Farmington, Aztec budget discussions include furloughs, closures amid coronavirus pandemic
AZTEC — The city budget process is always a bit like looking into a crystal ball to predict the future, but Farmington City Manager Rob Mayes said that crystal ball is a bit more cloudy this year due to the coronavirus pandemic.
Mayes highlighted some budget uncertainties and went over scenarios that ranged from unpleasant choices to worst-case scenario cutbacks he termed catastrophic during a budget presentation to the Farmington City Council on May 12.
On top of declining revenues due to a crippled economy, Mayes said Farmington has already spent $490,000 responding the pandemic. This money could be reimbursed, but Mayes said during past emergencies the city has not received dollar-for-dollar reimbursement.
Farmington is not unique in this situation. Cities all over the United States are facing hard decisions as they budget for fiscal year 2021.
Grappling with a changing situation
Just east of Farmington, the City of Aztec is anticipating state funding for projects like an outdoor retail manufacturing center could be in jeopardy as New Mexico faces a double hit to the state budget — oil prices dropping suddenly and the pandemic bringing the economy to a near standstill.
The Aztec City Commission discussed the fiscal year 2021 budget during a work session on May 12.
“This situation has been changing daily and trying to adapt and work with the numbers has been challenging,” said Aztec Finance Director Kathy Lamb.
Already Farmington and Aztec have stopped hiring to fill most vacant positions and will not raise pay for employees this year.
Mayes said the city has furloughed 129 part-time or temporary employees and has terminated three probationary employees — meaning employees who were in the first year of employment with the city.
The good news for Aztec is that gross receipts tax revenue has exceeded original budget projections.
“We’re going to end the year not necessarily in a bad place,” Lamb said.
She said the city will likely use up much, if not all, of its cash reserves.
The budget impacts could be worse than the 2008-09 recession
Local governments are most concerned with declining gross receipts tax revenue. This tax is similar to a sales tax, however it is levied on the seller of a product. Generally, businesses pass this on to customers. GRT revenue makes up the majority of the cities’ general fund budgets.
Lamb said the majority of experts have indicated that local governments can look to the 2008 and 2009 drop in revenue and then double that to get an idea about how the pandemic will impact their budgets for fiscal year 2021.
Aztec saw a 15% drop in GRT during the 2008 and 2009 time period and Farmington saw a more than 20% reduction in GRT revenue. The local economy has never fully recovered from the recession that started in 2008.
"We were a lot fatter then," Mayes said at the end of the City Council meeting.
Based on the impacts of the 2008 and 2009 recession, Lamb anticipates a 30% reduction in GRT revenue, which will lead to about $1 million less in funding for the City of Aztec.
The cities are in the process of drafting fiscal year 2021 preliminary budgets, which must be submitted to the state by June 1.
In addition to the reduction in GRT, Lamb said the pandemic has hit the lodging industry especially hard. This means Aztec will receive less funding from lodgers tax. That could impact Aztec's ability to advertise as it works to grow a tourism and outdoor recreation economy.
"We don't want to stop marketing Aztec," Lamb said.
Various factors impact severity of the budget crisis
Mayes said there are a variety of factors that will determine how severe the pandemic impacts Farmington.
One of the main factors is how long San Juan County remains under strict business restrictions and stay-at-home orders. The city budget relies heavily on business activity. Mayes said even after the restrictions are relaxed it will take a while before the economy really starts to move again.
The city budget could be influenced by decisions made during the state special legislative session this summer or by possible federal aid.
“We should not be quick to anticipate much assistance from the state,” Mayes said.
He said the state is facing a $1.7 billion to $2.4 billion deficit and it is more likely that the state will take money currently set to go to the municipal or county coffers.
Meanwhile, U.S. Sen. Martin Heinrich, D-NM, has sponsored the Coronavirus Community Relief Act. If passed, this legislation would provide assistance for cities with populations less than 500,000.
Aztec Mayor Victor Snover was hopeful about the federal funding for cities with populations less than $500,000.
He said this would make it “so we don’t have to bear the burden of all these costs on our own.”
Farmington presents a 'Roadmap to Recovery'
Farmington’s budget presentation, dubbed “Roadmap to Recovery,” includes four possible budget scenarios based on different levels of reduction in GRT revenue.
A scenario Mayes described as highly optimistic projects a 10% reduction in revenue, leading to a $5.9 million deficit. The city would use cash reserves and other measures to balance the budget.
He said this scenario relies on having something like Heinrich’s Coronavirus Community Relief Act providing aid for the city.
But Mayes said the city is more likely to see a scenario he described as moderately optimistic. In this scenario, the GRT loss would be 20%, leading to an $11.9 million deficit.
This would lead to employee furloughs and facilities remaining closed longer. The city would also rely on money in the Community Transformation and Economic Development fund as well as the cash reserves to get through.
A more extreme, but realistically possible scenario projects a 25% reduction in GRT revenue, leading to a $14.8 million deficit. In this scenario, Mayes predicts the city would lay off employees and close some facilities.
The most extreme scenario presented, which Mayes described as catastrophic, projects a 35% reduction in GRT revenue, leading to a $20.8 million deficit. He said this scenario would change Farmington as any of us know it. The city would end partnerships with nonprofit and medical entities that provide services in the community.
The cities will be evaluating the budget on a month to month basis.
Farmington Mayor Nate Duckett said the community should be involved in the discussions about which facilities may close.
While Duckett acknowledged the hard decisions ahead for the city, he had an optimistic message.
“This is a hurdle,” he said. “It’s not an unclimbable wall and we will get over this wall.”
Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at email@example.com.
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