WHAT’S THE PROBLEM?
Maybe you have heard news reports on how local governments are suffering from reduced sales tax revenues as a result of COVID-19 business closures. It's a real problem here in St. Louis and all over the country.
The article in the STL Post Dispatch highlights cities like Des Peres that will loose $500K per month from the closure of West County Center, and goes on to say:
More affluent municipalities with a cushion of reserves may be able to weather a few months of substantially lower sales tax revenue, but those that were already in poor financial shape will struggle and may even be forced to merge or dissolve.The reduction in sales tax revenues began gradually in early March, but when St. Louis County issued an executive order closing all restaurant/bar inside service on March 20 the full impact began. As of today, about one-third of Crestwood restaurants have closed and the remaining are trying to get by on drive-thru and carryout orders.
The impact to Crestwood is unknown at this time, and it may be months before the city even has a clear picture of the magnitude of the problem.
Surely the sales tax revenues from our restaurants and small businesses will be substantially lower. Gasoline related taxes are also expected to be down.
However, Crestwood’s biggest sales tax generators are Schnucks, Aldi’s, and Sams Club. All have been doing a robust business and others like Westlake Hardware have seen recent increases. This will definitely help, but revenues are still expected to be significantly down for 2020 - perhaps as much as $1.5M overall.
CRESTWOOD FINANCES
To understand the impact to Crestwood, it’s important to review revenue sources and bank balances. Crestwood divides its finances into four “Funds”. Each is almost like an independent business with separate tracking of revenues and expenses.
- General Fund (74% of budget) - used to pay for most things
- Parks & Stormwater Fund (17%) – it’s just like it sounds
- Capital Improvement Fund (8%)– one-time big projects
- Sewer Lateral Fund (1%) – residential sewer lateral repairs
In 2019 the City received about $13.8M in total revenues and spent about $12.6M (generating a $1.2M surplus). Prior to the pandemic, 2020 revenues were budgeted at about the same as last year $13.8M with expenses to be about $14.9M*. This will definitely change.
* Included in the revenues for 2019 and 2020 is about $800K of insurance payments for the city hall flood. Most of those insurance payments will be spent in 2020 as repairs are completed.Sales Taxes represent nearly half of all city revenues and are subject to economic ups and downs. Fuel taxes (based on gallons sold, not price per gallon) represent about 2% of all revenues.
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| 2020 Budget |
Does the city have cash in the bank? Yes it does! Here are the beginning balances of each fund at the start of 2020:
- General Fund - $7.2M
- Parks & Stormwater Fund - $1.0M
- Capital Improvement Fund - $1.3M
- Sewer Lateral Fund - $300K
It wasn’t long ago that Crestwood was facing financial ruin, after the mall closed and expenses were mounting. Residents strongly supported several local and county tax initiatives that saved the day. Since that time the city managed expenses and has shown yearly surpluses to steadily prepare for situations like the one we are facing.
Is it enough? What if it's not? What is the city doing to prepare?
CRESTWOOD 2020 BUDGET
In the final months of 2019, the 2020 budget was presented, reviewed, tweaked, and approved. That was before anyone knew that a pandemic would change just about everything in our world.
Crestwood’s revenues will surely be lower than the $13.8M that was budgeted, but by how much? The answer to that question will determine which projects can still be funded, which will be put on hold, and if there will be impacts to personnel or salaries.
City Expenses – where does the money go?
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| 2020 Budget |
There are many big-ticket items on the city’s to-do list for 2020:
- $800k for insurance-covered reconstruction expenses at the Government Center
- $745k for city-funded renovation expenses at the Government Center
- $15k to update the Captain’s bathroom in the Fire Department
- $34k for various Police Department capital equipment purchases
- $60k to complete a citywide sidewalk, biking, and traffic calming study
- $60k for pavement preservation to seal the parking lots at Whitecliff and Crestwood parks
- $36k computer upgrades
- $60k to redesign the City of Crestwood Website
- $10k to construct a new carport for police vehicles
THE PLAN
In short, the plan is to freeze spending wherever possible, continue to fund important projects, limit impacts to personnel, and plan to formally revisit/revise the 2020 budget in June or July as needed.
Due to the strong financial position in which the city started 2020, we don’t have to make drastic decisions without the data to back them up. The money in the bank is there for situations just like this. That said - some cost saving actions have already been taken.
Why wait until June? Sales tax revenues started their decline in March, but the data from that month will be hard to interpret as that the impact was changing throughout the month. April results will show the full COVID-19 impact for Crestwood.
Crestwood receives sales tax revenues two months after the fact, so it will be late-May before March results are available and late-June before April results are available. Also by June the “lifespan” of the COVID-19 virus will be better understood and hopefully we’ll know when/if business may begin to recover.
Spending Freeze - The city has already taken action until better data is available. The city has placed all “non-critical” projects on hold. These projects include:
- All hiring is on hold and strong limits placed on overtime
- Citywide sidewalk, biking, and traffic calming study ($60k)
- IT Security Audit ($10k)
- Update the Captain’s bathroom in the Fire Department ($15k)
- Out-of-state travel (estimated $10k)
- Resealing the parking lots at Whitecliff and Crestwood Parks ($60k)
- Constructing a carport for Police parking ($10k)
- Sidewalk repairs ($30k)
- Sappington House Repairs and Updates ($70k)
- Government Center “updates beyond what’s critical” ($350k)
- Street maintenance (Bid request issued)
- Lower-level Government Center reconstruction project (Bid request issued)
- Upper-level Government Center “updates” (design/planning, and critical items)
- Resurfacing playgrounds at Whitecliff and Sanders Park
- Grant-funded Aquatic Center renovations (already 95% complete)
- Grant-funded Quarry project
March sales tax revenues will be hard to interpret, but will serve as a “sneak peak” into the impact for Crestwood. So perhaps all of this could change when those results arrive in late May.
It looks like 2020 will be a significant year in many ways. It’s very disturbing to realize how may people have been sickened or died from this virus, as well as to see the millions of Americans that are out of work. It’s easy to loose hope – and many have. I suspect the impact will be felt by all of us well past 2020.
All of that said – Even though this is a serious situation for the city, it’s a comfort to know that our city of Crestwood has been well managed by skillful leaders over the years so that at least for now, we don’t need to worry about our home town being forced to merge or dissolve. As we have seen in recent months, things can change quickly so all of this is subject to modification on any given day.