Effect of COVID-19 Crisis on City Revenues

I received an email today regarding the effect of the current crisis on city revenues.  The question was interesting to me, so I thought I would provide a short explanation for whomever might be interested.

Municipal revenues are very different than state revenues. Accordingly, what is happening with the economy should have only marginal impact on the city’s 2020 revenue.

The city’s primary revenue source is real estate taxes. We do not receive income or sales taxes, which fluctuate greatly based on the economy. Real estate taxes change based on the economy, but the change is over a period of years. Real estate taxes used in 2020 were assessed last year and already are largely collected. Real estate tax collections for 2020 will not be materially affected by the virus or the economic fallout from the virus.

The city receives some money from the state. I have asked the governor’s office to let us know sooner rather than later if those shared revenues will be affected in 2020 so we can plan. A recent statement by the governor appears to indicate that there will be no local impact. We will see.

There are some less significant sources of revenue that might be impacted. Those include things like rental fees and permit fees. Rental fees will be down. Building permit fees will be down a bit, but ongoing construction projects have not stopped. To the extent they deviate from budget projections, the city will be able to deal with the changes. The city has some reserves.

2020 should be fine. City revenues change, but the change is not as volatile as the changes on the federal and state levels. Nevertheless, the city will monitor changes closely.

Economic changes have a bigger impact on revenues over time. 2021 real estate tax revenue is based on January 1, 2020 real estate values. However, collectability may be an issue in 2021 if the economy is in a prolonged recession. If that is the case, property values may be down in January 2021, thereby affecting 2022 revenues. However, it is far too early to determine what impact this mess will have in 2021 and beyond.

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