Localities fear ‘long-term, significant’ fiscal impacts

Covid costs, revenue declines raise municipal budget alarms

BY MICHAEL KITCH

The financial impacts of the Covid-19 outbreak on cities and towns across the state are expected to be “long-term and significant,” according to a survey conducted by the New Hampshire Municipal Association.

Cities and towns are finding themselves squeezed between increasing expenses and decreasing revenues, an equation that foreshadows mounting pressure on property taxes. Gov. Chris Sununu announced on May 5 that $40 million would be distributed among municipalities and counties to offset a share of the expenses incurred between March 1 and Aug. 31 to cope with Covid-19. Municipalities will receive $30 million and the 10 counties $10 million. The funds will be distributed based the 2018 population data as calculated by the Office of Strategic Initiatives. Local governments will be reimbursed only for Covid-19 expenses actually incurred, and then only up to the amount allocated based on their populations.

For instance, if a municipality is allocated $100,000, but its qualified expenses between March 1 and Aug. 31 are twice that, it would receive $100,000. Likewise, if the same municipality incurred qualified expenses of $90,000 in March and April, it would receive $10,000 for additional expenses regardless of their amount.

Any amount allocated that exceeds eligible expenses incurred between March and August will lapse to the state for other distribution. Qualified expenses include costs for cleaning and disinfecting municipal facilities, enabling officials and employees to work remotely, providing child care for first responders and funding increased welfare benefits. The funds cannot be applied against shortfalls in municipal revenues. The governor said the money was intended to bridge the gap between municipal expenses and anticipated reimbursements from the Federal Emergency Management Agency.

The NHMA surveyed all 234 municipalities, and despite only 48 hours’ notice, 127 responded. Margaret Byrnes and Barbara Reid of the NHMA presented the results last week to the Governor’s Office for Emergency Relief and Recovery, or GOFERR.

Rising expenses

Municipalities are beset by rising expenses and falling revenues. From the municipalities reporting, the NHMA calculated that in the five weeks between March 13 and April 14, municipal expenses rose by $7.6 million and estimated the increase would reach $27.2 million by year’s end.

Municipalities with police and fire services reported that expenses for personal protective equipment and overtime had increased by $2 million — a number that’s expected to climb to $10 million during the remainder of the year.

Manchester Mayor Joyce Craig told GOFERR that, for police officers and firefighters alone, related costs were running at $150,000 per month while overtime and PPE had cost the city’s Health Department more than $200,000. An indeterminate share of the costs associated with emergency services will be eligible for reimbursement from the Federal Emergency Management Agency.

Craig was echoed by Mayor Jim Donchess of Nashua, who anticipated similar increases in expenses while highlighting costs arising from aggressive testing and contacttracing programs undertaken by the city in partnership with regional public health agencies. At the same time, he said that, with the closing of public schools and turn to remote learning, “some kids are off the grid” and suggested “an intensive remedial tutoring effort will be needed to overcome the educational losses of the six-month hiatus.”

More than half of the municipalities that responded to the NHMA survey anticipated welfare costs — chiefly rental assistance, utility payments and foodstuffs — would spike by a total of $1.6 million during the year, particularly once the stay on foreclosures is lifted.

Nearly two-thirds said they have incurred higher costs associated with the technology required to enable employees to work and officials to meet remotely, which they projected to total $850,000. Likewise, legal fees associated with managing employment, compliance, tax abatements and elections are expected to increase by $4 million.

Laconia School Superintendent Steve Tucker suggested that his school district could incur increased costs to operate in compliance with public health guidelines by regularly sanitizing and disinfecting buildings as well as reducing class sizes and adjusting teachers’ schedules to meet social distancing protocols. And, he said, the restructuring and rescheduling of classes would likely increase transportation costs.

As expenses rise, revenues dwindle, said Margaret Byrnes, the NHMA’s executive director.

Byrnes told GOFERR that municipalities are “concerned and anxious” about the future of state aid, specifically the distribution of meals and rooms tax revenue, $40 million in unrestricted funds included in the biennial budget and highway block grants. She was echoed by her colleague, Barbara Reid, who said “state aid is of paramount concern.”

Revenue worries

Reid explained that delinquent property taxes threaten municipal cash flows.

Of the 234 municipalities, 197 operate on a calendar year and most collect taxes on July 1 and Dec. 1. Mortgage escrow payments range from 16% to 80% and average 45% while delinquencies range from 2% to 30% and average 9%. While most municipalities have sufficient reserves to withstand a delinquency rate of 10% for six months, she said, 40% could not if delinquencies rise to 20% and nearly all could not if they top 30%.

Meredith Town Manager Phil Warren said, “It is not so much the increase in expenses. That’s the easy part. I’m worried about revenues.”

He said that apart from state aid, he was most concerned about property tax payments, explaining that if delinquencies top 10%, he would have to consider trimming staff, reducing services and postponing projects. Apart from delinquencies, abatements also sap municipal revenues. Donchess said that owners of some commercial property have already filed abatement requests.

He said that Nashua collects more than $200 million in property taxes from commercial property and noted that abatements of 10% would reduce revenue by $20 million.

To manage cash flow, municipalities borrow tax anticipation notes, or TANs, against future property tax receipts.

Reid said a third of municipalities reported they “were not sure” of their capacity to borrow. Reid said that the Federal Reserve System has broached the concept of a “municipal liquidity facility,” but cautioned that at this point there is no assurance that it would serve New Hampshire municipalities.

Reid also pointed out that school districts have no shortterm borrowing authority, but instead must draw funds from municipalities. However, Reid noted that the federal CARES Act includes $13.5 billion for public schools.

Reid also told GOFERR that a quarter of municipalities reported declining revenue from motor vehicle registrations — the second largest source of municipal revenue — which is projected to reach $23 million by the close of the year. And other municipal revenues from building permits as well as parking, recreation, beach and other fees are projected to drop by $35 million.

The impact on local property taxes can only be imagined.