Even though many big box, home improvement and grocery stores have weathered the COVID-19 storm fairly well, other small and medium-sized businesses have struggled. Many — like IHOP and Tinseltown locally — have shut their doors for good.
Less economic activity means less revenue coming into city coffers. According to information provided to the Board of Mayor and Aldermen last week, city officials are estimating a $5.4 million shortfall in revenue for the current fiscal year, which ends June 30.
“In the fourth quarter, we’re bracing for a 40% loss in sales tax collection,” said City Manager Chris McCartt. “We may not see that though, and the gap has the potential to close, especially when stuff reopens.”
For the first eight months of the fiscal year, Kingsport has collected 66% of its projected sales tax collections. Even before the pandemic hit, sales tax collections came in less than projected for November, December and January.
Kingsport is preparing for a $1.45 million drop in sales tax collections for the 2020 fiscal year.
“At this time, we’ve gone down the path of what is the worst case? Our projections led us down a path to plan for the worst case scenario,” McCartt said.
THE CURRENT SITUATION
According to information provided to the BMA, a breakdown of the estimated $5.4 million shortfall is as follows:
— $1.6 million from the unassigned fund balance (was assigned to projects earlier in fiscal year)
— $1.45 million in sales tax collections
— $700,000 in facility rentals and programs
— $450,000 in motel/hotel tax collections
— $450,000 in gross receipts, wholesale taxes and franchise fees
— $330,000 in court costs and fines
— $225,000 in state shared funds
— $200,000 in building licenses and permits
On a brighter note, property tax collections in Kingsport have come in higher than projected, with officials estimating the city will bring in $41.3 million this year. Originally, Kingsport projected just over $41 million in property tax collections for the year.
SOLVING THE PROBLEM
In response to the shortfall, Kingsport froze all nonessential spending in March, along with all vacant positions, travel, overtime and equipment purchases. According to McCartt, these steps will save an estimated $1.7 million.
To close the remaining $3.8 million gap, McCartt said city staff looked at more than 40 capital projects to see if any of them had any leftover cash in their budgets or if the cash could be replaced with bonded money. These actions came up with the needed $3.8 million.
“We’re using the leftover cash from projects while cash-funded projects are going to continue, but they’ll continue with bonded money,” McCartt said.
Kingsport currently has $14.5 million in its rainy day fund, and at this point, the city is not tapping those funds to balance the 2020 fiscal year budget.
“What we’re trying to do at this point is manage through 2020 without having a tremendous impact to the rainy day fund,” McCartt said. “As we move into the 2021 budget next week, we’re establishing a cushion with it, if we need it as our revenues come in.
“We’ve got to look at (the rainy day fund) potentially stretching out through 2021 and potentially 2022.”
At this point, Kingsport is not planning to go to the bond market this fall for its annual capital projects bond issuance. City staff and the BMA plan to hold two budget work sessions next week to discuss the fiscal year 2021 budget.
“It’s common for municipalities to make budget adjustments throughout the year, but these are major adjustments for the situation we find ourselves in,” said Mayor Pat Shull.