The O’Fallon City Council’s finance committee last week reviewed the 2020-21 draft budget after giving city administrators an extra month to examine possible revenue losses due to the COVID-19 pandemic. (Photo courtesy of O’Fallon)

Municipalities face potentially serious fiscal problems because of the COVID-19 pandemic, according to government and financial industry observers contacted by the Chronicle.

Sales, motor fuel, gaming and other tax revenues are expected to decline precipitously, over the coming weeks and months, in the wake of “shelter in place” orders and the temporary closing of many businesses.

A nationwide survey of local government administrators last month by the International City/County Management Association (ICMA) found “that every source of local government revenue is falling.”

Fortunately, because public health is generally addressed at the state and county levels, most municipalities anticipate $100,000 or less in new costs directly related to the care, diagnosis or prevention of COVID-19, according to the ICMA.

However, in hotbeds of COVID-19 infection — eventually about 10 percent of the nation – direct costs associated with the disease could range into $1 million or more, the ICMA survey indicates.

And municipalities will face other potentially serious fiscal issues — notably increased costs for employee medical leave and an historic downturn in the financial markets, which could destabilize municipal pension funds, according to the association.

Instability in the bond market will make it more difficult and costly for cities to cover revenue losses by taking on debt, according to the bond industry website, The Bond Buyer.

At the same time, last month’s downturn in the financial markets will make it more difficult to realize a healthy return on invested city funds, some administrators in Metro East municipalities noted.

Municipalities appeared to receive a last-minute rescue last week as Congress included in the $2 trillion federal Coronavirus Aid Relief and Economic Security Act, a $150 billion stimulus fund for local and state governments.

Details about which local governments may access the fund were not yet available at the Chronicle’s deadline.

The legislation, signed March 27 by President Trump, also includes a $425 billion loan program for businesses and local governments.

Earlier drafts of the bill provided direct financial assistance to individuals and businesses across the U.S – but not for state or local government.

Last week’s Coronavirus Relief Act represents the second in what will likely be a series of federal coronavirus response legislation, political observers note.

The federal Families First Coronavirus Response Act, enacted on March 18, requires municipalities, like private sector businesses, to provide virus-stricken or furloughed employees with emergency paid family and sick leave.

However, the act specifically excludes cities and other public entities from a federal payroll tax credit, designed to offset costs for those employee benefits.

The National League of Cities hopes to include additional assistance for cities in two additional coronavirus relief bills that Congress is expected to consider.

Specifically:

• Repeal of the federal tax credit exclusion in the Families First Act or other wide address the act’s unfunded mandate for paid sick and emergency leave,
• Stabilization of the municipal bond market, to better ensure both short-term bridge financing and long-term projects funding for cities, and
• Increasing funding for Community Development Block Grants.

The Argosy Casino in Alton. The city of Alton netted $2,828,118 in gaming tax revenues in 2018.  With the coronavirus outbreak keeping people at home, city officials worry about a big drop off in gaming tax revenues this year. (Photo courtesy of lcb.org)

However, those additional COVID-19 response bills are not expected to be considered by lawmakers until this summer or even this fall.

In the meantime, most municipalities across Metro East, and about half of those across the country, are beginning their annual budgeting process amid a “period of high uncertainty,” the ICMA notes.

That will make it difficult for administrators to plan for everything from major economic development projects and routine public works to reliable trash pickup and town festivals.

A nationwide public health emergency declaration issued Jan. 31 by U.S. Secretary of Health and Human Services Alex Azar makes Federal Emergency Management Agency (FEMA) assistance available to any state that declares an emergency as a result of the COVID-19 epidemic.

In the case of the coronavirus outbreak, FEMA funding is generally available for emergency medical care (such as the diagnosis or treatment of disease) but may also be available for social services from childcare, food assistance, or job placement assistance.

Illinois became eligible for such assistance with an emergency declaration proclamation issued by Gov. J.B. Pritzker on March 9.

The State of Illinois, in turn, can make FEMA assistance available to cities and other local government entities that officially declare themselves disaster areas, due to the coronavirus, and established emergency plans to fight the disease.

