Thank you, Chairman Colvett and members of the Council.
The last time I presented you with an operating budget, I had hopes that we would be in a much different situation by now, both from a financial and public health standpoint. In what feels like ten years ago, I remember sitting in our conference room on a Sunday morning in March as we received the news that would forever change our community—the first known case of COVID-19 was discovered in Memphis. One week later, government, healthcare providers, and nonprofit groups collectively came together under a joint task force to coordinate what has been an unparalleled effort to inform, protect, feed, teach, support, test and now—to vaccinate our community.
Our objective has always been to navigate the pandemic so that we are able to return to normal as quickly as possible, while preserving as many lives and livelihoods as we could along the way. It has not been easy. We have not always gotten it exactly right, and while we have not always agreed, we have delivered what has been to this point a unified approach to overcome this virus. I am grateful for your willingness to work with us and for your partnership as they will both be invaluable as we continue to move forward.
Today, I am presenting to you an operating budget of nearly $716 million that is limited in growth from this year’s budget but that I believe balances the challenges we face in what still remains a very uncertain time, and in the same instance, acknowledges the hard work our city employees, particularly police and fire, have done over the last year and continue to perform today.
One of the continued uncertainties is the extent to which our revenues will be negatively affected. In a normal year, we estimate our revenue for the upcoming year based on past history, and those estimates come very close to the actual receipts. As you know, these are not normal times. Even though we now are well underway with the vaccine process, there is still much uncertainty about the disease and the economy. These uncertainties continue to make estimating our revenue three to fifteen months from now very difficult.
Another looming uncertainty is the use of federal stimulus money by cities and states because we do not yet have all the rules governing their expenditure. With these uncertainties in mind, I will summarize three points as I present our budgets to you:
1.) The limitations on the American Rescue Plan Act
2.) Highlights on my proposed operating and CIP
3.) The property tax rate that I am proposing
First, as is stands right now, the City of Memphis is expected to receive in total $160 to $168 million in American Rescue Plan Act funds. The funds will be broken up into two tranches. The first half will be distributed, along with further rules explaining the allowed uses, within 60 days after the act was signed into law, which was March 11, 2021. To date, we have not received those funds or rules. The second half of the funds will be distributed one year later. So, for this year, the City is expected to receive between $80 to $84 million.
Now, I would like to share with you some of the initial guidance we have received regarding how those funds may and may not be used. As with the CARES Act, we do anticipate receiving on-going guidance from the Office of Inspector General.
How may we use these funds?
• City government revenue replacement to the extent of the reduction in revenue that was directly caused by COVID-19 compared to the most recent fiscal year prior to the emergency, which was FY2019.
So, for example, compared to FY2019, it appears that our operating budget in FY2022 will have $18 million in lost revenue directly caused by COVID-19. This is much less help to our operating budget than I hoped for when the Act was being discussed.
Other examples are our Downtown Tourist Development Zone, which took a devastating hit over the last year, replacement of the revenue shortages in the Hotel/Motel Tax which supports debt service, and making our city-owned assets whole who were either not allowed patrons or had to severely restrict their capacity.
Please remember that I said City government revenue directly caused by COVID-19 compared to FY2019. Let me highlight lost revenue in our operating budget that does not fit that definition, the Hall Income Tax, which was $7 million of loss revenue since 2019. But, this loss is not COVID-19 related, and therefore, cannot be counted as loss revenue for American Rescue Plan purposes.
Other allowable City government uses of the funds are the following new expenses:
• Premium pay for essential workers
• Investments in water, sewer, and broadband infrastructure.
• Lastly, like last year’s CARES Act funding, these funds can be used for assistance to small businesses, households, and hard-hit industries
Importantly, we may not use these funds to:
• directly or indirectly to offset tax reductions or delay a tax or tax increase
• fund our pension fund
• fund recurring expenses, such as salary increases
All these federal funds must be spent by the end of calendar year 2024.
