On Monday, August 31, Mayor Tim Keller and his Chief Financial Officer Sanjay Bhakta, held a press conference to discuss the city’s financial condition, the city’s tax revenues and the impending release of the finalized 2020-2021 fiscal year budget to the City Council for hearing and final approval. Keller reported that the decrease in tax revenue has led to an estimated $27 million shortfall in Albuquerque for the current fiscal year, but by preserving this year’s budget, the city was able to avoid furloughs.
What was also was instrumental in avoiding furloughs and layoffs among the city’s roughly 6,000-person workforce was the city receiving $150 million in restricted federal coronavirus relief funding through the Coronavirus Aid, Relief, and Economic Security Act (CARES). Originally, the CARES Act funding was only to be used for pandemic related efforts, but it was amended to allow it to be used and applied to other city expenditures.
City officials reported that for the fiscal year 2020 gross receipts tax revenue finished 5% behind expectations. Another 5% drop in gross receipts tax revenue is projected for 2021. The drop in revenues resulted in a hiring freeze. According to Keller, the hiring freeze translates into meaning fewer people performing code inspections, driving buses and maintaining parks.
For the 2020 fiscal year that ended June 30, the city’s gross receipts tax revenue (GRT) was approximately $19.9 million short of projections, but the GRT still surpassed 2019 GRT because of a new Internet sales tax stream. City officials expect that GRT revenues will continue to dwindle in fiscal year 2021, which began July 1.
Mayor Keller offered the following summation:
“We have our economic challenges, there’s no doubt about that, but our city on a relative basis is actually not doing as bad as we thought. … [W]e tried to first cut costs then we tried to identify savings by banning travel, by examining department budgets for costs savings, restrictions on new hires; we have a broad hiring freeze that’s had a lot of exceptions we’ve had in place now for I think six months. …
“The reality is we have less code inspectors than we are supposed to have, we have less folks taking care of our parks than we use to have, we have less folks picking up our trash than we use to have, we have less folks driving our buses than we use to have. … We are begging to operate in the area of resource shortage.”
We have a broad hiring freeze that’s had a lot of exceptions we’ve had in place now for I think six months. Instead of the park getting mowed every week, (maybe) it’s going to be getting mowed every 10 days. Those kind of things are inevitably going to happen when we’ve had a long-standing hiring freeze. …
But by and large, any major initiative, we expect government to continue on as it normally would with just minor delays in some services. … The job recovery region, Albuquerque and Bernalillo County, is in much better shape. … We should be back to the normal level sometime in 2024.
Keller did acknowledge that it might get worse if local businesses don’t start rebounding, but believes the city’s finances will be fine for at least 6 months assuming the economy gets better. If the economy does not get better, Keller said:
“We are always considering what we need to do and that could include layoffs. That could include wage cuts. That could include furloughs.”
Links to related news coverage are here:
CITY FINANCES IN A NUTSHELL
City finances have been totally upended as a result of the corona virus pandemic and its impact on the city economy and in turn city gross receipts tax returns have dramatically declined. On March 16, 2020, the New Mexico Department of Finance, Local Government Division, issued Memorandum authorizing the New Mexico municipalities to submit their last year’s fiscal budget for 2019-2020 budget as their fiscal budget for year 2020-2021 until reliable tax revenue projections can be determined. That is exactly what the Albuquerque City Council did when it enacted what they considered a “stop gap” budget.
The Charter of the City of Albuquerque requires the Mayor to formulate the annual operating budget for the City of Albuquerque and all of its departments. It is the City’s Department of Finance under the direction of the City’s Chief Financial Officer (CFO) that formulates the yearly budget which is then submitted to the Albuquerque City Council. The city’s fiscal year’s budget begins every year on July 1 and ends every year on June 30. The annual city budget must be submitted by the Mayor’s Office to the City Council by April 1. The City Council, upon receipt of the proposed budget from the Mayor, schedules budget hearings, takes public input and makes changes as it sees fit before enacting the final budget to be effective July 1.
The current gross receipt tax added to virtually all retail sales of goods and services is 7.7850%. Businesses collect the tax on each sale made and the money is then sent to the New Mexico Taxation and Revenue Department and each month the state the distributes the city’s portion of tax collected to the city. Retail businesses make up about 25% of all the city’s gross receipts tax collected. The gross receipts tax revenue pays for basic municipal operations and essential services such as police protection, fire protection, solid waste collection, street repairs, animal welfare, parks maintenance, social services and the wages and benefits to over 6,000 city employees.
Gross receipts tax is collected and given to the city accounts for 67% of the City’s general fund revenue. The gross receipts tax revenue pays for basic municipal operations and essential services such as police protection, fire protection, solid waste collection, street repairs, animal welfare, parks maintenance, social services and the wages and benefits of over 6,000 city employees. For the current fiscal year that ended on July 31, 2020, the city averaged upwards of $41 million in gross receipts tax revenue or $492 million dollars for the year. The remaining 33% of revenues needed to operate the city are generated other fees, other tax revenues and federal funding
2020-2021 OPERATING BUDGET ENACTED
On April 13, 2020, on a unanimous vote of 9-0, the Albuquerque City Council enacted R-20-31 which is the city’s operating budget for fiscal year 2020-2021. The approach to enact the 2020-2021 city budget was a dramatic departure from all previous years all because of the pandemic and falling gross receipts tax revenues.
