HomeMy WebLinkAbout03. Finance - Budgetary impacts of Public Health Crisis – Next Phases
TO: Vail Town Council
FROM: Finance Department
DATE: May 5, 2020
SUBJECT: Budgetary impacts of Public Health Crisis – Next Phases
I. SUMMARY
The purpose of this memo is to provide an update on the projected impacts to town
revenues and corresponding plans for budget reductions. Currently, the town has
implemented the “Significant” level of recession plan. Over the last two weeks staff has
monitored state and local public health orders, as well as gathered information on
economic indicators as much as possible. The outcome is an outline of the two next
phases of the town’s recession plan: “Major” and “Crisis”.
II. BACKGROUND
The original 2020 budget included revenue of $73.8 million. As of April 7, Town Council
approved adjustments to the town budget:
A reduction in revenues of $10M, or 13% of total revenues for the town. This
placed us in the “Significant” recession plan level.
Corresponding reductions in expenditures of 10% department operating budgets
($1.2M), a freeze on wages ($730K), and utilization of reserves earned in 2019
($4.1M).
Deferral of capital projects ($18.3M).
Updated Budget Projections
While there are many unknowns for the local impact to our economy, staff has updated
revenue projections to reflect a further worsening of the town’s annual revenue streams
and corresponding plans for budget reductions. Public health orders currently allow for
groups of 10, with the next phase permitting groups of 25-50 in the next 4 to 8 weeks,
followed by a potential to have groups of up to 250 in late summer. The state of the
public health crisis will have a significant impact to the town’s summer event schedule
which traditionally draws large summer visitation and economic vitality. Other
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uncertainties such as the status of air travel, consumer behavior and the potential for a
resurgence of the COVID-19 virus also hinder the accuracy of revenue projections.
Additional data that helped to inform the updated projections include sales tax
collections for the month of March, which were reported at $2.2 million, a decrease of
46% from prior year. This is an improvement from the original assumption of a 75%
decrease, a benefit of $1.2 million to the town’s revised revenue projections. To date,
construction activity has not slowed other than two projects that will be delayed.
Construction permits and plan check fees have been reduced by 18% to account for
those two delays, with some room for additional fallout. Real Estate Transfer Tax
collections were already budgeted at a 13% decrease from the prior year and additional
reductions are not reflected at this time.
These updated revenue projections fall into the following two phases of the town’s
recession plan:
“Major” Recession Phase: The town’s revenues are projected at $61.9 million,
a decrease of $18.0 million, or 22% from prior year. Compared to budget, it is a
decrease of $12.0 million, or 16%. A majority of the decrease relates to sales tax,
with collections estimated at $19.2 million, a decrease of $10.1 million, or 35% from
2019. Other major revenue sources such as Lift Tax, Parking, Construction Fees
and Intergovernmental Revenue (County sales tax, grants and other shared taxes)
have also decreased by double digits. Please see Exhibit A “Revenue
Assumptions” for more detailed information.
“Crisis” Recession Phase: In this phase the town’s revenues would be
projected at $58.9 million, a decrease of $21.0 million, or 26% from prior year.
Compared to budget, it is a decrease of $15.0 million, or 20%. Again, a majority of
the decrease relates to sales tax, with collections estimated at $16.8 million, a 43%
drop from 2019. If this phase is implemented, additional reductions are also
assumed in the other major revenue categories.
Separately, the town was recently awarded $1.35 million in CARES funding for
Transit operations. These funds will dramatically help the town cover the cost of the
impact of COVID-19 on our bus service interruption and efforts to bring it back.
Despite the uncertainty in revenue, the town will continue to provide core services to our
citizens and slowly ramp up preparations to receive guests when that time comes.
Summer services provided by the town will be reduced depending upon anticipated
visitation levels as public health orders are updated over time.
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Similar Situation throughout Colorado:
The Colorado Municipal League (CML) recently partnered with the Colorado
Department of Local Affairs, Colorado Counties, Inc. and Colorado Special Districts
Association to survey local governments on COVID-19's fiscal impacts. The survey was
conducted between April 3 and April 10, 2020, and a total of 551 Colorado counties,
municipalities, and special districts responded to the survey, including 134 cities and
towns, representing almost 50% of all Colorado municipalities. Some of the survey
findings have been included below to provide a comparison of the response of other
Colorado municipalities to the Town of Vail’s planned response.
