Cities expect to cut budgets in light of revenue shortfall

Cities across Iowa are faced with a budget crunch brought on by a decline in local option sales tax revenue.

Fairfield City Administrator Aaron Kooiker said sales tax revenue was down 44 percent this past fiscal year. He said the city had enough funds to pay all of its community grants and complete most of the projects planned. However, he said the city can’t afford another 40 percent cut to its revenue, so the city is planning to forgo street projects until it knows the money will be available.

Mt. Pleasant City Administrator Brent Schleisman said it’s too early to tell just how much damage COVID-19 and the resulting economic slowdown will do to the city’s budget. He said the state collects the sales tax and returns it to cities at a pre-determined formula where it gets a certain amount each month. He said he’ll learn the next estimate in August.

Mt. Pleasant allots 100 percent of its LOST funds to capital projects, so a decline in sales tax revenue would mean the city would have to delay a project.

“It would mean not doing a street or sewer job, or a park improvement,” Schleisman said. “It won’t affect our operating budget at all. If it goes down, we don’t lose people, we lose projects.”

Still, Schleisman said he’s well aware of the ripple effects on the economy of canceling projects.

“It means we’re not hiring a contractor, who is not hiring employees,” he said.

Mt. Pleasant’s sales tax generates between $750,000 and $800,000 annually. He said putting all of it toward capital projects is somewhat rare, because most cities, like Fairfield, divert a portion of sales tax revenue to things such as grants for nonprofits, personnel expenses, or police and fire department equipment purchases.

“I’m a little nervous what the numbers will be this next budget year,” Schleisman said. “It’s definitely going to have an effect on us, which is why we’re being cautious with our spending right now.”

Schleisman said residents probably won’t notice the budget crunch until next year when it becomes apparent how many projects it affects. He said it could mean replacing only three blocks of concrete streets instead of six, or replacing only five brick manholes instead of 22.

“We plan our capital projects this fall for next summer,” he said. “I do anticipate less construction than we’ve been able to do for the past decade.”

Schleisman said sales taxes aren’t the only tax being affected by COVID-19. He noted that receipts from the gas tax are way down, and those in turn fund road repairs.

Mt. Pleasant normally receives about $1 million from the road use tax fund every year. Schleisman said the hotel/motel tax is down, too, because fewer people are traveling. He’s noticed that more people have been delinquent on their utility bills.

“We are making arrangements for people who are having a hard time,” he said. “But we’ve still got to operate our business, too.”