Financial Management in a Pandemic

Like you, we have been working hard to understand and forecast what the financial ramifications of the COVID 19 pandemic will be on local governments in the region. The one thing we have all agreed on is that we don’t know. Speculation about the following factors contribute to this uncertainty:

  • Severity of the reduction in economic activity
  • Term (length of time) of the disruption
  • Potential for a recurrence
  • Possibility of a vaccine
  • Long-term changes in how people work
  • Potential stimulus funds
  • Potential long-term recession
  • Possible bounce back recovery

Revenue

There are a few things we do know, or expect, will affect revenues based on what we hear from our clients and what we can forecast from our collective experience. First and foremost, the makeup of your customer base – the mix of residential and commercial, and the type of commercial activity – will largely determine your revenue losses without intervention (stimulus funds, rate increases, etc.).

General Fund

  • Sales tax receipts hugely impacted, and differ by sector (construction sales taxes, auto sales, small retail)
  • Tourism-related tax receipts hugely impacted
  • Property tax receipts likely more stable with possible increased delinquencies / deferrals
  • Income tax receipts likely impacted short-term, maybe long-term
  • Fuel tax receipts and allocations hugely impacted

Utilities

Water
  • Commercial / industrial volume revenues hugely impacted
  • Residential revenues impacted both ways
    • Up from working at home
    • Down from delinquencies and deferrals
    • Delinquencies may differ by demographic factors such as median household income
Wastewater
  • Commercial / industrial volume revenues hugely impacted
  • Residential revenues may be impacted both ways
    • Up from working at home, unless rates are fixed / uniform
    • Down from delinquencies and deferrals
    • Delinquencies may differ by demographic factors such as median household income
Stormwater
  • Revenue likely relatively stable
  • Many agencies bill on the county property tax statement – property tax deferrals will impact stormwater cash flow
  • Delinquencies will likely increase, with demographics impacting the severity

Mitigating Actions

There may be some actions you can take to mitigate the financial damage to your agency, given the uncertain outcomes we face:

  • Build financial plans to test your financial performance in best and worst case scenarios
  • Estimate the sufficiency of your reserves to inform:
    • How long they will last in best and worst case futures
    • When you must take action to replenish them
  • Reduce expenses – many agencies are considering the following specific actions, short of layoffs:
    • Reduce professional services
    • Defer capital projects
    • Refinance / restructure debt
    • Freeze hiring — leave open positions open
    • Furlough non-essential staff

We have also heard the following suggestions to prepare and manage your agency:

  • Have shovel-ready projects planned in case stimulus funding becomes available
  • Augment staff shortages with short-term contracted services

Short-term / Long-term Thoughts

As we wait for consumer confidence to return and housing starts to increase (two of many indicators of recovery), remember that this is a temporary challenge – although one with long-term consequences. Many of you are structurally sound, and it is important not to react with structural, long-term fixes to a short-term, albeit unprecedented, crisis.