Colorado Municipal League (CML) Survey Results
Average Town of Vail
Number of months of
operating expenditures
in reserves (General
Fund)
6.7 months 10.8 months
How many will use
reserves
69% Yes
Average reduction in
reserves anticipated
21.3% 17%
Average revenue decline 10.5 million $12.8 - $16.5 million
Cost saving strategies
(%age of municipalities
implementing):
o Delay capital projects: 73%
o Reduce operating expenses:
66%
o Delay equipment purchases:
65%
o Hiring freezes: 53%
o Reduction of personnel hours
or furloughs: 28%
o Reduction of force (layoffs):
10%
o Delay capital projects: Yes
o Reduce operating expenses:
Yes
o Delay equipment purchases:
Yes
o Hiring freezes: Yes
o Reduction of personnel hours
or furloughs: Yes - seasonal
o Reduction of force (layoffs): No
Community relief
measures
40% yes Yes
A comparison of the survey results demonstrate that the Town of Vail has more
reserves available than the average reported by municipalities (an additional 4.1 months
of operations). While Vail is projecting a larger revenue decline than the average, staff
is proposing to use less reserves to compensate for that decline.
What the survey also demonstrates is that even in the face of tightening budgets,
Colorado cities and towns are offering support to their local businesses and residents in
need through a variety of methods. To date, the Town of Vail has extended financial
support to individuals with $500,000 in funding to non-profit organizations to provide
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local financial relief associated with COVID-19 impacts in the areas of food, shelter and
health for the Vail community. Residential rental relief has also been extended to
individuals living in town-owned housing. Support of local businesses includes a
deferral of sales tax payments until August, and a proposed commercial rent relief
program will be reviewed by the town’s Economic Recovery Task Force.
III. BUDGET REDUCTIONS
GENERAL FUND
In response to the next two phases of the town’s recession plan, staff has proposed a
tiered approach to additional cuts including the reduction of workforce hours from a
delayed start to gearing up for summer, managed vacancies, wage freezes, operating
expenditure cuts and use of reserves.
Using reserves to offset some of the projected revenue shortfall leaves the General
Fund with an ending fund balance of $29.5 million. This represents 68% of revenues in
a normal budget year compared to Council’s directive of 35%.
The remaining offset comes from reductions in operating expenditures, staffing and
savings from cancelled special events. The “Major” recession plan includes workforce
hour reductions based on currently outlined service levels such as a one-month delayed
start to parking operations and an off-season bus schedule until June 29, when the
summer service will resume. In addition, there are a number of vacant positions that
will not be filled at this time. Staff is assuming a 20% reduction in special events and
council contribution spending for signature events over the two phases. The Economic
Development department is working with event producers to determine if postponement
or a re-imagining of each event is possible. Until there is more information, we cannot
identify an accurate amount of savings that will be realized.
Should the “Crisis” recession plan be necessary, staff will make further reductions in
operating expenditures, workforce hours, longer delays in filling open positions and
other cuts to wages or benefits. We should have more information on special events
over the next month as well.
OTHER FUNDS
The Capital Projects Fund and RETT Fund have already been adjusted to reflect
savings and deferrals of capital projects (savings totaling $9.4M and $18.5M in deferred
projects). The RETT Fund also reflects operational savings within the Parks
department, Art in Public Places, Environmental Sustainability and Forest Health.
The Heavy Equipment Fund and Dispatch Services Fund have already been adjusted to
reflect both operational reductions and savings in fuel.
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IV. NEXT STEPS
Staff will implement the “Major” phase now, with the budget adjustments to occur during
the June supplemental. As more public health orders and economic information
becomes available the “crisis” phase plan may be implemented if necessary.
Exhibit A: Revenue assumptions
Major Crisis
Sales Tax 35% decrease from PY
YTD actuals thru March
($10.6M collected, down 15%
from PY) plus April & May
assume collect only from
continued business such as
gas stations, groceries and
liquor store;
June -July down 75%;
Aug down 60%,
Sept & Oct down 50%
Nov/Dec down 10%
43% decrease from PY
YTD actuals thru March
($10.6M collected, down 15%
from PY) plus
April & May assume collect
only from continued business
