think, ‘When I look at my budget, what can I do without, what can I live without. It’s a certainty there won’t be enough money. We always said we don’t want to dial back employees.”
Borer agreed and added, “I’m going to be looking for justifications for any increases and I’ll be thanking those for the budget decreases.”
Judd suggested laying off highway workers since the HURF money will be reduced and so would their workloads. “Cutting government is my dream. It would be wonderful if we could trim back and find what’s essential. My constituents understand and are fine with delaying some things. I think they will appreciate our frugality.”
Gilligan responded by saying the work crews would be busy doing maintenance of roads, to save on future costs, and there would not be a focus on improvements.
He also pointed out the consequences of reducing the workforce when the county is one of the largest employers. With no jobs here, they might have to move and that would reduce the population and add to the economic harm.
Over the next few weeks budget talks will continue and as new information on revenues, unemployment and the longevity of the virus shutdown becomes available, the supervisors will take the next steps to deal with the new normal.