For FY2020 and FY2021 Memphis city government has eligible revenue loss that can be replaced as follows: roughly $44.6 million will be allocated for allowable revenue replacement in the FY21 operating budget and the FY22 proposed budget. Remember, $18 million is for the proposed budget. $5.7 million is proposed for the FY21 revenue loss within our Tourist Development Zone, $9 million for Hotel/Motel tax revenue recovery, and approximately $9 million to shore up our city-owned assets. If the federal government issues rules expanding or contracting these uses, we may amend our proposed budget over the next two months.
Of the remaining $16 million in this year’s federal funds, I am proposing a one-time spend in the form of premium pay to full-time City of Memphis essential workers in accordance with the federal guidelines.
For my second point, I will highlight a few matters about my proposed operating and capital improvement budgets. Both are relatively flat. As I’ve said before, during a normal year, we expect some revenue growth. Due to the COVID-19 economic downturn and the limits on the new federal money, this budget proposal largely remains flat. But, I want to strongly reiterate—without the American Rescue Plan allowing for revenue replacement, we would have been forced to make material cuts. We are fortunate that our annual payment to the retirement system (the Actuarily Determined Contributions) will reduce by almost $9million, and with those funds I am proposing a two percent raise for our commissioned police and fire employees which equates to roughly $7 million.
As it is each year that I present our budget, I wish I could give all city employees a raise for the incredible service they deliver to our citizens each day. But, unfortunately, each year we have a finite amount of resources. Fortunately as discussed a moment ago, we can use $16 million in federal funds to give premium pay or bonuses.
With the remaining almost $2 million from the reduction in the ADC, I am proposing the funding for Group Violence Intervention Program, which you know has been used successfully in other cities around the country to reduce gun violence. We have to intervene with these young people who are at risk or who are already in gangs and help them turn their lives around. Due to the financial constraints I outlined earlier, including the limitations on the federal money, we have no more funding for any significant expansion of city services.
With respect to the capital improvement budget, over the last couple of years, we have been on a growth trajectory. We have proposed to you a CIP spending budget that aligned with and supported our City’s capital needs for successful improved operations, and continued to promote economic and community development. In this year’s CIP budget, we are continuing to maintain our mission critical projects—paving of roads, maintenance, necessary vehicles, and projects mandated by law.
For fiscal year 2022, I am proposing a CIP budget for general obligation bond support of roughly $89 million. This proposal contains $19.5 million in much needed paving for our city streets and nearly $11 million in capital acquisitions on items for core city services, such as, more police cars, fire trucks, and dump trucks.
My final point for you today is that although the budget I am proposing will include a property tax rate decrease, it is not a tax cut or a reduction. Let me explain.
Every four years, the Shelby County Assessor assesses the value of every piece of property in the county. You should have received that assessment in the mail recently. Now, I need to note that Councilwoman Johnson is extraordinarily knowledgeable about this process because she was the Assessor for 10 years and worked in the office for a total of 33 years.
Now, many of those assessments show an increase in value, while some may show a decrease. But overall, property values increased; in Memphis, when combining real property in the city, the overall values appears to have increased by roughly 23%, although we will not get the final number until later today or tomorrow. Citizens have the right to appeal their assessments, so the overall percentage increase will likely go down a bit.
Our property tax rate is currently $3.19 per $100 assessed value. With assessed values increasing so much, if our property tax rate was the same, our property tax revenue would increase dramatically. But, state law does not allow a city to collect more tax revenue simply because the assessed values increase. State law requires us to reset the tax rate to a lower figure, so that our overall property tax revenue is the same before and after the assessment. Some property owners will pay more, some less and some the same, but City government will collect the same.
The only way for City government to collect more property taxes is a tax increase. I will not be proposing a tax increase, especially because so many of our neighbors have suffered significantly over the last 12 months. I will be proposing a tax rate which we calculate will result in the same revenue as before the assessment. At this point, it appears that rate will be around $2.75 to $2.80. We will know the exact figure by your first budget meeting.
As we continue through this process, I look forward to working with all you to pass a budget that meets the needs of our citizens and is fair to all of our employees.
Thank you again for your time today. Stay well.
-Mayor Jim Strickland
Presentation to the Memphis City Council, April 20, 2021