The financial impact of the coronavirus pandemic is so severe that an injection this past week of more than $1 billion of federal funds into Colorado’s economy to battle the disease may prove to be little more than a Band-Aid for hard-hit cities and counties facing a sudden fiscal crisis.
According to the National League of Cities, municipalities in Colorado stand to lose $4.5 billion in tax revenues over the next three years due to government-ordered closures and reduced business activity — with a nearly $1.7 billion projected loss in 2020 alone — as communities slowly crawl out of the ruins of the COVID-19 pandemic.
Add at least $200 million more in estimated lost tax revenues for Colorado counties in 2021 and 2022, according to the Colorado Department of Local Affairs, and House Speaker KC Becker sees the fiscal picture becoming increasingly bleak absent another gush of dollars from Washington.
“(Local governments) are going to continue making layoffs and increasing fees at the local level and delaying capital improvements,” Becker told The Denver Post. “They’re going to have to make tough choices.”
There is an ambitious effort afoot to give a big boost to virus-afflicted local governments through a new $3 trillion federal funding bill, dubbed the HEROES Act. It would send nearly $1 trillion in aid to states, cities, towns and counties across the United States, along with $20 billion each for tribal governments and U.S. territories.
Notably, it would come with fewer restrictions on how communities could spend those funds than is permitted under the $2.2 trillion CARES Act, signed into law by President Trump in March. But the HEROES Act, passed in the Democrat-controlled House in mid-May, is sure to meet stiff resistance from Senate Republicans worried about adding to the already ballooning national debt.
Just last week, a bipartisan group of senators introduced a bill — the State and Municipal Assistance for Recovery and Transition (SMART) Act — that would target $500 billion in flexible funding to state and local governments that they could use to plug budget holes and keep paying workers.
In the meantime, thousands of municipal employees in Colorado have either been laid off or told to take unpaid time off in recent weeks as sales tax revenues have vanished in the wake of widespread closures of restaurants, bars, gyms, movie theaters and many stores.
Fort Collins Mayor Wade Troxell said approximately half of his city’s general fund budget comes from sales tax. With many businesses closed, the northern Front Range city projects a 2020 budget shortfall of around $50 million. More than 600 city workers have been furloughed.
Already the city has had to delay its Linden Street renovation project. The $3.5 million project, which was supposed to have gotten underway last month, has been pushed to January at the earliest.
“It really impacts everything, including streets, police and transit,” Troxell said. “This will be a sizable hole to fill.”
Kevin Bommer, executive director of the Colorado Municipal League, puts it more bluntly.
“It’s like getting hit flush in the face with a cast-iron skillet,” he said. “This literally happened overnight — there was no way to budget for it or anticipate it. Absent some sort of assistance, that revenue is gone and it’s not coming back.”
Colorado cities and counties haven’t gone completely empty-handed as coronavirus has ravaged the state, infecting more than 24,000 people and killing more than 1,000. The CARES Act dropped $150 billion of help on local governments nationwide, with $2.23 billion of that earmarked for the Centennial State.
But that money is restricted to covering costs directly incurred in fighting COVID-19 and is specifically prohibited from being used for “revenue replacement” — plugging holes in municipal budgets caused by the economy-killing pandemic.
The five biggest counties got their share of CARES money — $558 million — in April. The rest of the state had to wait until last week, when Gov. Jared Polis issued an executive order releasing nearly $1.7 billion to Colorado’s 59 other counties.
Rep. Joe Neguse, D-Lafayette, held a conference call with several congressmen and mayors from across the country last week to push for passage of the HEROES Act. Troxell, the Fort Collins mayor, was on the call.
He said allowing local government budgets to wither as the pandemic moves through will only result in reduced services to the people who need them most and more lost jobs among public sector employees.
“What you would begin to see in Fort Collins is the city not being able to maintain those services,” Troxell said. “You can address this through more unemployment or you can address it through a more proactive approach.”
Durango has avoided layoffs so far. Mayor Dean Brookie said the city instead dealt with its estimated 27% sales tax revenue decline — or an $8.5 million coronavirus-caused hit to this year’s budget — by placing 350 city workers on four-day weeks.
That amounts to an effective 20% salary reduction, Brookie said. That pay cut will also apply to his $15,000 a year mayoral stipend as well as to his colleagues on City Council.
“Our goal is to not eliminate any services but there may be an adjustment to service in some of our departments,” he said, suggesting there may be less street sweeping, less programming at the recreation center and fewer operational hours at the recycling center, among other curtailments.
To make matters worse, the mayor said, Durango’s reserves were drawn down in 2018 after the 416 fire hampered summer tourism in the city of 19,000. Now there’s coronavirus, which has darkened the dozens of restaurants, bars and shops that line Main Avenue downtown.
“This is unique in that it has hit everybody so quickly and unpredictably,” Brookie said. “An $8 million hit to our budget is not immediately replaceable.”
Counties are the front line
On the county side, the Colorado Department of Local Affairs drew up projections this month for property tax losses over the next couple of years due to the pandemic. They add up to just over $203 million out of $2.3 billion that is expected to be collected statewide in the 2021/2022 period.
The decline is in part being driven by the Gallagher Amendment, the nearly 40-year-old measure designed to rein in what were then escalating residential property taxes. The law ties residential property tax rates in Colorado to commercial and industrial rates at a fixed ratio.
That means as commercial values slump due to a pandemic induced economic slowdown — including those of oil and gas production — the residential assessment rate declines as well.
John Swartout, executive director of Colorado Counties Inc., said the projected shortfall from state economists is just part of the story, as counties also collect sales tax revenues in unincorporated areas.
He projects that without some sort of revenue replenishment from the federal government, counties in Colorado won’t be able to dig out of their fiscal hole for a decade.
“Given that we’re having a fiscal crisis at the same time we’re having a health crisis makes it difficult to float this,” Swartout said. “Counties are going to be a longer-term hit.”
That’s particularly troubling as it’s counties that largely administer public health, mental health and other social service programs to the most vulnerable populations, he said.
“We are the front line of the state,” he said.
In Gunnison County, where coronavirus hit early and hit hard, Commissioner John Messner said county officials are already looking at a 10% to 15% knock to the general fund due to the economic malaise brought about by the pandemic.
That means a bridge replacement project on the highway connecting Gunnison to Crested Butte will have to be deferred, Messner said. He said other infrastructure cuts and possible funding for behavioral health programs and broadband deployment could be negatively impacted too.
Messner said Gunnison County has publicly backed passage of the HEROES Act.
“We don’t expect to be made whole — we expect to feel every impact that every business is feeling right now,” he said. “But we want to make sure we’re able to fund essential services that allow us to recover from this.”