Erie County stands to lose tens of millions of dollars in sales tax revenue over the next two to three months with retailers shut down and people losing jobs amid the coronavirus outbreak.
The federal economic stimulus package should help with that, with $159 million coming to the county's coffers, County Executive Mark Poloncarz said.
"We're probably going to get through the first quarter of 2020 OK, but the second quarter is not going to be good," Poloncarz said. "And that's why the stimulus package and assistance package that was passed yesterday by the House and Senate was so important, because it's going to help make up for the lost revenue."
But the stimulus package will only go so far. That money can only be used to offset coronavirus-related expenses incurred by the county from March 1 through December, said Deputy Budget Director Benjamin Swanekamp. The money cannot be used to offset the loss of other revenue, he said.
The county has healthy savings and can borrow money in the short term to help with cash flow, but that would come at the expense of the county’s credit rating.
Still, the County Legislature convened a special meeting Thursday and voted 10-to-1 to approve $125 million in short-term borrowing Thursday just to be on the safe side.
Less sales tax revenue poses a problem because it accounts for more than a quarter of the county's budget and funds most of the "non-essential" spending on parks, libraries, economic development initiatives and other services.
The county also relies on state funding, now in jeopardy because the the state is spending huge sums to combat the spread of Covid-19. Together, sales tax and state revenue account for more than a third of all revenue the county expected to receive this year.
Comptroller Stefan Mychajliw shared estimates showing that for every 10% reduction in county sales tax each month, the county will lose more than $3.5 million in revenue. That adds up fast.
Erie County enjoyed strong revenues in January and February and still has a fund balance of more than $100 million, Poloncarz said.
County administrators pointed to several other positives related to the county government's financial position:
- The county has already collected more than 90% of its property taxes for the year, easing the county's cash flow for the next several months.
- The county's overall financial health heading into the public health crisis was strong, with more than $100 million in unrestricted county savings.
- The county had enough of a surplus from last year to allocate $5 million toward combating the public health crisis without cutting into the 2020 budget. And that money should be refunded through the federal stimulus package.
To adjust for the revenue shortfall, the county has frozen all nonessential hiring to help contain costs this year, Swanekamp said. The federal government last week also took actions that will reduce the county's Medicaid expenses, which is a major county cost.
Many uncertainties remain, however.
Last year, Erie County did well enough financially to avoid having to float a revenue anticipation note – basically a short-term borrowing in anticipating of incoming revenue. But the county cannot avoid the short-term borrowing this year, said Deputy Comptroller Gregory G. Gach.
While the County Legislature scheduled a special session Thursday to permit the borrowing, that money will not be borrowed immediately. Instead, Gach said, the county will wait as long as reasonably possible – probably a few months – before issuing the short-term debt.
Right now, credit rating agencies are downgrading every county borrowing money now, according to the Comptroller's Office. In addition, the interest rates for borrowing right now are high.
"We're going to wait until the markets settle down," Gach said.
Legislator Jeanne Vinal voted against the borrowing on Thursday, saying it's too soon for the county to commit to borrowing when it's still unclear how the county's finances will shake out in the next few months.
Minority Leader Joseph Lorigo voted for the borrowing but said that convening a special meeting to consider the borrowing was unnecessary and sends a bad message to the public that the county is running out of money when it isn't.
Majority Leader Timothy Meyer, however, said that with so many changes occurring, there's no way to know how that might affect the Legislature's ability to meet in the future.
Story topics: Covid-19