COVID-19 plays havoc with Grove City coffers

ALAN FROMAN
afroman@thisweeknews.com
ThisWeek group

Every year, municipalities in Ohio are required to adopt a tax budget on or before July 15 and forward it to the county auditor before July 20.

The document includes the city's actual expenditures and revenues for the first half of the current year and estimates for the remaining six months and for the next year.

"It's the first step in the process that ultimately leads to adopting our budget for the next year," Grove City finance director Mike Turner said.

Compiling the data to date and making projections for the immediate future typically are relatively simple tasks, Turner said.

"You generally have a pretty good idea of what your expenditures are going to be and what your revenue picture is going to look like," he said.

As with so much in 2020, the COVID-19 coronavirus pandemic has turned the tax-budget process upside down.

"It's like nothing we've ever experienced before," Turner said. "There's so much uncertainty. No one knows what the rest of the year's going to bring."

Of the more than 30 funds included in the tax budget Grove City Council approved at its July 6 meeting, the pandemic is affecting three in particular, he said: the general fund, the community development fund and the general recreation fund.

"Those funds are the most susceptible to being affected by the economic downturn," Turner said.

The general fund is the primary operating fund for the city.

The original general-fund-budgeted receipts for the year were expected to be slightly more than $33.76 million.

But a significant drop in income-tax and hotel-tax revenues that occurred after the pandemic set in means the total revenue for the year now is projected about $31.79 million, which is $1.97 million less than originally anticipated, Turner said.

"$2 million is a significant amount of money, but if the projections hold out, it's not going to be as bad for us as it could have been," he said.

Grove City has been fortunate that its income-tax collections haven't decreased in the way other municipalities have seen, Turner said.

About 83% of the city's income-tax revenue for the first half of 2020 comes from withholding taxes paid by employers. The city's major employers, including South-Western City Schools, the Walmart distribution center, FedEx and the Mount Carmel and OhioHealth hospitals, largely have been unaffected by the economic downturn, he said.

The rest of the city's income-tax revenue comes from individual filings and net profits from corporations, Turner said.

The community development fund is funded almost entirely by hotel-tax revenue, he said.

The city uses the fund to pay for community events held throughout the year.

The year started out strongly, with hotel-tax revenue exceeding the monthly budgeted receipts in both January and February, Turner said.

Then the pandemic hit, and hotel-tax revenue began to fall as people avoided traveling to hunker down at home, he said.

In March, the city's actual hotel-tax revenue totaled about 93.7% of what was budgeted, and the percentages dropped to 50.7% and 44.2% in April and May, respectively, Turner said.

"We've only projected hotel-tax revenue to reach 10% of our original budgeted amount in June, July and August," he said. "It's going to take a while for the hotel occupancy to rebound."

Hotel-tax revenue is projected to begin to increase each month in the fall, but even for December, Turner said, the estimate is that the lodging-tax receipts will total only 64% of what originally was anticipated for that month.

The ending balance for the fund is projected to shrink from $338,771 in January to $142,149 at the end of the year, he said.

The reduction in hotel-tax revenue is being offset largely by the cancellation of so many community events, Turner said.

The community development fund provides the money to cover city expenses relating to those events, he said.

Those expenses will return if conditions allow events to be held again next year, but most likely, so would much of the hotel-tax revenue, Turner said.

The general recreation fund provides the money for most parks and recreation programs and services, including day care programs and adult and youth sports activities, he said.

The user fees paid by participants in the programs provide the funding, Turner said.

That revenue has been decimated due to the cancellation of parks and recreation activities, he said.

"Like the hotel tax, the recreation fund revenues were above our budgeted receipts for both January and February," Turner said. "We always try to be conservative in our estimates of budgeted receipts,"

The recreation fund receipts for March totaled 69% of what was budgeted; that percentage fell to 4% in April and 12% in May, he said.

The projection for June is that receipts for the month will total just 2% of the original estimate, but they are expected to pick up some as the parks department has begun to resume many of its activities, Turner said.

Still, with participation levels limited to ensure social distancing and uncertainty about how many people will sign up for programs, receipts for July and August are projected to be half of what was originally budgeted, and 60% each month through the rest of the year, he said.

The ending balance for the recreation fund is expected to decrease from $599,109 at the beginning of the year to $55,588 at year's end, Turner said.

When the information for each fund was reviewed June 29 at a City Council finance committee meeting, city administrator Chuck Boso said despite the decrease in recreation fund revenues, the city is continuing to hold on to the employees who are certified to staff day care and other programs so they are in place when those programs return.

At some point, a difficult decision may have to be made about their status if COVID-19 conditions mean those programs are not able to come back, he said.

There's reason to be cautiously optimistic about where the city stands financially four months into the pandemic, Mayor Richard "Ike" Stage said.

One factor that could have a significant positive impact for Grove City is if the state legislature takes action regarding where income-tax revenue is paid for people who are now working out of their homes for companies located outside of their hometown, he said.

But the uncertainty of the pathway COVID-19 will take remains, Stage said.

"If we go into a tailspin with the pandemic, it's going to put us back on our knees from a financial standpoint," he said.

The projections of the revenues and expenditures for the coming months are extremely fluid because of the pandemic, Turner said.

"They could end up better than expected or worse than expected," he said.

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