In the first budget session of the year, Manhattan officials talked plans for additional reductions to 2020’s budget if necessary due to decreased revenue resulting from COVID-19 shutdowns as well as goals and challenges in the upcoming fiscal year.
Key points for 2021 raised by administrative staff included increasing cash balances, addressing staffing issues and competitive pay, creating a tiered strategic plan that prioritizes city services by importance and growing sales tax revenue after years of stagnation.
Whatever the full picture looks like, Manhattan City Commissioners are aiming to start 2021 budget discussions with a flat mill levy and payroll.
Manhattan is anticipating significant loss of revenue due to the response to the pandemic. The city’s main operating fund, the general fund, is funded by some of Manhattan’s property taxes and nearly 50 percent by sales taxes directly and through transfers. Communities across Kansas are forecasting general fund losses between 10 and 20 percent, which would equate to a range of $2.8 million and $5.7 million in Manhattan. Officials previously estimated a revenue hit between $3 million and $8 million, close to the figures for a range of 10 to 25 percent.
Decreased airport revenue has been offset by an FAA grant funded by CARES Act dollars. Manhattan also expects losses to municipal court, franchise and licensing fees in the general fund.
Manhattan’s approved 2020 budget amounted $163.5 million, $31.8 million of which fell into the general fund.
In light of that dropping revenue, officials have already cut or offset $3.9 million from 2020’s budget and are beginning to identify $3.5 million more in potential reductions to create a plan if a 25 percent revenue shortfall manifests. Some of those cuts could take the form of furloughs or reduced programs and services.
“Some of those will be a little bit more difficult on the organization and the community,” says Hilgers. “We’ll have to kind of wait and see how June, July, August — really through the end of the year we’re going to be adjusting as we go.”
The full picture for the year is still unknown as sales tax receipts return from the state on a two month delay. Looking to get an earlier snapshot, city staff have reached out to the city’s 30 top sales tax producers to discuss what they’ve seen.
“Of the top five, three are steady when they compared March of ’19 to March of ’20,” says Deputy City Manager Jason Hilgers. “And two, including our top revenue producer, have increased since March of ’19 [to]March of ’20.”
Hilgers did not reveal which companies were the top producers, saying the community can infer that based on observation. Though that overview was optimistic, Manhattan officials are expecting not all businesses have fared as well. Hilgers specifically cited a Wichita State University report that forecast a 20 percent decrease in Kansas retail activity.
Additionally, property tax payments were only just due on May 10, though Manhattan officials anticipate hearing preliminary results on the local delinquency rate from Riley County Treasurer Shilo Heger. An estimated $16.9 million of an expected $31 million has already been collected, but Hilgers says every percent of delinquent property tax amounts to $311,641 less than expected entering city coffers.
“If we get beyond 5 percent,” says Hilgers, “that will be a very impactful loss to not only the city, but also RCPD and the [Manhattan Public] Library.”
Fifty-five percent of the city’s property tax levy goes to finance RCPD operations (27.3 mills), while eleven percent funds the library (5.5 mills). As a result, RCPD Director Dennis Butler is presenting a budget beginning at a flat mill levy. Commissioner Linda Morse says both organizations will need to take tough looks at their budgets, especially if 2020’s property tax collections fall short.
“We cannot keep RCPD and the library whole while we just gut everything we’ve got in order to do that,” says Morse. “So there has to be something that’s negotiated that’s fair.”
Mayor Pro Tempore Wynn Butler asked to see the library’s contingency plans going forward. Mayor Usha Reddi also called for collaboration between Riley County, Manhattan and the Law Board to address the RCPD budget if a property tax shortfall should arise.
City Manager Ron Fehr says he’s been in talks with library leadership as well as RCPD in preparation for that possibility. He also asks for open minds as staff attempts to find creative solutions to fund projects and programs amid the city’s budget woes.
Officials expect money to be tight into ’21 and possibly beyond and uncertain financial projections poses challenges for budget creation. The economic downturn is coming amid a five-year period of plateauing sales revenue and while multiple city departments are reporting staffing shortages — notably Finance, HR and Legal. Manhattan is also nearing the point where it will need to address staffing for its three new recreation centers all booked for completion by mid 2021.
Hilgers raised multiple topics to address in budget conversations, including budgeting for some of the elements of the Organizational Excellence Initiative. The OEI is intended to improve the city’s workplace environment while boosting employee recruitment and retention — nearly half of Manhattan’s employees have been with the city for five or fewer years.
