North Adams Budget Projections Raise Specter of Great Recession
NORTH ADAMS, Mass. — The administration is looking for guidance in the past it tries to project a budget for fiscal 2021 — the past as in the Great Recession.
The novel coronavirus pandemic is presenting similar grim financial picture for the state and communities as the global economic collapse did just over a decade ago. That's the worst-case scenario that Mayor Thomas Bernard said he and his financial team are keeping in mind as they look at possible losses on the order of $2.6 million.
"I'll talk about how we're using what happened from 2008 onward as a guide for some of the assumptions that we're making, but again, tax revenues dropped 10 percent — greater than 10 percent and aid was cut by more than 20 percent," Bernard told the Finance Committee on Tuesday.
He told the committee, meeting virtually on the Zoom platform, that there will likely be many unanswered questions because of the "tremendous level of uncertainty," particularly at the state level.
"But I want to walk through a little bit of what we know, what we guess, and how we're using that to shape and build the budget," he said. Normally the budget process would be well under way at this point, "but we're just honestly not there yet because there's just too many too many unknowns."
Referring to a roundtable held more than a week ago by the state's Ways & Means chairmen, the prognosis was distressing. The budget process started in January has basically gone by the wayside as lawmakers seek to rebuild a spending plan with an expectation of declines in revenue of more than 14 percent, or more than $4 billion.
"There are projections that go to $5 billion, which I think is the reasonable starting point," Bernard said. "But, as the budget process at the state level moves forward, we could imagine that number going higher."
The depth and length of the crisis will depend on how fast the region can rebound from the COVID-19 outbreak. Numerous businesses and cultural institutions have been shuttered or are operating in a limited capacity since mid-March while record numbers of residents have sought unemployment benefits. Gov. Charlie Baker on Tuesday extended the lockdown another two weeks to May 18.
Bernard said his financial team was working with placeholder numbers until there was more certainty from the state. In the meantime, a hiring and spending freezing was instituted three weeks to help buffer the current budget until it ends on June 30.
The Great Recession had opened the door for communities to begin levying surcharge taxes on rooms and meals. But the closure of Massachusetts Museum of Contemporary Art and the nearby Clark Art Institute, along with restaurants, shops and some hotels has severely damaged a tourist trade that's helped bring in more than a half-million in revenue a year.
"Those revenues are threatened, because the longer we are closed and the longer we get before our summer tourist season begins," the mayor said. "That first quarter, in particular, we're going to be very strained on those on those receipts."
He anticipated a decline in unrestricted local aid and Chapter 70 state education aid as well that could total $2.6 million
Administrative Officer Michael Canales said he took a look a the lowest quarterly payments received from the state and then revenues from the first quarter, usually the lowest out of the year to calculate an estimated reduction.
"We assume that right now based with everything shut down, we're going to lose about 80 percent of that first quarter payment," he said. "Then assume that we're going to get back to normal operations, or semi normal operations, by the fall, then we would just base it on our lowest other three quarterly payments from the state, and that gave us a number loss of $266,000."
Canales said it was just an estimate and noted the city had been tracking about 10 percent above estimates from last year. But, he added, "this is going to be a substantial reduction across the year."
Bernard said Canales had run those numbers through several models so they felt the projections were pretty close.
Committee member Keith Bona, however, thought differently. "I would say that's actually sort of optimistic, to think that in the fall, you know, we move back to regular," he said. "A lot's going to depend on the colleges, Mass MoCA and some other culturals."
It's not known if Fresh Grass, the annual weekend folk music festival at Mass MoCA, will be held and colleges are considering how they will be able to open, particularly as scientists and infectious disease experts are warning of a second and possible even third wave of the pandemic that's killed more than 60,000 Americans and more than 3,000 Baystaters to date.
As for new growth, the mayor also said a number of projects may not move forward immediately, such as slow-moving Cumberland Farms construction on Ashland Street.
So far, tax collections are holding at 97 percent but the administration is keeping a close eye on that figure.
"Every point we lose on the collection rate is $200,000," the mayor said. "So a 5 point drop is a million dollars."
The city has little levy capacity to make up the difference, a problem shared across the state as municipalities are closing in on their levy limits. North Adams expects its budget to exceed its levy ceiling by fiscal 2023.
"I think a good opportunity for the state to look at these levy ceilings because that is something dictated by the state," said Canales. "There's other cities that are in worse shape than us and we know some of them are going to hit sooner sooner than others but I'm just saying it's an opportunity for them to realize this could become a real crisis for them."
Bernard said the city has a couple of options: pass a budget by June 30 based on projected reductions or do a continuing appropriations budget based on monthly needs.
A budget is being developed with department heads and the administration will be following how the state and federal government approach municipal needs, but Bernard said he didn't want to rely on any "magical thinking" of a federal stimulus.
"We will continue to carefully monitor the current year's budget to prepare for the year's close out," he said. "We want to end this year in as solid a position as we can, protecting as many or as much of our reserves as we are able to, and not dip into those unnecessarily."
He and Finance Committee Chairwoman Marie T. Harpin said they will continue to be in contact on a regular basis and would bring the committee back when there was more to report.
Tags: COVID-19, Finance Committee, fiscal 2021,
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