Louisville faces a $115 million budget shortfall amid pandemic

LOUISVILLE, Ky. — Mayor Greg Fischer warned residents that major cuts were coming if the city did not get flexibility in spending federal funds designed to aid in COVID-19 relief.

“This virus has caused enormous health, social service and financial pain,” Fischer said during his budget address Thursday. “Many people and businesses now face an uncertain financial future, through no fault of their own. And the city faces the same uncertainty, with a difficult, ever-evolving budget picture that has already surpassed the worst of what we saw during the Great Recession.”

Thursday, Mayor Fischer laid out his budget plan for the fiscal year beginning July 1. Since the pandemic triggered safe at home orders in Kentucky, Louisville revenue experienced a $46 million decrease. That is projected to be $69 million in the next fiscal year, bringing a total shortfall of $115 million.

“About 47 percent of our city budget comes from payroll taxes. When businesses cut jobs, the number of people earning a paycheck goes down, and city revenue goes down with it,” he said. “About 11 percent of our budget comes from taxes that businesses pay on profits. When the economy is bad and our businesses see less profit, that lowers city revenue.”

The mayor said businesses losing money are not paying the amount of tax expected, many employees have also been laid off or furloughed which takes a cut at the largest portion of budget revenues. He also noted that fees are down for some partnerships including the zoo.

The situation has forced Metro Council to do something no one can ever remember in Kentucky’s largest city: a continuation budget. Continuing the budget with hopes of the most of the same line items as last year is what they described as the best strategy moving forward in an unprecedented time.

“That means I’m proposing a budget bill that continues the current fiscal year’s funding levels – and assumes the question about federal support will be resolved in the coming month or two,” Fischer said. “This fulfills our statutory requirement to introduce a budget, but, clearly, it’s just a placeholder. We make this recommendation knowing we will be revisiting this budget in the weeks and months ahead, maybe more than once, making revisions as our fiscal picture becomes more clear.”

In his address, Mayor Fischer made a hard push for citizens to contact federal lawmakers to pressure them into freeing up flexibility in spending money given to larger cities to handle COVID-19. 

“Mayors across the country are adamantly urging Congress to give cities flexibility in how we spend those dollars, plus provide additional direct funding to address our gaps,” Fischer said. 

Mayor Fischer is making a hard push for citizens to contact federal lawmakers to pressure them into freeing up flexibility in spending money given to larger cities to handle COVID-19.

Louisville has already received $137 million for coronavirus response reimbursement, but Fischer said that money has strict rules on how it is spent and it cannot be used for city services such as fire, EMS and police.

Fischer also mentioned dipping into the city’s rainy day fund for the upcoming fiscal year. They would use more than $40 million from the fund to bridge the drop in revenue for the next two fiscal years.

Metro Council members questioned borrowing from the fund in their Thursday press conference. Council member Kevin Kramer said borrowing money from the fund would be “dangerous,” while members Markus Winkler and Scott Reed also expressed concerns.

Bill Hollander, chair of the budget committee, said he understands and expects that the city will use a portion of the rainy day fund, but did say it would take a long time to see that amount of money return to the fund.  

Without federal aid, Fischer said the city will be looking at making drastic cuts to city services, even greater than what was already cut the last fiscal year as the city grappled with its growing pension obligations.

“For context, remember the painful cuts forced by a $25 million deficit last year? Now, we’re facing the prospect of cuts about three times that amount,” Fischer said. “There is simply no way to absorb this level of loss without considering a significant tax increase or reducing every single agency of Metro Government, including our top priority of public safety, since it makes up over 60 percent of our budget.”

If no solution is worked out by October 1, the mayor said they will have to consider lying off about 1,000 city employees which equals about 20% of all city workers.

There’s been no decision made on how to cut because leaders are hoping a solution will prevent cutting employees and, as a result, services. They did say that after furloughing 380 employees last week that they do not intend to furlough any more employees, but they have to find a solution before October 1 before more painful decisions must be made.

Mayor Fischer also introduced a plan to begin rebuilding the economy after the pandemic clears. The motto of “Build Back Better, Together,” he said, will look to build a more equitable economy than the one Louisville had before this crisis brought the economy to a screeching halt.

You can watch the mayor’s full budget address here:

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