Pandemic likely to impact local budgets for years to come

As the coronavirus pandemic continues to wreak havoc on not only lives, but the economy, local government officials are already planning for the fallout. 

Tax revenue streams are down across the board, but gas, wheel, and food and beverage taxes are expected to bounce back before the end of the year, said Mike Reuter, a financial consultant for the county. 

But reduced property tax revenue is expected to negatively impact local budgets for years to come. 

With the pandemic ongoing, government units in the county are starting to plan with the knowledge that their revenue streams will undoubtedly be reduced.

Because tax distributions are based on a rolling average, a figure based on assessed valuations over three or six years, both income and property taxes not collected due to recent widespread unemployment will be felt locally for some time, Reuter said.

Income tax revenue is expected to be down 3%, which is what the county saw during the 2008 recession, Reuter said. However, income tax dollars are expected to rebound for 2021 and 2022, assuming there is not an extended economic disruption, he said. 

He is also projecting a 6% decrease in property tax collections.

Both tax projections are placeholders until the state releases its revenue projections in September, he said. 

Since growth is projected, and local real estate is said to be a “seller’s market,” Reuter predicts a 4.4% growth rate for assessed property valuation, with 3.5% growth projected in 2021 and 2022, he said.

Reuter said he isn’t sure yet how much the gas tax will drop, but Purdue University projected that road miles traveled has decreased 35% to 40%. Since May, monthly gas tax distributions to local governments have fallen, but Reuter expects it will rebound after the next three months, he said. 

Though wheel tax income from license plate renewals is also down, this, too, will rebound as more people start to renew their plates now that Bureau of Motor Vehicles branches have reopened, Reuter said.

It is no surprise fewer people are eating out, considering the pandemic and months-long stay-at-home orders that were in place. As much as $500,000 will be lost in the county’s food and beverage tax revenue, he said. 

“I’m not sure anyone really knows where this is all going. We are starting to open and I think we all remain hopeful we can remain open without having another shutdown. I guess if there is a boogeyman for me out there, it is a second shutdown. I do think we will be able to survive round one of this,” Reuter said. 

For the county, the 2021 budget is expected to remain balanced—for now. Though decreases are projected, Reuter’s analysis suggests that an expected $5.9 million special tax distribution will make up for the shortfalls next year. Special tax distributions are awarded to local governments when actual tax collections exceed estimates used to create the previous year’s budget. 

The picture starts to look a little bleaker after 2022, Reuter said. Decreases in tax collections continue to follow local governments for years to come, as tax allocations are calculated based on a rolling average. These rolling averages, he said, are the reason local governments are slow to feel the effects of a recession and slow to come out of one. 

All told, county officials should expect to see a budget shortfall of about $1.5 million in 2022, and $2.3 million in 2023, Reuter said.

Luckily, the county will have a $16 million cash balance at the end of 2020 to cushion the blow, he said. 

“You have the cash balance and you have some time to react to what is going on,” Reuter said.

Reuter’s report gave the Johnson County Council a lot to think about, council member John Myers said.

County department heads are in the midst of preparing budgets for 2021, with their requests to be ready in mid-July for the council to look over before its public budget hearings in September, Myers said. Local budget meetings are delayed a month this year because state budget projections will not be ready until September, though local governments still must adopt budgets by Nov. 1.

Reuter’s numbers will be key to deciding how early the council will start cutting expenses to prepare for the fallout from the pandemic, Myers said.

“We will be waiting on the numbers from the state, and three years out will have a lot to do with it,” he said. “If we have to cut $3 million out of our budget in the next three years, we will have to be spending wisely.”

Given the likelihood that the 2021 budget will be largely unaffected by the pandemic, the council remains hopeful it will be able to raise salaries for county employees who, according to a year-long study that wrapped up recently, are underpaid, Myers said.

The council is considering what those raises will look like, whether as a stipend of a base pay increase, he said. If the council goes with a stipend, the amount of the stipend will eventually be added as a permanent base pay increase once the budget stabilizes, Myers said.

Even with the projected shortfalls, Myers is optimistic Johnson County will be in a good position.

“I feel good now after talking to (Reuter),” Myers said. “Johnson County is doing well. We have $3 million in Rainy Day and we have $15 million in our cash reserves.”

The county’s small towns are also looking at how COVID-19 will impact their budgets. 

Bargersville officials took a look at its projected shortfalls in late May. The town’s financial consultant, Paige Sansone of Baker Tilly, said its $2.5 million cash balance will provide a cushion, but she recommended cutting spending over the next few years and underspending in 2021 to avoid that cash balance falling below recommended levels.

Whiteland officials have not had a formal presentation yet, but Town Manager Norm Gabehart said industrial growth is expected to offset reduced tax revenues.

While reduced road-related tax dollars might be a concern, growing towns such as Whiteland are in better shape than those that are stagnant, he said.

“It won’t have a drastic effect. As our growth comes about, our certified shares will go up," Gabehart said. "If we were not growing, I would be concerned.”