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City may be facing deficit in current 2019-20 budget

Jeremy M. Lazarus | 5/14/2020, 6 p.m.
Three months ago, with the city’s economy booming, Richmond’s government projected an $8.5 million surplus when the current fiscal year …
Mayor Stoney

Three months ago, with the city’s economy booming, Richmond’s government projected an $8.5 million surplus when the current fiscal year ends June 30.

But today, the city appears to be facing a $6.2 million deficit, according to the latest data for the 2019-20 fiscal year, after the coronavirus sent the local economy — and that of the state, the nation and the world— into a tailspin.

Mayor Levar M. Stoney disclosed the potential for a deficit Monday in submitting a request at the same time to City Council for permission to tap into the city’s savings, if necessary, to cover any red ink that exists after the books close.

But it remains unclear at this point, city officials said, whether there will be a deficit or whether it will be larger or smaller. Questions surrounding the city’s financial health only increased Tuesday when the state notified city officials that Richmond would receive $20.1 million by June 1 as its share of federal CARES Act money. The money can be used only to recoup expenses in fighting the pandemic, and not, as the state noted, to replace tax revenue lost to pandemic shutdowns of restaurants, retail stores and other businesses.

Still, “this is $20 million we didn’t have before,” Jim Nolan, the mayor’s press secretary, noted on Wednesday. “We aren’t going to let the money sit,” though decisions on its use have not been made.

Mr. Nolan added that it is uncertain what impact the federal money will have on the projected deficit.

The deficit projection — the first inkling of the impact of the pandemic on city revenues — emerged just before City Council voted 5-4 later Monday evening to approve a largely standstill budget as Mayor Stoney requested for the 2020- 21 budget year that will start July 1.

While the approved plan boosts spending on public education, it also eliminates pay increases for city employees, utility rate increases and new initiatives, including salary support for public defenders.

Overall, the plan approved by City Council eliminates $38.5 million that Mayor Stoney proposed in March through the largest budget element, the general fund, before the virus struck. The approved plan adopts the mayor’s post-pandemic changes, with the general fund revenue set at $744.1 million, or just slightly less than the $746 million originally approved for the current 2019-20 fiscal year.

Mr. Brown

Mr. Brown

The newly released data on 2019-20 revenues, however, suggests that the new budget plan might be optimistic on revenue.

According to the report released by city Budget Director Jay A. Brown, the city is anticipated to show an $18.4 million revenue shrinkage after the books close on the current fiscal year, with general fund revenue dropping to $739.2 million.

That shrinkage is fueled largely by a projected 29 percent reduction in the amount of taxes gained from the sale of restaurant meals and other prepared food, the third quarter report for January, February and March noted, when the pandemic’s impact was just starting to be felt.

If results from the final quarter — April, May and June — track Dr. Brown’s projections, Richmond would finish the year with $7 million less in revenue than the $746 million included in the original general fund budget and $5 million less than council approved for the upcoming budget year.

In his report, Dr. Brown noted that the administration has cut expenses sharply and eliminated virtually all but the most essential hiring, wiping out $11.8 million in costs. Still, he reported that the city appears to be on track to spend about $745.4 million, about $6.2 mil- lion more than the projected $739.2 million in revenue. If that happens, Richmond would finish the year with a $6.2 million shortfall, Dr. Brown’s preliminary data indicates, and the reason the mayor submitted his request to tap into savings.

The vote on the 2020-21 budget came after four council members unsuccessfully urged their colleagues to delay action for at least two weeks to allow more time to decide whether the spending plans should be reduced even more.

Councilwoman Kim B. Gray, 2nd District, joined with Councilman Chris A. Hilbert, 3rd District; Councilwoman Kristen N. Larson, 4th District; and Councilwoman Reva M. Trammell, 8th District, in urging that the council pass solely a schools budget to meet a May 15 deadline and postpone consideration of the other budget papers until the council meeting on May 28.

Ms. Gray repeated her concern that the city is being far too rosy in its revenue projection for the new fiscal year. She said that restaurants, hotels, gyms and other businesses might re-open, but those survivors could generate far less tax revenue than the projections.

The mayor’s financial staff has projected a 5 percent reduction in overall revenues in formulating the amended fiscal 2020-21 budget plan that council approved, allowing the city to keep all employees on the payroll at their current salaries and without any proposed furloughs or layoffs to balance the budget.

The City Council majority led by Council President Cynthia I. Newbille, 7th District, was unpersuaded by those seeking a delay, gaining applause from Mayor Stoney.

Dr. Newbille noted, as did others, that the council would be getting at least monthly up-dates on revenue from the administration and would have the opportunity to make changes to the 2020-21 budget as better information on revenue and expenses becomes available.

Dr. Newbille said the budget being approved was a first cut and likely would change as the year progressed. “This isn’t going to be a one-shot deal,” she said.

Joining her in supporting budget passage were Councilman Andreas D. Addison, 1st District; Councilwoman Stephanie A. Lynch, 5th District; Councilwoman Ellen F. Robertson, 6th District, and Councilman Michael J. Jones, 9th District.