When Mayor-President Josh Guillory took a hatchet to the city budget, he claimed he had no choice — that the city of Lafayette’s financial predicament was so dire he had to fire people, close facilities and shut down programs. It wasn’t his fault; it was the pandemic. It was the economic shutdown. It was the wasteful spending of past administrations. The city, he asserted, had to make drastic cuts to “non-essential” services like arts and culture.
Back in April, when he started compiling his budget, this argument had some merit. Guillory inherited a deficit from the previous administration and council that grew larger every day the economy was shut down. But with the economy reopening, the forecasts Guillory based his budget on are outdated. They project a much bleaker future than what is actually happening.
And that matters because Guillory’s pessimism limits how much money the City Council thinks it has to spend. For example, instead of the $4.5 million deficit that’s in Guillory’s budget for next year, the city general fund may run a $10 million surplus. That’s important because the city general fund is the operating account for pretty much all of city government, and it’s also used to subsidize shortfalls for dedicated funds like the one for parks and recreation.
So while the city’s economic future may be uncertain, even troubled, it can afford to wait to make severe cuts. In fact, it may not need to cut anything at all.
There’s a chance the city will have no deficit this year
When this year started, the city was already projected to run an $18 million deficit. Then the coronavirus arrived and started decimating retail sales, threatening to erase millions of dollars in sales tax revenue from the city’s budget.
Last fiscal year, the city collected $80.3 million in sales tax. The budget for the current fiscal year, which ends in October, initially projected $80.9 million in sales tax collections, but Guillory reduced that estimate to $67.5 million. According to his math, the city general fund is still projected to run a $17 million deficit even with the $7 million worth of cuts to expenditures Guillory has made in the current budget.
But the city sales tax forecast has improved dramatically. In fact, the city just had its best July ever in terms of retail sales. Over the first nine months of the year, the city has collected $58 million in sales tax revenue. If the last three months of this year simply match the last three months of last year, the city will end up collecting $78 million in sales taxes, or $11 million more than the administration’s projections. And these last three months could actually do better than last year because of the impact of Hurricane Sally on local spending.
On top of that, the city is slated to receive $13 million through the CARES Act from the federal government. And as we’ve covered previously in this column, the city general fund has outperformed its projections by millions of dollars every year for years now, sometimes by as much as $10 million.
So there’s at least a chance the city general fund ends this year without any deficit at all. And it will almost certainly end the year with a fund balance higher than the $37.8 million currently projected. That means the city will enter the new year with a general fund balance that’s more than double the $20 million minimum target set by LCG’s fiscal policies.
In 2021, the city general fund could run a $10 million surplus
Next year, Guillory’s forecast for the city’s economic health grows even more dire. While the city collected $80.3 million in sales tax revenue last year, Guillory’s projecting that will fall to $60.3 million next year, a decrease of about 25%.
To give that some context, over the last 20 years, the most that city sales tax revenue has ever dropped in a single year is 6.4%. Even in May of this year, which was the worst month for retail sales as most retailers were literally shut down, retail sales only fell 21.1% from the same month last year. While there is undoubtedly uncertainty in the city’s economic future, Guillory’s projecting that next year will be apocalyptic.
Given current trends, it’s just as likely retail sales hold steady, which would add almost $20 million more to the city’s overall revenues than Guillory is projecting and $7 million more to its general fund since 35% of the city’s sales tax revenue feeds into its general fund; the rest goes into its capital fund. Even if retail sales drop 10% next year, that would still add $10 million more to the city’s budget and $3.5 million more to its general fund. This change in assumptions alone could zero out the $4.5 million deficit Guillory’s projecting in the city’s general fund next year.
But that’s not all. Because this fall city residents are voting on increasing the amount of sales tax revenue that flows into the city general fund from 35% to 45%. If this vote passes, that would add another $8 million per year to the city general fund’s revenue.
Instead of receiving 35% of $60 million in sales tax revenue, the city general fund will likely receive 45% of potentially $80 million in sales tax revenue — a larger share of a larger pie. It’s a $15 million swing that would turn the city general fund’s $4.5 million deficit into a $10 million surplus.
As a reminder, when you add up all the cuts Guillory has proposed to the city’s quality of life services they only total $6 million. So that means while the City Council may choose to make these cuts, it doesn’t have to.
The city does face economic uncertainty, but it has options
It’d be foolhardy to ignore the tremendous financial uncertainty the city faces. This year’s retail sales have been bolstered by stimulus payments and enhanced unemployment benefits that have run out and aren’t guaranteed to be renewed. The thousands of jobs that have been lost in our local economy will take years to recover. And the city of Lafayette was already facing some troubling long-term trends, as growth has been happening in the areas around the city more so than in the city well before the coronavirus arrived. So I completely support the idea that the city needs to be careful with its finances and, when necessary, make hard decisions to protect its financial stability.
But with what we know now, it’s disingenuous to claim that the city has no choice but to make drastic budget cuts. Because the City Council does have a choice, especially given what’s been happening with sales tax collections since the economy started reopening.
That doesn’t necessarily mean the City Council should just restore all of Guillory’s proposed cuts, though. For example, while I support restoring funding for the parks and rec department and then some, I’d prefer we wait to do so until a new permanent director is in place. That way we can empower them to determine how best to spend city dollars operating and maintaining city parks and rec services.
But it does mean the City Council has options at its disposal that it should be seriously considering. For example, it could restore 100% of the Lafayette Science Museum’s funding and give it some time to transition to a more privately funded model rather than throwing it into the deep end and hoping it can swim its way to sustainability. It could restore 100% of the funding for arts and culture grants and the Acadiana Center for the Arts so we don’t kick our creative economy when it’s already down. And so on.
Instead of rushing to cut budgets when we don’t necessarily need to, the city should be focused on figuring out what investments would make us more attractive to independent professionals looking to move here. There’s been some speculation recently about a potential migration of independent professionals who can work from anywhere seeking to move away from big cities to smaller communities that offer not only a lower cost of living but also a higher quality of life. Lafayette needs to be working to capture as much of that demand as possible to grow its economy without relying solely on large companies moving here.
And not only that, but Guillory’s pessimism isn’t just tying the city’s hands when it comes to spending on “non-essential” quality-of-life services. It’s also affecting the city’s ability to maintain and build essential infrastructure. His proposed five-year capital outlay program cuts total capital spending on roads and drainage and public buildings and parks and recreation from roughly $250 million to $150 million.
The odds are extremely high that the city’s actual sales tax collections are going to be significantly higher than what Guillory’s budget suggests. So that means the city is most likely going to have a lot more money to spend in the future than what Guillory is telling the City Council it has to spend today.
Whether the City Council decides to reject Guillory’s calls for austerity in next year’s budget or not, the city of Lafayette is going to have decisions to make about what it wants to prioritize in the future. Because even though our economy may not be booming and the city can’t necessarily afford to do everything it wants to, it does have options.