Municipalities could suffer financial fallout in wake of COVID-19
By Alex Topor
COVID-19 has forced businesses and restaurants to close, residents to stay home and unemployment to rise – all of which may have long-lasting financial impacts for municipalities.
Municipalities rely on many revenue streams to pay for services such as police coverage, garbage pickup and road repair for their respective communities. To pay for these services, most municipalities mainly utilize property taxes and local earned income taxes. Depending on the community, smaller line items such as construction permits can bring in a significant amount of money.
Revenue from property taxes aren't expected to significantly drop because of the coronavirus but earned income tax could take a major hit depending on the unemployment levels in that community.
In Robinson Township, property and local earned income taxes account for about 70 to 75% of the yearly revenue.
“We know the unemployment rate is rising but it's not broken down by municipality,” said Frank Piccolino, Robinson Township manager. “If we could break it down by municipality, then maybe we could make an educated guess on where we will be. We're anticipating a revenue shortfall this year and next year we could be in a real pinch.”
Though revenue from property tax isn’t expected to dip too much, if the coronavirus continues to impede residents from working, revenue from real estate taxes could fall as tax delinquencies accumulate.
“I anticipate a slight drop in our projected revenue from real estate taxes, however, it all depends how long COVID-19 goes and when people begin working as they did before the pandemic hit,” said Nicholas Martini, Stowe Township secretary.
For Stowe Township, its main source of revenue in 2019 was real estate property tax, which generated $1.1 million.
Other streams of revenue like sales tax and local business tax brought more than $450,000 for Stowe last year. With businesses still shuttered to the public, those numbers could drop in 2020.
Crafton Manager Russell McKibben expects a significant drop in several revenue streams. In 2019, the borough brought in about $1.468 million in property tax and about $840,000 in earned income tax.
“Regrettably, I see the EIT dropping. No doubt there will be a large hit on that,” McKibben said. “If you're unemployed, you're not paying EIT at all. I have no idea how much we will bring in for that. We will probably need about two or three months of numbers before we can say what the percentage drop will be for 2020 and who knows for 2021.”
McKibben also expects less money from liquid fuels and the county Regional Asset District (RAD) tax. Liquid fuels money is received from the state and provides funds for a range of projects to support construction, maintenance and repair of public streets. It comes from the state tax on gasoline and is distributed to municipalities based on a population-based formula. The RAD tax is a 1% Allegheny County sales tax, half of which is distributed to municipalities every year.
“I expect liquid fuels to go down substantially based on the number of miles driven going down and the dip in gas prices,” McKibben said. “Since people are not buying items like they did before quarantine, the RAD tax won't generate a whole lot for us either.”
In Neville Township, Jeanne Creese, township manager, is anticipating a drop in revenue from earned income and amusement taxes. In 2019, the township collected $330,486 in these categories.
Robinson’s Piccolino said he is already seeing the impacts of the coronavirus issue on the township budget.
“January and February were really good for our real estate transfer tax [through the purchase of homes], then March and April were down below $20,000 a month. We were used to $75,000 to $100,000 on that line item itself,” said Piccolino. “We will also take a big hit on building permits because permit fees are a big thing in Robinson. With no construction for two months that means no permits for two months.”
No one knows exactly how long COVID-19 will stop residents from going to work or shopping at local businesses and that makes the financial future for municipalities murky. Some municipalities are delaying capital improvement projects while some plan to continue planned projects.
Neville Township is considering delaying major projects in the near future.
“The township is currently reviewing cost-saving measures, including the delay of capital projects,” Creese said. “We do not anticipate layoffs or tax increases; however, the duration of the event and other factors may impact decision making.”
In Stowe, future projects are not expected to be delayed or postponed, though the township is always looking at cost savings measures, Martini said.
It is still too early to make decisions on future financial matters related to the pandemic in McKees Rocks. After more data is collected, Ruth Pompey, borough manager, said she will be able to make a determination on the outlook of finances.
Though the financial future for municipalities is unclear, the pandemic will have lasting effects.
“I truly think it will have some long term effects and absolutely impact us for several years,” McKibben said. “We will do our best, it's all we can do.”