LOUISVILLE, Ky. — While it may be a welcome change for taxpayers to have this year’s filing deadline pushed back, it is causing Louisville metro government to find cash to cover expenses in the near future.
The solution? City government is turning to borrowing up to $240 million in an “unusual” move fitting for the unprecedented times caused by the COVID-19 pandemic.
“It is unusual for us. Other cities have had to do this on a fairly regular basis. We have not. But these are unusual times,” Metro Councilman and Chair of the Budget Committee, Bill Hollander (D-9,) said.
Hollander said the city hasn’t had to borrow this way before. Typically, city officials have borrowed money as bonds to fund capital projects, like a new library or street work.
The ordinance, passed unanimously by the metro budget committee Thursday night, would authorize the city to either open a line of credit or use a tax anticipation note, which is a type of debt paid back with future tax revenues.
The city needs to balance its budget each fiscal year, and it generates most of its revenue through various forms of taxes, such as property and wage earnings. It uses those collections, earned after the usual April 15 tax filing deadline, to pay for city services like police, fire, EMS, and trash collection.
With the IRS having pushed back this year’s tax filing deadline to July 15, the city won’t get the revenue for a months later than usual.
According to Louisville Chief Financial Officer, Daniel Frockt, the $240 million would cover about four months of the city’s operating expenses. He made the estimation based off the city’s current spending of $60 million a month.
Frockt said the money likely wouldn’t be used until after July 1, and he emphasized none of the borrowed money extends the city’s spending abilities.
“Ultimately it’s a short term borrowing that needs to be paid back in a short period of time,” Frockt said.
Before voting unanimously in favor of the borrowing plan, some of the councilmembers raised concerns at Thursday’s meeting about how and when the money would be paid back. Some also voiced fears of the city operating like a “credit card” or using the borrowing plan as a long-term “crutch.”
“This isn’t money that we’re appropriating and that were spending. It’s just money that we are borrowing to get us through a cash flow issue because our tax receipts will be coming in late,” Hollander said.
Frockt also added the payback period would likely fall within 12 months and not have it unpaid by fiscal year 2022. He said city also may not need all of money, but the idea is to have it there if needed.
“We would rather have it and not use it than need it and not have it and that’s the basic intent,” Frockt said.
The city, like families and businesses, expects to see a hard hit by the pandemic, but just how deep that hole will be in the everyone’s pocket isn’t known yet.
To provide the most recovery from the economical impact of the virus, Hollander said the city “desperately” needs relief funds from the federal government.
“The federal government has passed a number of packages which have helped a lot of businesses around the country. They have helped cities and states only to the extent that they are covering some of our COVID-19 related expenses and we appreciate that. But the far bigger issue for us is loss of revenue,” he said. “We need that help from Washington.”
It’s not just Louisville begging the federal government for relief funds right now. The same day as the budget committee passed the borrowing plan, the National League of Cities, National Association of Counties, and the U.S. Conference of Mayors, sent a joint letter to the leaders of both the U.S. House and Senate, including Senate Majority Leader Mitch McConnell.
The letter, sent April 16, asks for $250 billion in flexible funding to be included in “any interim emergency coronavirus package currently being negotiated.”
“An USCM/NLC survey of more than 2,100 local officials shows that nearly 100% of communities with populations above 50,000 will see a revenue decline this year, and more than half report that revenue declines will impact core functions including police hiring and retention, and public safety,” the letter states.
It added, “for us to continue to protect our communities and save lives, we propose that ALL of America’s cities and counties be allocated at least $250 billion in dedicated funding in a way that takes into account each level of governments’ role in responding to the pandemic.”
Without federal aid, Hollander said city services will likely take a hit. It follows a hard-hit city budget for FY20, which saw slashes to funding for numerous services, like libraries, police, fire, and ems. City officials cites the increased pending obligation as the reason for the cuts. While Kentucky’s legislators have paused the rise in pensions for one year due to the virus, the city could still face a severe revenue shortage.
“We thought with good receipts, with what we thought was going to be more revenue than we had anticipated at the beginning of the year, we would be passing a city that would pause cuts to city services. That seems very unlikely at this point,” Hollander said. “In order to continue doing that at the level we’re doing it, not just this year, but next fiscal year, we need relief from the federal government and we need it as soon as possible.”
This borrowing plan will likely be approved at the next full council meeting. It also comes as Mayor Greg Fischer will soon give his annual budget address.
“I’ve used the word “tentative” to describe the budget that I think is going to be proposed. This one’s going to be a very, very approximate estimate of what our revenues are. We just don’t know,” Hollander said.
Fischer’s budget address will take place next Thursday, April 23.