Tough decisions are on the table after discussions regarding department cuts took place during a special Fredericksburg City Council meeting Wednesday.
During the 2 p.m. meeting, held via Zoom, City Manager Kent Myers noted several potential budget cuts that may be made during a midyear budget review for the fiscal year ending Sept. 30, 2020.
“Normally, the (midyear discussion) process is very smooth and we don’t have a lot of amendments to consider, but this year is quite a bit different because of the financial impact from the COVID-19 pandemic that we’ve been experiencing and that we expect to continue to experience,” Myers said.
The city will have to make adjustments within its budget to offset revenue loss in several revenue areas, including sales taxes, use fees, hotel occupancy taxes and more.
Myers said there are still a lot of unknowns when it comes to the city’s financial situation, much of the midyear decisions will depend on the length of the crisis and a potential resurgence in the fall. Another unknown is related to what Gov. Greg Abbott will reopen in upcoming executive orders.
City staff has outlined preliminary projections as a “best guess.”
“We want to continue to monitor whatever projections we come up with over the next three or four months and make sure they’re accurate,” Myers said. “If our revenues fall shorter than what we estimate, then we would come back to the council and request additional adjustments.”
Funds being primarily impacted are the General Fund and the Tourism Fund. Utility Funds have also been impacted.
Seven months of sales taxes had already been collected for the fiscal year. For the remaining five months, the city projects what it takes in from sales taxes will decrease by 40%, putting it $1,024,600 under budget. The general fund might decrease by $1,259,746.
Cost cuts were recommended by staff in several departments to help the city’s finances.
Total expenditures in administration to be realized is over $70,000, as cuts will be made in gas, travel, education training and protocol and social expenses.
There will be major budget reductions in the Police Department, totaling about $283,000. Two officers in training will wait to come into the department until a later date and one vacant position hasn’t been filled.
In the Street Department, there will likely be a number of cost reductions. Staff recommended a pause in its sidewalk improvement program for the remainder of the year, saving the department $87,000. Staff also recommended stopping its Street Paving Program projects, which would save the city $384,000.
In the Parks Department, total possible budget amendments are about $475,000. Half of this has been addressed by council in removing Lady Bird Johnson Municipal Park bathroom project, which would’ve cost $225,000.
There was a budget increase due to unanticipated litigation in Development Services. Myers recommended an increase in legal services from $20,000 to $200,000. If approved, that may lead to a $131,000 increase in the Development Services budget.
With these cuts, the city may have to dip into its reserves by $287,907.
The city could see a decrease in commercial revenues in the electric fund of $742,000. Myers said as commercial sales are decreased, the city could also decrease sales in power purchases. He also recommends delaying capital improvement projects.
About $1.6 million in budget reductions are being recommended to save enough money to replace failing electric meters, as about 40 meters per month have recently been faulting.
In the water fund, staff is proposing a 20% cutback in commercial water sales for the remainder of the year. But additional interest revenue might help offset revenue loss.
Tourism loss impact
As hotels and short-term rentals have closed operations, a $700,000 loss of Hotel Occupancy Tax revenues is expected to occur in the next six months. A total of $696,000 in tourism-related budget cuts has been identified so the city doesn’t dip much into its reserves.
To offset the decrease in revenues, the Convention and Visitor Bureau has adjusted its budget, which will result in a decrease of the city’s final payments to the CVB by $548,125. The city usually pays the CVB $642,857 per quarter, so this reduction would result in a final payment of $94,732 in 2020. The CVB will reduce its expenses by $413,172 and use $135,453 from its fund balance.
Tourism Fund expense reductions could include a $150,000 reduction for Marktplatz improvements. This project postponement was recommended due to a lack of fundraising.
At this time, only a couple of organizations have canceled their upcoming events. These events are partially funded by Hotel Occupancy Tax.
Staff recommended reimbursing organizations who have already spent money on events or already held their event, and hold off on funding those who have not yet had their event.
Since the council has previously approved funding for local organizations that exceed the city’s original budget, staff must still add $26,000 to this line item in the budget.
It is expected that expenses will decrease by $696,573, due to the proposed changes to the Tourism Fund. CVB President Ernie Loeffler said this should cover the projected decreases in HOT revenue.