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With cuts identified, gap is down to $1.3M

Brooklyn Center expects to see a nearly $2.5 million budget shortfall following the COVID-19 pandemic.

The Brooklyn Center City Council discussed its 2020 budget at its May 26 work session.

Since the pandemic situation remains fluid and dynamic, the full impact on the city’s finances remains to be seen. That said, the high unemployment rate and other financial strains are expected to an impact on property tax revenue. Based on tax revenue from the 2008-era recession, the city is estimating a 10% delinquency rate, resulting in a $1.7 million shortfall.

Shortfalls are expected in the city’s lodging taxes, with the city estimating a 20% collection rate due to the pandemic. The shortfall is expected to be $493,680.

License and permit revenue is expected to fall $160,000, and program income is expected to be short $40,255.

In total, the city is estimating a $2.49 million shortfall.

As a result, the city has begun plans to reduce expenditures, with total non-personnel reductions totaling $906,595. The largest reduction is in public works, with a $400,500 reduction. Of that, $300,000 was transitioned to municipal state aid funding sources.

In personnel reductions, the city is budgeting $350,000 for job turnover savings. Another $260,000 in savings are due to prior and current vacancies, community center layoffs and reductions in seasonal and intern positions.

As a result, the city still is expecting a $1.3 million shortfall.

There are several options the city is considering to make up the shortfall: legislative solutions from the state or federal government, the use of general fund reserves, additional expenditure reductions and the use of emergency reserves.

Bills are being considered at both the state and federal level. At the state level, bills are being considered to assist local governments with costs directly related to COVID-19. The city currently has $647,000 in anticipated eligible expenses. At the federal level, the Heroes Act, if passed, could have $375 million to provide assistance to local governments.

The city’s general fund reserves have a balance of $12.3 million as of Dec. 31, 2019, accounting for 52% of 2020 budgeted expenditures. Of those funds, 5.6% would be needed to fund the gap in full.

The city could reduce expenditures in payroll, supplies, professional services or capital outlay. The average employee costs the city approximately $100,000 in salary and benefits. Accounting for unemployment costs, each employee laid off would result in a 65% savings for the city.

The city has already laid off 118 part-time and seasonal employees and less than 10 full-time employees. Many of those part-time employees were parks and recreation workers hired for seasonal work, among other positions.

The city’s emergency reserve fund has a cash balance of $1.1 million. These funds would also be available for use.

Some combination of each solution would likely be used to fill the gap, unless the federal or state government provided adequate funding to bridge the gap, said Curt Boganey, city manager.

“I’m assuming that we need to be very conservative in developing our budget, and I’m assuming that there’s not going to be a big appetite for any kind of a significant increase in the tax levy,” he said.

Councilmember April Graves said that she would put layoffs below use of the emergency fund in her priority, but that she could understand a circumstance where layoffs make sense if the pandemic has fully eliminated the need for a job. She said she would be comfortable with lowering the general fund reserves to approximately 48% of budgeted expenditures and utilizing emergency funds to cover the balance if funding from the state and federal government is not available.

Councilmember Dan Ryan said that he would prefer to see layoffs and the use of emergency funds as a last resort, as well as keep the general fund reserves at 50% of budgeted expenditures.

Mayor Mike Elliott said the city seemed to be on the right track with its current actions, and that the city should be conservative in its planning for 2021. The city should take steps to save jobs, and look for ways to allow people to keep their employment, he said.

“Perhaps folks [could agree] to take a certain number of weeks off and then coming back on as a way of sort of spreading the pain a little bit but allowing more people to keep their employment,” he said.

The city’s patrol officer’s union has agreed to renegotiate part of its contact due to the financial uncertainty, Boganey said.

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