Mayor Jim Strickland
Presentation to the Memphis City Council, April 21, 2020
Thank you, Chairwoman Robinson and members of the Council.
I hope that you are all safe and healthy because we have much work to do as we navigate our way through these unprecedented times. While every day brings change and new challenges, our goal is to help you stay up-to-date on the latest developments and to give you the best information we can as we work to through this time of uncertainty.
While it may be our custom to get together during the second meeting in April with a detailed proposed new budget, I am presenting in an environment that is anything but “business as usual”.
Cities across our state and across our nation are facing a major public health emergency, record unemployment, and an unprecedented financial crisis. Simply put, the demand and the need for core local government services has and will continue to increase significantly, and at the same time we are all projecting drastic levels of revenue shortages.
But, with your help, we will get through this. Resilience is not an outcome, it is a process. During this process, we are all tasked with being fiscally responsible for spending money not only to address our current operations and core services, but also to address the coronavirus pandemic and the protection of our community.
We must shift from the conventional ways of thinking about our budgets, and embrace a whole new set of “norms”
• to cope with the fallout from the pandemic and the economic devastation it is causing, and
• to address how best to reduce operating expenditures to reflect the anticipated—and guaranteed—resource
deprived environment that we will be facing in the months ahead.
Please remember, as a city government, we cannot borrow money for operating expenses, and by state law, we are mandated to maintain a balanced budget. Taking all this into consideration, not all our services and programs will survive this budget.
We must recognize and appreciate the complexities of our new environment in the face of long-standing traditions and obligations.
After the first of the year, I presented to you some of the challenges we would be facing for fiscal year 2021. At that time, I said this would be the tightest budget we had seen since I’ve been mayor. Remember, our budget revenue grew on average about $10 million per year, but because our annual contribution to the pension increased by $8 million and the cost of healthcare would likely increase, we knew there would be no extra funds.
The revenue pressures I shared with you then have become minor compared to the revenue challenges we now face.
We had spent several months trying to find a solution to the loss of the State Hall Income Tax, only to find ourselves facing a drastic reduction of the second largest source of revenue to the city—our sales tax. As it stands right now, we’re projecting a $20 million shortfall in the current FY20 budget.
We will not receive our April sales tax revenues from the state until June, so we will not actually see the impact of the April reduction until that time. However, during our conversations with the State Department of Revenue, the State Comptroller’s Officer, and the economists at the University of Memphis, we have been advised to expect significant declines in the revenue source that represents approximately 23% of the operating revenues for the general fund. In fact, we estimate a 25% reduction in sales tax collections.
Slide one shows you our current budget as adopted, the forecast on the current budget showing a $23 million deficit, and FY21 proposed budget. We are observing the collapse of the hospitality sector, so the hotel motel tax will be dramatically impacted, as well as the tourist development zone revenues.
Unemployment is on the rise and hundreds of businesses are closing, resulting in significant impact on gross business tax receipts and business fees. Many of the tax deadlines have been extended, so we will not know the impact until after the close of fiscal year 2020 in June.
As the food and beverage industry also adapts to the change in its business model, we can anticipate reductions in mixed drink tax, alcoholic beverage inspection fees, state shared beer tax, beer application fees, beer permit privilege tax, and liquor by the ounce tax.
We are reviewing each revenue line of the City’s general fund operating budget and then applying a consistent and conservative approach to the line items with the most potential for economic impact.
As you can see by Slide 2, Finance has gone through each revenue source to determine the amount of the reduction.
In total, our current estimated shortfall in the fiscal year 2021 budget is in excess of $80 million below that of the fiscal year 2020 adopted budget revenues. In short, we have gone from growth of $10 million to a loss of $80 out of a $711 million budget.
Let me put this into perspective. On Slide three, which is the current budget of each division, you can see the magnitude of $80 million. There is no way to absorb that size reduction in revenue without significant reduction in the services we provide to thousands of citizens and layoffs of hundreds of city employees.
Of course, we do have unrestricted reserves, commonly referred to as our “rainy day” fund. Currently there is a little more than $78 million in the fund. With an estimated $104 million in lost revenue for this and next year’s budget, the reserves are not large enough to cover us.
More importantly, we must not come close to depleting our reserves over the next 15 months because we do not know what needs may follow in FY21 and the years to come.
There may be help from the federal government on the way. First, the third stimulus package passed by Congress and signed by the President, is called the CARES Act. Cities and states will receive funds from this Act, and in fact, cities with a population over 500,000 people, which includes Memphis, will receive our money directly from the federal government.
We applied for these funds last week. Several things, however, are unknown, such as:
1. How much money will we receive. Although, it’s likely to be tens of millions of dollars. And,
2. Exactly when will we receive it. Although, it’s likely soon.
3. And, most importantly, how the funds can be used.
It’s uncertain whether its solely to reimburse for expenses related to COVID-19, or can it be used for lost revenue solely as a result of COVID-19. If it is both, we should be able to pass a status quo budget—one similar to last year’s budget.
If we cannot use it to make up for lost revenues, we still have one other possible federal life preserver. There is talk of another stimulus bill in May to help cities and states, but there is not clear consensus on this point.
Because of this uncertainty, we could not add any federal stimulus money to our budget now. Therefore, our proposed budget for FY21 is $630 million as outlined in Slide 1. But, because we would need to cut tens of millions of dollars from our budget, I decided to hold off presenting a line item budget for you for two weeks. If the CARES Act helps us within the next two weeks, I will present to you a budget for 2021 much like the current one.
If the CARES Act is not helpful, I will likely present to you in two weeks a Continuation Budget for July and possibly August 2020, hoping a stimulus package in May addresses our shortages, and then come back to you to present an amended proposed budget for the entire 2021 fiscal year.
And if no federal aid is available, we will present a line item budget for the remainder of the fiscal year 2021 which will recommend more drastic action.
We value all of our City of Memphis employees; however, we will not be able to offer salary increases in FY21 due to these conditions.
I believe with an awareness of the potential challenges and a plan in place for managing through them, we can not only survive through these challenging times, but we can thrive in the long-term. I need your help to do that.
Thank you for the opportunity to share this information with you today, and I look forward to working with you to find our way out of these dark times—together.
Revenue Summary Slide 1
Revenue Summary Slide 2
Revenue Summary Slide 3
FY20 and FY21 Revenue For Presentation