Some elements of the OEI include an employee pay study as well as a strategic plan for the city that would tier Manhattan’s services from 1 to 4 by importance — similar to Lawrence’s model. Hilgers says the pay study will help identify whether the city is paying a competitive wage, an effort to address high turnover rates. He also says the strategic plan will help the city make decisions about which programs and services to cut and where to reallocate funds if finances require.
“If 2021 comes along and we’re nowhere near we thought we would be, we’re going to be doing it regardless,” says Hilgers. “I would rather do it with you and with the community, so when we make decisions like don’t open the pool and don’t operate those rec. programs, that’s actually in that fourth tier at the bottom of the list of things that we can cross off that everybody is like, yep, that’s at the bottom, it’s not critical, we need to eliminate that versus the controversy.”
City Manager Ron Fehr envisions the process being a community exercise that helps identify which programs are more or less critical to the public and make the decisions about where to cut in down economic times more visible to residents.
Hilgers estimated the pay study around $75,000 and the strategic plan at a $100,000 to $125,000 price tag if conducted by consultants.
Mayor Pro Tem. Butler saw the importance of the strategic plan at this time, but not at that cost. He proposed city leadership instead form it in-house and forgo hiring a consultant. Hilgers defended hiring a consultant for the job, noting that administrative staff are handling additional duties in response to COVID-19 and says a consultant can get results in a quick manner.
Commissioner Aaron Estabrook also supported a strategic plan and tiering of city services, especially if it could be done internally. He says austerity is not fun, but there is the potential for some fun in identifying creative ways to work toward recovery.
“We got dinged really hard and I suspect we will be dinged pretty hard and I think we can bounce back, but we can’t be playing this roller coaster back and forth,” Estabrook says. “This crisis presents the opportunity to realign some of the ways we do things — rethink what we’re investing in, what tax dollars and how we deliver services.”
Butler and multiple of his colleagues advocated against the pay study. He says the money isn’t there right now for it, adding that no one should be expecting step raises or cost of living raises this year as a result.
“You’ve got to take the tough choice right now and just say that’s not going to happen,” says Butler. “Now is that going to affect retention? No, because we still have jobs. There’s a lot of people out there that aren’t going to have jobs — you’re going to be pushing a 20 percent unemployment rate, not going to have a problem recruiting people.”
Mayor Reddi agreed, saying she could not support the pay study either considering the city’s current financial picture. She asked for a broader estimate of the worst and best case scenarios for Manhattan, the city’s debt picture, as well as budget adjustments in those cases at future budget meetings if sporting events and conferences do not pick up.
“I want to see that dire forecast before we make some of these commitments,” says Reddi.
Hilgers also raised concerns about the size of the city’s beginning cash balance in the general fund. He says the $3.1 million balance — up from $2 million in previous years — is well below the advised $8 million for a city of Manhattan’s size. Due to the greater stability of property tax revenues, he discussed a phased increase of the city’s balance using property tax funds.
“It’s in times like these […] when a lot of people look back to the government to provide the services that they normally do at the same level that they always have,” says Hilgers. “And that’s why you build those balances.”
Commissioner Mark Hatesohl says he realizes that it’s the most stable source, but some people are struggling to keep up with the rate property taxes have grown with mill increases as well as property valuation increases.
“I can understand, yeah, if my property tax has doubled in six years why people are complaining about that,” says Hatesohl. “[O]bviously, there has to be a balance.”
Butler supported the idea of increasing the starting reserves, but not if it required any increases to property taxes — with which Estabrook concurred. A majority of the commission were in agreement with a flat starting point for the ’21 mill levy, with Butler saying a tax decrease may even be in the cards.
Commissioners also want to examine how to increase sales tax revenue and address the plateauing income they’ve seen in the past 5 years. Butler raised the idea of re-examining the city’s economic development approach, noting that something isn’t working if they haven’t seen noticeable growth in years.
Morse proposed extending transient guest taxes to short-term rentals like AirBNBs, saying they are benefiting from an uneven playing field by escaping costs their competitors cannot. Fehr says staff will also look into historically un-touched fee rates that are lagging behind comparable cities to potentially increase and generate more revenue as well. Officials also raised the possibility of implementing user fees to use the new recreation centers.
Further items of discussion going forward will be increasing funding support for debt projected to come onto the city’s Bond and Interest fund in the mid-20s and accommodating an additional pay period in the year. Additionally, Manhattan is examining the possibility of phased opening of revenue neutral or generating recreation opportunities later in Summer if they can meet health and safety guidelines.
The commission is eyeing a June return date to meeting face-to-face, depending on guidelines from the state.
The commission will discuss the budget in further detail at its May 26th work session.