The City Council’s operating budget, R-20-31, enacted is a “bare bones budget” resolution consisting of only 7 pages of line item appropriations for each of the city departments. There is no explanation or elaboration on the actual use of the millions appropriated in the budget. No public hearings were conducted that would have allowed comment and input from the public. The 2020-2021 operating budget went into effect on July 1, 2020 and ends June 31, 2021. The City Council ostensibly will follow the normal process with the Keller Administration submit a “performance based” budget and conduct public hearings.
The link to the enacted budget, resolution R-30-21 is here. Click on the link then click on R-31 spelled out in blue and marked FINAL:
BREAKING A CAMPAIGN PROMISE
In May, 2018, 5 months after he assumed office, Mayor Tim Keller signed into law a gross receipt sales tax increase enacted by the City Council. Seventy percent of the tax was dedicated to public safety. The tax was supposed to raise $55 million a year in revenue. Keller broke a campaign promise not to raise taxes, even for public safety, without a public vote. The rational for the tax increase was that the city was faced with a $40 million dollar deficit. The deficit never materialized and the tax increase was not repealed, and the Keller Administration has never disclosed where those revenues went or why the tax was not repealed when the deficit never materialized.
The City of Albuquerque had an operating budget of $1.1 billion for the fiscal year that began July 1, 2019 and ends on June 30, 2020. It was the first time in city history that the city operating budget exceed the $1 Billion figure. The 2019-2020 budget represented an overall 11% increase in spending over the previous year.
HISTORY REPEATING ITSELF
City Hall history is repeating itself. It was 10 years ago in 2010 that the city had to make significant cuts in order to deal with the “great recession”. Then Republican Mayor Richard J. Berry had a $69 million shortfall and he decided unilaterally to cut city employee pay by 3%, disregard negotiated union contract pay increases with the city’s unions, place a freeze on all hiring and reduced and slashed city services not considered essential such as the 311-call center. The number of APD sworn officers went from 1,100 in 2010 all the way down to 875 under Mayor Berry and community based policing was abandoned and existed in name only.
For the full 8 years under the former Republican Mayor Administration, the city was hit hard because of the great recession to the extent that essential services were dramatically cut and city and government was dramatically downsized. The cuts and downsizing were done in order to avoid any all tax increases to maintain Mayor Berry’s Republican philosophy that all tax increases are bad, even when needed for essential services, and that city government was too big and needed to be downsized.
COMMENTARY AND ANALYSIS
Just as the city was pulling out of the 10-year great recession, the city gets hit and get hit hard in the gut with the corona virus pandemic resulting in business closures, layoffs and a dramatic decrease in gross receipts tax revenues that funds 67% of the city’s operating budget. The city is now facing a major financial crisis.
It will not be fully known for at least another 6 months to what extent the corona virus has depleted the city’s coffers. If the City in fact plunges into another recession, which is highly likely, it will be much deeper than the 10-year great recession that started in 2008. Many businesses along central already barely making it because of the ART project will probably close permanently because of the Governor and Mayor’s emergency health orders.
DIFFICULT DECISIONS AHEAD
Mayor Tim Keller and the Albuquerque City Council will likely have to embark on a very painful but absolutely necessary reduction in government services and expenditures to deal with the major deficit caused by a dramatic reduction in gross receipts tax revenues. The City’s loss of gross receipts tax revenues obviously was brought on by the corona virus shutdown of businesses and resulting loss of gross receipts tax revenues, but Mayor Keller pinning his hopes on a quick rebound is not realistic.
The City is mandated by law to have a balanced‐budget. According to Mayor Keller, city financing should be fine over the next six months. But if things do not improve quickly by June, 2021, the city will be faced with any number of options or a combination thereof including:
1. Slashing department budgets across the board by a mandatory percentage to “spread the pain”.
2. Eliminate entire none essential city service departments, city divisions or units.
3. Reduce city services in some form.
4. Closure of city facilities such as libraries, senior citizen centers, golf courses and recreational activities and cancellation of major public events such as Summerfest.
5. Continue to freeze all hiring over the next year.
6. Layoffs or furloughs of government workers and elimination and funding of city positions.
7. Delay for a time all city construction projects that will result in need to hire more city staff.
8. Suspend all salary increases or implement salary deductions to the 6,000 city employees.
9. Postpone growing the police and fire department ranks and concentrate on police and fire academy classes for the sole purpose of keeping up with retirements and maintaining the existing number of the ranks before retirements
10. Increase gross receipts tax.
11. Increase property taxes.
12. Increase admission fees to museums, the Zoo and Botanical Gardens and Aquarium, golf fees.
13. A combination of all cost cutting and revenue increase options.
Mayor Tim Keller will start to look and sound more and more like his former Republican predecessor when he starts to say “cut city services and reduce the size of government” to get through the financial crisis caused by the pandemic. One thing is for certain is that if Mayor Tim Keller advocates another gross receipt tax increase, or goes along with the city council with it, or supports a property tax increase, Keller will wind up becoming a one term Mayor.
Before Mayor Keller downplays delaying not getting the parks mowed, he may want to pick up the phone and call former Mayor David Rusk on the importance of such things. Rusk served as Mayor from 1977 to 1981 and became a former, one term Mayor, when his popularity plummeted. Voters became very upset and when they felt Rusk did not act quickly in cutting down wild weeds growing throughout the city after a heavy monsoon season. The weeds were not cut down because of cost savings.
Then again, cutting weeds and grass will be the least of Mayor Tim Keller’s concerns as he is dealing with the cities violent crime and murder rates.