The city of Santa Fe is forecasting a staggering $100 million budget deficit in the upcoming fiscal year in what officials described as a brutal economic shock wave from the novel coronavirus.
“This is unprecedented,” Finance Director Mary McCoy said during a virtual news conference Monday. “Practically overnight, we’ve been confronted by a structural imbalance … where the city’s recurring expenditures are far higher than our recurring revenues.”
Exactly how the city government plans to make up the worst budget shortfall in its history remains to be seen, and officials declined to speculate how either residents or city employees might be affected, though it’s clear cuts will be necessary.
“I don’t want to get ahead of myself in predicting anything, nor do I want to unnecessarily alarm our employees or our residents,” Mayor Alan Webber said in response to a question from The New Mexican. “The city of Santa Fe will be fine. We’ll just have to be a lot smarter, more creative, more flexible and adaptive as we continue to deal with this unprecedented budget shortfall.”
The projected $100 million budget gap for the fiscal year that begins July 1 comes on the heels of an estimated $46 million shortfall in the current fiscal year that led to furloughs for a vast majority of city workers and a spending and hiring freeze.
The total deficit projected across all funds for the upcoming fiscal year includes an estimated $31 million shortfall in the general fund, which was about $102 million in the 2020 fiscal year. McCoy called the general fund the “meat and potatoes” of city government because it pays for day-to-day operations from police to parks and recreation.
McCoy said the overall $100 million shortfall constitutes a 30 percent decline in revenue into all funds.
“This will impact all departments and all divisions,” she said. “There is really not a single revenue point that is unaffected.”
McCoy said the city is projecting a 33 percent drop — or $37 million less than the current fiscal year — in gross receipts tax revenue, one of the city’s largest revenue sources. Lodger’s tax revenue is expected to be cut in half.
“As far as our revenue forecasting, this is very different territory for me,” she said. “I’ve done revenue forecasting for quite a while now, and not to be able to use historical data or trends to be able to guide us into the future has been very difficult, so we’ve been collaborating with economists at the state and other organizations to help understand how they are estimating revenues in this uncertain time and what to expect for our own Santa Fe economy.”
McCoy said gross receipts tax revenue fell by about 5 percent in March compared with last year.
“Businesses were starting to shut down, and we entered into the stay-at-home order” in the middle of March, McCoy said.
Gross receipts tax disbursements from the state lag by two months, which means the city won’t know how the pandemic affected revenues in April and May until later this year.
But officials are bracing for unpleasant news.
“What we expect from April is retail really to bottom out,” she said. “We expect the hospitality and food services to bottom out as well, so we expect that to be a much larger decrease than the 5 percent we saw in March.”
While the estimated revenue shortfall of $100 million is the most likely scenario the city will use for budget planning purposes, Webber said the financial situation could be even more dire.
“There is a worst-case estimate, which would be triggered by a second wave infection [of COVID-19] that shuts down the economy again,” he said. “That could mean a $150 million budget shortfall across all funds. [But] we’re going to use the $100 million figure as the likely number against which we’ll be doing our budgeting for fiscal year ’21.”
In previous years, the city Finance Department has presented a proposed spending plan to the council’s Finance Committee, which then holds a series of budget hearings to vet the proposal. The year will be different “given the severity of the shortfall,” McCoy said, adding the strategy now will be to take the proposed budget through each of the three major council committees.
In a Monday morning memo to council members, McCoy said the financial crisis is the worst the city has ever faced.
“Cancellations of small and large events, declines in tourism, travel and retail sales, far-reaching business closures and sky-rocketing unemployment all contribute to an estimated $100 million deficit across all funds,” she wrote, adding the deficit represents multimillion-dollar revenue shortfalls from taxes, parking fees and bus fares, among others.
McCoy also said the economic recovery would be long.
“We expect the financial impact of the coronavirus pandemic to last through FY21 and we also expect an extended recovery period for 5-6 years,” she wrote. “Additionally, we fully expect the state government aid the city was already awarded, such as capital outlay funding, will be rolled back. In addition, the cost of issuing debt for capital projects may rise.”
Webber said the city government has been “deeply affected” by the cancellation of “major income-producing events” this summer, such as the Santa Fe Indian Market, Traditional Spanish Market and the International Folk Art Market.
“Those large-scale events continue to be the kinds of things that, by all accounts because of the way in which COVID-19 is spread, will be the least likely to reopen any time soon,” he said.
The city hopes to obtain federal assistance under the new coronavirus relief bill the U.S. House of Representative passed Friday. Under the bill, now headed to the Senate, the city stands to receive $29 million in the current fiscal year and $14 million in the next, but it’s unclear whether President Donald Trump will sign it into law.
“If that were to become law … there would be some federal support, but far short of what we actually need,” Webber said.