such as gas stations,
groceries and liquor store;
June - Oct down 75% and
Nov/Dec down 35%
Lift Tax 22% decrease from PY
(YTD actuals plus assumes a
decrease of 50% in summer
and 10% in early winter)
27% decrease from PY
(YTD actuals plus assumes a
decrease of 50% in summer
and 35% in early winter)
Licenses & permits 18% decrease from PY 18% decrease from PY
Intergovernmental (County
tax, grants, other shared
taxes)
15% decrease from PY, offset
by CARES Transit Grant
18% decrease from PY, offset
by CARES Transit Grant
Parking Revenue 27% decrease from PY
(YTD actuals plus assumes a
50% decrease in summer and
10% in early winter)
37% decrease from PY
(YTD actuals plus assumes a
50% decrease in summer and
35% in early winter)
Rental Revenue (mainly
Donovan Pavilion)
Overall decrease of 23%
Assumes 100% loss thru June
75% decrease July – Oct
10% decrease early winter
Overall decrease of 26%
Assumes 100% loss thru June
75% decrease July – Oct
35% decrease early winter
Original"Significant" "Major" "Crisis"2020 1st COVID-19 2020 COVID-19 Proposed COVID-19 ProposedBudget Supplemental Adjustments Amended Adjustments Amended Adjustments AmendedRevenue-27.3% -35% -43%Local Taxes:28,524,000$ (7,150,000)$ 21,374,000$ (2,174,000)$ 19,200,000$ (2,400,000)$ 16,800,000$ $16.5M in 2005 Sales Tax Split b/t Gen'l Fund & Capital Fund 62/38 66/34 68/32 68/32 Sales Tax 17,685,000 - (3,575,000) 14,110,000 (1,054,000) 13,056,000 (1,632,000) 11,424,000 Property and Ownership 5,900,000 - - 5,900,000 - 5,900,000 - 5,900,000 Cash flow delays Ski Lift Tax 5,300,000 - (1,060,000) 4,240,000 (90,000) 4,150,000 (270,000) 3,880,000 Franchise Fees, Penalties, and Other Taxes 1,175,440 400,000 - 1,575,440 - 1,575,440 - 1,575,440 Licenses & Permits2,400,000 - - 2,400,000 (579,500) 1,820,500 - 1,820,500 Intergovernmental Revenue 2,075,088 250,000 (198,400) 2,126,688 (175,088) 1,951,600 (76,800) 1,874,800 CARES Transit Grant - - - - 916,000 916,000 431,000 1,347,000 CARES Transit Grant $1.3MTransportation Centers 6,360,000 - (1,029,600) 5,330,400 (416,000) 4,914,400 (650,000) 4,264,400 Charges for Services 1,025,918 - - 1,025,918 (16,431) 1,009,487 - 1,009,487 Fines & Forfeitures 250,476 - - 250,476 - 250,476 - 250,476 Earnings on Investments 500,000 - (300,000) 200,000 - 200,000 - 200,000 Rental Revenue 1,093,178 4,080 (90,000) 1,007,258 (112,000) 895,258 (15,000) 880,258 Donovan Pavilion rentalsMiscellaneous and Project Reimbursements 251,000 - (120,000) 131,000 - 131,000 - 131,000 Total Revenue 44,016,100 654,080 (6,373,000) 38,297,180 (1,527,019) 36,770,161 (2,212,800) 34,557,361 ExpendituresSalaries 20,499,231 22,857 (530,000) 19,992,088 (160,000) 19,832,088 (400,000) 19,432,088 0% merit remainder of year; seasonal staffing delays; managed vacancies, service reductions Benefits 7,377,769 9,143 (200,000) 7,186,912 (22,000) 7,164,912 7,164,912 A total of 5.1% reduction from budget Subtotal Compensation and Benefits 27,877,000 32,000 (730,000) 27,179,000 (182,000) 26,997,000 (400,000) 26,597,000 -4.7%Contributions and Welcome Centers 289,626 (6,161) 283,465 - 283,465 - 283,465 All Other Operating Expenses 8,194,158 406,080 (919,982) 7,680,256 (156,898) 7,523,358 (224,679) 7,298,679 A total of 15% reduction from budget Heavy Equipment Operating Charges2,530,419 - (253,042) 2,277,377 - 2,277,377 - 2,277,377 10% reduction Heavy Equipment Replacement Charges845,122 - - 845,122 - 845,122 - 845,122 Dispatch Services 661,194 - - 661,194 - 661,194 - 661,194 Total Expenditures 40,397,519 438,080 (1,909,185) 38,926,414 (338,898) 38,587,516 (624,679) 37,962,837 -7.0%Transfer to Marketing & Special Events Fund (2,866,211) (65,000) 50,000 (2,881,211) 288,121 (2,593,089) 288,121 (2,304,968) Total of 20% cuts estimated Total Transfers (2,866,211) (65,000) 50,000 (2,881,211) 288,121 (2,593,089) 288,121 (2,304,968) Planning ProjectsVail 2030(300,000) - 300,000 - - - Delay to 2021Civic Area/Dobson Master Plan(250,000) - 50,000 (200,000) (200,000) (200,000) 20% reductionWest Vail Master Plan(325,000) - - (325,000) (325,000) (325,000) Vail Community Relief Fund- (500,000) - (500,000) (500,000) (500,000) Total Expenditures 44,138,730 1,003,080 (2,309,185) 42,832,625 (627,019) 42,205,606 (912,800) 41,292,806 Surplus (Deficit) Net of Transfers & New Programs(122,630) (4,535,445) (900,000) (5,435,445) (1,300,000) (6,735,445) Beginning Fund Balance 32,144,411 4,093,593 36,238,004 (900,000) 36,238,004 (1,300,000) 36,238,004 17% use of reservesEnding Fund Balance 32,021,782$ 31,702,559$ 30,802,559$ 29,502,560$ As % of Annual Revenues *based on 201973% 73% 71% 68%EHOP balance included in ending fund balance - not spendable 890,000$ 466,400$ 1,190,000$ 1,190,000$ 1,190,000$ Recognize $116.4K equity return + $350KTOWN OF VAIL 2020 AMENDED BUDGET SUMMARY OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCEGENERAL FUND 7