The deadly coronavirus, which has already battered the nation’s economy, has presented a “worst case scenario” for cities and towns that are preparing their budgets for the upcoming fiscal year.
“The outlook for me looks very bleak and I think we’re going to have to look at some real tough decisions and make some real painful decisions not only in this fiscal year but the years ahead,” said Peabody Mayor Edward A. Bettencourt. “I don’t think we’ve ever seen anything quite like this in terms of municipal budget preparation in recent history.”
In Lynn, Mayor Thomas M. McGee is also anticipating a decrease in state aid, which is a drastically different scenario than the significant increase the city was expecting in January.
The towns of Saugus and Swampscott are facing many of the same challenges, but both town managers cited their towns’ financial health and strong reserves as being crucial to their upcoming budget plans.
In Nahant, Town Administrator Antonio Barletta said the impact the coronavirus will play on next year’s budget is uncertain. But unlike other municipalities, he said there’s not a lot of revenue generated from businesses and meals taxes, as the town is mostly residential.
Bettencourt said those tough decisions in Peabody are going to include cuts on the city and school side of the Fiscal Year (FY) 2021 budget, which will translate to furloughs and layoffs of city workers.
Those decisions will be made in the coming weeks, Bettencourt said, as city leaders examine the budget to determine how to make up for the loss of revenue as a result of the temporary closure of city businesses, including one of the city’s largest taxpayers, the Northshore Mall.
Bettencourt said there’s already been a freeze on hiring and spending at the municipal level, with the exception of essential emergency funds.
For next year, Bettencourt said Peabody is preparing for a significant decrease in state aid than what was projected in the governor’s initial budget proposal, due to the strain the virus has put on the state budget. Under that initial proposal, Peabody would have seen an increase in state aid, he said.
“I was encouraged that we were going to have a very stable budget that really worked to help our city, but now that’s all just been thrown to the side and I don’t know what to expect,” said Bettencourt. “I have heard as much as 10 to 20 percent reductions, which would translate to millions of dollars, which would be devastating to our budget.”
Under Gov. Charlie Baker’s initial budget proposal, Lynn Public Schools would have received $216 million in state aid, representing a $30.19 million increase in funding over FY2020.
Now, McGee said he doesn’t expect the city will receive level funding over last year, which presents a difficult scenario when 70 percent of the city’s budget comes from state aid. Still, he said it’s too early to start thinking about cuts.
“The budget we were anticipating has dramatically changed,” said McGee. “It’s definitely going to be a different kind of budget we’re trying to put out, (in terms of) local projections (at the) state level. What the revenue projections were before this hit and what the reality of the revenue will be is definitely a dramatically different number.”
The city’s expenses for this year have been limited to emergency and essential spending, and there have been ongoing discussions about the FY2021 budget among McGee, the City Council, and the state legislative delegation.
Although the city will be reimbursed up to 75 percent for its emergency spending for COVID-19, McGee said the loss of revenue that stems from business closures and the resulting loss of meals and other local taxes is not reimbursable. The biggest challenge, he said, has been the limited permitting and resulting loss of profit — although construction projects have been allowed to continue, much of the city remains shut down.
Citing his phone call last week with Sens. Edward Markey and Elizabeth Warren (D-Mass.), McGee said there’s more optimism surrounding an additional coronavirus federal relief package that would provide state and local funding to address their loss of revenue.
In the meantime, McGee is anticipating the City Council will be presented with a balanced budget before July 1.
“We’re shaping a budget for 2021 that reflects the reality of what we have, and will have to address the loss in revenue that we’re anticipating,” said McGee. “The goal is to continue to ensure that the city continues to run the way it’s running right now. Our goal is to limit any cuts, but to have a really honest and tight and really narrowed down budget. We’ll have to take a look at some capital expenditures where there may not be dollars to that (end).”
“I think there’s definitely challenges for the whole country and I would emphasize that Saugus is fortunate to be in the fiscal health that we are with the AA-plus bond rating, and having almost $10 million in stabilization and free cash that we hope we’re able to weather the storm,” said Saugus Town Manager Scott Crabtree.
Still, Crabtree, like other local leaders, said he anticipates COVID-19 will have a significant impact on next year’s budget and the town’s budget in future years.
Crabtree said the town is still working on projections, but has already submitted about $525,000 worth of emergency spending for COVID-19 to the state for partial reimbursement.
“The budget for this fiscal year and moving into next year will be impacted significantly,” said Crabtree. “Our preliminary look at this would say that. It’s far too early to say what the actual impact would be. It’s hard to throw numbers out there if we don’t have all that data.”
Everything in town is being impacted by the virus, added Saugus Board of Selectmen member Debra Panetta. It’s affecting the town’s revenue from the losses in the meals and hotels taxes from businesses being closed down.
She expects there will be abatements, which are reductions in taxes or tax exemptions, for some of the town’s businesses. Like Peabody, the town also has taken a hit with the closure of its Square One Mall, Panetta said.
Town Meeting, where the budget is ultimately voted on, was initially scheduled to convene on Monday, but has been postponed to an undetermined date. In typical years, Town Meeting members approve the budget by the end of the month, Panetta said.
“We don’t know what the total impact is going to be for the Town of Saugus, but my guess is that it will be significant,” said Panetta. “We’re in an unprecedented territory right now. This is something that nobody has ever experienced so we don’t know what the effort is going to be for each city and state and what we’re going to get in terms of relief. Hopefully, we get something substantial to cover the losses that Saugus is going to have.”
Although Nahant is not experiencing much of a hit in terms of business revenue, Barletta said the town’s struggles are still similar in other ways.
“Our residents aren’t able to work and are struggling just like everyone else in the state,” said Barletta. “So, there are fees for services, programs or different things that we have in town that people might not be able to do because of the financial hit that they’re taking for not being able to work. That might trickle down to us.”
Swampscott Town Administrator Sean Fitzgerald said he couldn’t make budget projections until he receives further information from the state, which is grappling with its own financial challenges, on what the town’s local aid will be.
With many of the town’s restaurants closed, the meals tax revenue will take a hit, coupled with the loss of revenue that’s anticipated from the state, Fitzgerald said, noting that there’s going to be “economic pain on all fronts.
“Certainly, it’s going to be a really difficult responsibility to craft a budget that will help us sustain critical services during these unprecedented times,” said Fitzgerald. “The thought of just how badly the economy is going to be and just how careful we’re going to have to be when it comes to scrutinizing every line in our budget and focusing on what is absolutely needed and where we can make reductions is going to be a critical responsibility.”
However, he credited the town’s focus over the past few years on building up its reserves and stabilization fund, which will be used to temper some of the impact of the virus, maintain critical services and potentially minimize the impact on its taxpayers.
“We’ve talked a lot about building up a rainy day fund, and now it’s raining,” said Fitzgerald.