Across the country, cities are grappling with how business interruptions will affect tax revenues in the months to come.
As businesses continue to be restricted, Baton Rouge will face revenue loss on several fronts, namely from sales tax collections, which account for over 60% of general fund revenue.
Yet, city officials say they’ll be able to cover that loss with reserve funds and federal reimbursements, painting a vastly different picture from business owners with already tight margins.
A recent Pew Research Center survey says 70% of Americans think the coronavirus poses “a major threat” to the economy; 50% said it posed “a minor threat” to day-to-day life in their communities.
The city-parish’s $1 billion operating budget for the current fiscal year is based on a sales tax revenue estimate of $349.1 million, or roughly 35% of all revenue. Of that, $191.9 million is directed toward the general fund, comprising about 60% of general fund revenue.
Monthly collections for the city-parish’s 2% sales tax collection ranged from $13.7 million to $16.5 million last year, averaging just over $15 million a month. Sales collections for January have not yet been posted.
While no one knows just how much revenue will drop yet, if the city were to lose 50% of that average monthly sales tax revenue for March, April and into May, that equates to $22.5 million.
“We do have a reserve fund for situations like this,” says Darryl Gissel, chief administrative officer for the city, likening the situation to any unexpected natural disaster that wipes out business for a period of time.
According to the 2020 budget, the general fund reserves were projected to be $83 million by the end of 2019, and $79 million by the end of 2020.
The city was already “conservative” in its sales tax estimates for the year and didn’t project much growth. The costs to the city incurred during this time are also expected to be reimbursable in federal funds, Gissel says.
Yet, it’s far too early to tell how much the revenue hit will be, he says.
Mayor Sharon Weston Broome signed an executive order last week extending the sales tax filing time by 30 days in an effort to help businesses, putting off February and March filings until April and May, respectively.
“I want to let our business community know that I empathize with you and understand the complex challenges that you are facing. As we address this crisis in our community, we must unite in our effort to sustain our local economy,” Broome said at the time. “I assure you that our local economy will recover if we continue to support our businesses to the best of our ability.”
The Louisiana Department of Revenue took similar measures the following day, extending payments for the February period until May.
The MovEBR program, funded through a 0.5% sales tax, is also expected to survive the virus, city officials say.
“This is not going to have a big effect,” says Kelvin Hill, a chief administrative officer for the city.
“We bonded $150 million toward the end of last year, that’s the money we’re using to do projects this year,” he says. About $20 million of that was put into a reserve fund.
While the bond is paid back through sales tax collections, it’s over the entire 30-year life of the program.
On an annual basis, the city projected the MovEBR tax would collect $42 million to $46 million a year. While that will be off this year, Hill says people shouldn’t expect it to greatly delay the projects.
Like the other closures, casinos across the state will be shuttered until at least April 13. Ronnie Jones, chairman of the gaming board, estimated the state will lose $1.5 million a day during the closure.
While it’s a much smaller part of the city’s annual budget, Baton Rouge will also lose some revenue from gaming taxes. The city budgeted for $8.4 million in gaming tax collections for the year. That projection was already down about $1.2 million from 2019, according to budget documents.