Depending on perspective, city finances could be rosy or face layoffs, panel told

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LEXINGTON, Ky. (WTVQ) – Depending on the level of optimism on the recovery from the coronavirus outbreak which is about to hit its sixth month, Lexington’s finances during the next two years either will be “fine” or could require layoffs.

That was the essence of an assessment (read it here city financial forecasts ) Tuesday by retiring finance commissioner Bill O’Mara to the Urban County Council’s budget committee.

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“We may be in a lot more trouble than we were county on…we don’t need to be spending anything until we see some good first quarter numbers,” Council member Richard Mahoney said at one point during O’Mara’s hour-long presentation.

“I am optimistic, but we have got to set some priorities…public safety and infrastructure and our parks have got to be our priorities…2022 is a worst-case scenario. I think we’ll turn next year, things will look good and be positive,” Council member Fred Brown said at another point.

“The one-time money will help us maintain for now. But we have got to get back to what we were elected to do, that’s basic services. We don’t want to get to layoffs,” Mahoney said.

Based on July numbers, the coronavirus outbreak has wiped out more than five years of revenue gains, pushing the city back to February 2015 levels. It likely won’t take five years to regain all that employment and revenues, but it also won’t happen overnight, O’Mara told the committee.

Also in question is whether wages will return to pre-pandemic levels or somewhere lower.

That’s important because the city relies heavily on its payroll tax for operating revenues. That’s different from may other states where property taxes are the major revenue generator.

Through the end of June, which was the end of the 2019-2020 budget year, the city was down about $8.5 million in revenues with the losses all coming between March and June. The biggest hit was in revenues from business net profits, O’Mara said.

The city has cut spending but that becomes increasingly difficult because 63 percent of the budget is payroll and payroll-related costs.

Another 14 percent is operating expenses but about half of that pays for gasoline and utilities, expenses that largely are out of the city’s control.

For the current budget that began July 1, the Urban Council took $36.6 million from reserves to fund its $379 million spending plan. Some, but not all, of that money is being restored by federal coronavirus relief dollars.

Without that one-time money, the city could have had to borrow money this fall to meet expenses.

But if normal revenues don’t return, the city’s reserves still could be pressed.

And without more one-time money in the next year, the city could be forced to borrow in the fall of 2021 to meet payroll during slow revenue periods. The city’s Finance Department already is working on a contingency plan in advance to be able to “best manage cash flow,” O’Mara said.

“It’s hard decisions on community needs ow versus community needs in future years,” O’Mara said, referring to the financial landscape scenarios in 2022, 2023 and 2024, which also include contractual pay raises and pension costs.

Both of the nation’s major bond rating services — Moody’s ad Standard and Poors — warned last month the city’s fiances were OK “for now,” but raised questions about the declining reserves, which are now down to 6 percent of revenues compared to 15 percent for many similar-sized cities, and the potential for extended lower revenues.

But O’Mara acknowledged the uncertainty. When asked about his confidence levels, he said his comments “today may be outdated tomorrow.”

The committee put off further discussion until its Sept. 22 meeting to allow more time for new figures to be compiled. It also didn’t discuss Mayor Linda Gorton’s proposal for spending a portion of coronavirus reimbursements on housing assistance and other programs to help individuals and businesses hit by the pandemic.