In these trying times of dealing with the Coronavirus pandemic, local governments find themselves on the front lines providing a wide variety of services for their residents. The federal government, through legislation such as the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, has provided a wide variety of resources to many segments of the population but notably excludes local governments from most of the aid programs. How are local governments expected to deal with rising costs associated with necessary services, while simultaneously planning for revenue reductions both present and future? This article is a summary of what we have learned to date, much of which came from a Treasury webinar that was held on April 20, 2020.
In terms of economic impacts that will affect local government revenue streams, the data is incomplete and conditions are changing fast, but some trends are emerging:
- More than one million Michiganders have filed for unemployment since March 5.
- Revenue shortfalls at the State level are expected to be about $2.6 billion for the current fiscal year and $3.1 billion for the 2020-21 fiscal year.
- Sales tax collections are expected to be down 50% for April and May.
- Constitutional revenue sharing payments scheduled to go out on April 30 are unaffected by recent events and should exceed January estimates due to increased sales tax collections in January and February. The June 30 payment will be based on March and April sales tax collections, so therefore it can be anticipated to be lower by possibly as much as 50%.
- Statutory revenue sharing payments are based on State appropriations, so the April 30 payment should not be affected.
- Local Community Stabilization Authority personal property tax reimbursements, as well as 911 fees disbursed to counties, are currently scheduled to be made in May. These payments are dependent on collections and can therefore be expected to decrease as well, but it is unclear at this time as to how much of a decrease to expect.
The CARES Act does provide some funding to the largest local units (over 500,000 in population), which only encompasses the State of Michigan and five large local governments in the State. The State of Michigan will also receive about $3.1 billion in aid under the Act but it is unclear whether any of that will be passed through to smaller local units. Other programs have received increased funding, but none of those will help address general revenue shortfalls. Those programs are as follows:
- Transit programs
- Community Development Block Grants
- Community Services Block Grants
- Federally Qualified Health Centers
- Food and Nutrition Supports
- Housing and Homelessness Supports
- Low Income Home Energy Assistance
- Election Security
- Byrne Justice Grants
The Federal Emergency Management Agency (FEMA) has grant dollars available under its Public Assistance Grant Program to reimburse local governments for expenditures related to providing emergency protective measures. This program is administered through the Michigan State Police, and applications are due on April 30.
The Michigan Department of Treasury has established a website for COVID-19 resources at michigan.gov/treasury. In addition to these resources, the Michigan Municipal League, Michigan Association of Counties, and Michigan Townships Association also have COVID-19 pages on their websites.
Property taxes being levied for the upcoming summer and winter tax seasons are not anticipated to be affected by the COVID-19 crisis, as the taxable values and millage rates are already set at this point in the tax calendar.
For the time being, local governments can take the following actions now to be as prepared as possible for rapidly changing conditions that will affect the financial health of their local unit:
- Review all revenue streams to plan for potential reductions.
- Begin conversations now about controlling costs and preparing for reductions in spending.
- Keep up the basics of management and control.
- The tax calendar hasn’t changed; communities will send tax notices on the same calendar as always, per statute.
As always, Yeo & Yeo is here to assist our clients in any way possible with this or any other issue you may have. Please do not hesitate to reach out if we can be of assistance.
The information contained in this post may not reflect the most current developments, as the subject matter is extremely fluid and constantly changing. Please continue to monitor Yeo & Yeo’s COVID-19 Resource Center for ongoing developments. Readers are also cautioned against taking any action based on information contained herein without first seeking professional advice.