Saturday, May 2, 2020
This week’s city council budget discussion painted a dark picture of Boulder’s potential future finances as COVID-19 closures wreak havoc on businesses, with a $41 million drop in revenue below what was planned for 2020 and a $21 million smaller general fund from which to pay for police, fire, libraries and transportation. Yet despite double-digit unemployment and millions in lost wages, economists predicted a quicker return to normal than during the Great Recession and the dot-com bust of the early aughts.
“We don’t see this as a five-year recovery,” said Rich Wobbekind, senior economist at the University of Colorado’s Leeds School of Business. “We see it as a short-term recovery once we figure out the pandemic.”
The changes to Boulder’s budget may last longer. Staff on Tuesday unveiled a plan for categorizing costs based on how essential they are to operations. Departments have been asked to skim 10% off the top. Projects have been delayed and workers furloughed. Council will appoint two members to a new subcommittee whose purpose is to oversee and recommend cuts.
“We are in a situation where we are going to have to do economic triage,” Mayor Sam Weaver said.
“It’s a necessary exercise if we’re going to get through this,” added Mary Young. “Our community is very accustomed to having very high levels of services. Some are going to have to go away.”
Commuters critical to business survival
Boulder is both better-positioned and worse off than many Colorado communities, Wobbekind and Leeds’ research division head Brian Lewandowski explained.
The relatively high number of well-paid workers in science and tech mean that, overall, fewer jobs will be lost during a downturn that is primarily hitting restaurant and retail. Boulder County had the seventh-most total unemployment claims filed in March and April, Lewandowski said, but was 53rd on the list for claims as a percentage of the workforce, better than any other urban county in Colorado.
Industries likely to be hit hardest by mandated closures — retail, tourism, restaurants and personal services like hair and nail salons — account for nearly one-quarter of jobs in Boulder County. They are among the lowest paid, accounting for just 10% of total wages.
“The people impacted by this are by far the most vulnerable people in our economy,” Wobbekind said. “That is what makes this particularly painful. The people who are losing their jobs are the people who can’t afford to lose their jobs.”
Businesses are also likely to feel effects longer, too, as telecommuting remains common. Boulder’s economy relies heavily on the 64,900 people who drive into work every day.
In surveys and outreach efforts, many said “they cannot survive” without the in-commuting workforce, said Yvette Bowden, head of community vitality for the city.
That’s also true on the Hill, where a majority-student customer base already results in summertime struggles to stay solvent. Now, with no activity on campus for months, vacancy rates are climbing, according to Bowden.
“It’s a crisis,” she said.
Boulder’s relatively aged population may also work against a quick recovery, as at-risk older adults stay cosseted at home for fear of infection.
“You have economic (confidence) but also the psychological confidence,” Wobbekind said. “Are people going to be willing to go back into stores? We don’t know what it’s going to take, particularly for older folks. That’s a critical piece.”
Sales tax receipts from March show significant declines in certain sectors. Restaurant sales tax revenue dropped by 22.65%, or $3 million, and general retail by $5 million.
Non-payment is also a factor, CFO Cheryl Pattelli explained. Between February and March, $3 million was missing from city coffers due to delinquencies. Those businesses skipping out were from “all those industries that are really suffering,” Pattelli said: clothing stores, restaurants, etc.
Overall, retail sales tax collection was down by 5.43% in March compared to last year. That deficit will only grow as April’s receipts are collected in mid-May, since the first part of March was business as usual.
The data we have now “is only showing part of the story,” Lewandowski said. “When we get the April data, this is going to look much, much worse.”
Read a Twitter recap of the city’s budget discussion
Consumers are still feeling pretty confident that the economic downturn will be “dramatic but not long-lasting,” Wobbekind said, sharing national data. As with day-to-day life, real economic recovery won’t happen “until we see a vaccine.”
“Fundamentally,” he said, this is “a government shutdown of the economy, which we’ve never done before.”
Like health officials, Wobbekind warned that the return of normalcy is dependent on how well the populace follows health advice. His own prediction was that recovery would be W-shaped: a brief recovery followed by another dip as people return to work and society, and COVID-19 cases spike once more.
$41M short, $15M saved
A W-shaped recovery was one of three updated scenarios presented by city budget staff, each modeling tens of millions in lost revenue. The W projection was the most dire: a $21.1 million shortfall in the general fund and a $41.1 million overall budget deficit.
The city has saved $6.4 million through furloughs and a hiring freeze, and identified $9 million in capital and operating projects that can be delayed. That shrinks the gap by $15.6 million, including $6.5 million in savings from the all-purpose general fund.
Still to be determined is what cash reserves may be tapped to patch the remaining holes in 2020’s budget. Planning for next year — beginning now — will likely feature heavy cuts to programs and services.
To guide that process, each city expenditure will be divided into one of four categories: essential, important, helpful or amenity. The city’s equity lens will also be applied to budget decisions.
Essential: Programs, services or facilities and supporting functions that are critical to health and safety; could not be cut without a significant and immediate impact, or risk of impact, to the city’s or community’s basic operations and functioning; legally mandated by federal or state law or City Charter; or solely provided by the City of Boulder
Examples: sanitary sewer, dispatch, water distribution, emergency responders, payroll, snow removal
Important: Programs, services or facilities and supporting functions that are valued by the community and created by the legislative action of the City Council; could not be cut without some impact, or risk of impact, to the city’s or community’s basic operations and functioning
Examples: median maintenance, parks maintenance, library, code enforcement
Helpful: Programs, services or facilities and supporting functions that enhance programs or facilities in ways that advance desired community values; could be cut without significant or immediate impact to the city’s basic operations and functioning
Examples: Library youth programs, rec centers, pools, art, rebate programs
Amenity: Programs, services or facilities and supporting functions that may or may not be duplicative of services already being offered by another gov’t agency or non-gov’t organizations; may serve limited purposes or specialized interests; or could be more efficient if provided by non-governmental organization
Examples: golf course, makerspace, yoga classes, senior massage program, newsletter, financial support for events
Council will stand up a subcommittee to handle recommendations, a continuation of the financial strategy committee that has been working since the beginning of the year. Young, Bob Yates and Junie Joseph served on that group.
Appointments to the new committee will be made later this month; so far, Yates, Young, Joseph and Mark Wallach have expressed interest in serving.
No cuts to manager pay
One cost-saving measure that is not on the table: Salary reductions for city management employees. It was being considered, City Manager Jane Brautigam said last month, but union contracts prevent pay cuts.
“Non-union management employees are the only ones available whose pay we can reduce, so it would create an inequitable solution,” Brautigam said. Also, given the possible impacts to “morale” and that the amount of savings “would not be significant. … We made the decision not to do that.”
A certain amount of inequity is baked into the furloughs, which focused heavily on lower-paid seasonal and temporary workers who were easier to cut than full-time staff. That is evident in the savings: 737 furloughs — of which 562 were seasonal or temporary hires — reduced costs by $2.8 million, whereas foregoing the hiring of just 83 permanent positions saved $3.6 million.
Brautigam, City Attorney Tom Carr and Municipal Judge Linda Cooke are Boulder’s three highest-paid employees. Their 2020 salaries are $271,342.85, $229,406.93 and $174,193.03, respectively. Each received performance-based raises last year, approved by council in September. Then-councilwoman Cindy Carlisle dissented, and councilwoman Mirabai Nagle was absent for the vote.
The next budget update is planned for June 9. Any layoffs or furlough extensions will be announced by June 1.
— Shay Castle, firstname.lastname@example.org, @shayshinecastle
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