Such local disaster declarations have so far been issued in three Metro East cities or villages — Shiloh, O’Fallon, and Mascoutah.

Sales, gaming tax shortfalls

O’Fallon this month becomes perhaps the first area municipality to formally consider COVID-19-related revenues losses, as the City Council considers the city’s proposed FY 2021 budget.

The council’s finance committee reviewed the draft budget during a special meeting March 24 after giving city administrators an extra month to examine possible revenue losses due to the epidemic.

O’Fallon will incur revenue losses due to the COVID-19 virus “but we don’t know how much,” according to the budget summary.

As a result, the draft budget comes with a note that the city council anticipates amending the budget over the course of the fiscal year, to adjust revenue projections.

O’Fallon has enough cash reserves to cover 90 days of operation, committee members noted.

The city has already halted non-essential purses for 2021; as well as the duration of fiscal year 2020.

The anticipated revenue decrease would come just as the city is undertaking extensive public works projects due to development in the area.

Traditionally funded through property taxes, municipalities over the past 50 years have turned increasingly to sales, utility, licensing and other alternative taxes for revenues.

A spokesman for St. Louis Mayor Lyda Krewson termed the COVID-19 “economically devastating the city, which relies on unusual local employer payroll and income taxes for the largest share of its revenue.  The St. Louis Board of Aldermen is scheduled to consider the budget for the city’s coming fiscal year in May.

Potentially most affected by the current economic downturn in Metro East is Fairview Heights, the self-proclaimed “Shopping Hub of Southern Illinois” and “Tax Free City” which has proudly relied primarily on sales and motor fuels taxes, with no local property taxes, since its founding.

The city’s cornerstone St. Clair Square shopping center has been closed since March 13 and its traditional Easter promotion canceled, though some restaurants in the complex remain open.

The International Council of Shopping Centers had requested a portion of last week’s federal fiscal stimulus package be targeted specifically to shopping malls.  St. Clair Square owner CBL & Associates Properties has not publicly commented.

Fairview Heights Mayor Mark Kupsky, also chairman of the Southwestern Illinois Council of Mayors, was not available for comment.

Perhaps most affected by the loss of single tax-generation points will be Alton and East St. Louis, which rely on gaming tax revenues from the Argosy Casino and Casino Queen respectively.

The Illinois Gaming Board has suspended all casino gambling and video gaming until at least April 8.

The City of Alton netted $2,828,118 in gaming tax revenues in 2018, the most recent year for which complete data is available from the state gaming board.

East St. Louis received $5,767,826 that year in state riverboat gambling tax distributions — city’s largest single revenue source.

Meanwhile, cities and villages of all sizes could see a decline in video gaming tax revenues — which in 2018 totaled $75,000,198 statewide.

The Pilot Travel Center in Pontoon Beach is Illinois’ third largest video gaming site, generating $1,561,201 in wagers during.

The Pilot Travel Center in Alorton is the state’s ninth largest with $1,291,234 that year.

The state receives 30 percent of the net income generated from each licensed video game terminal. Of the state’s portion, five percent goes to the local municipality where the

In Washington Park, which imposes a local nightclub admission tax, a statewide order effectively closing all bars is expected to substantially decrease city revenues.

Complicating issues along the Mississippi River is spring flooding, which threatens to both increase expenses and further curtail tax revenue production for riverside communities.

Waters reached a low flood stage for the first time this season on March 20 at Grafton and Alton. The National Weather Service projects the river will crest just short of the moderated flood stage by April 1, but remain above low flood stage into at least early next week.

Flood response requires volunteers, noted Grafton Mayor Rick Eberlin, a co-treasurer of the Mississippi River Cities and Towns Initiative, speaking from a “virtual command center” established by the organization last week.

Responders must often work under circumstances that defy social distance, the MRCTI adds

The Red Cross has informed the MRCT that it will not respond to flood emergencies unless its staff and volunteers can be guaranteed adequate personal protective equipment, already in short supply at hospitals across the nation.

The MRCT is currently attempting to source vendors or philanthropic organizations from which PPE can be obtained.