TUPELO • As the COVID-19 pandemic continues to ravage the nation’s economy, some of the largest municipalities in Northeast Mississippi are being forced to adjust their operating budgets to counteract local sales tax revenue that is projected to evaporate.
With Tupelo having been under a shelter-in-place order since March 23, less people are traveling to the city, which will likely result in less sales taxes being generated from retail stores and local restaurants.
Tupelo Mayor Jason Shelton’s administration in a work session on Thursday proposed to reduce the city’s budget by approximately $2.5 million to avoid a budget shortfall. Of the $2.5 million cut, $500,000 will come from reductions from city departments, and the remaining funds will come from cutbacks to the city’s capital plan.
“What we have done in a nutshell is we’ve asked each of our department heads to see what they could cut,” Shelton told Council members.
The capital plan is a portion of the city’s budget where tax dollars are invested in various long-term city projects that would improve the quality of life. The biggest reduction in the capital plan is a $1 million cutback of the city’s neighborhood revitalization efforts.
The second-term Democratic mayor is also proposing to enact a hiring freeze for all vacant city positions, ban city employees from traveling to events and halt city departments from purchasing new vehicles.
Some of these reductions could likely mean a reduction in the frequency of some city services. An example Shelton used was the frequency of curbside brush hauling services. Although the service would still continue, it would mean the service would occur less often.
In January, the City Council approved a $10 million bond debt intent to invest in city projects such as building a new fire station and renovating an events center. Before the work session took place, Shelton and administrative officials told the Daily Journal in a telephone interview that the projects being funded with bonded debt will continue as planned.
“It may sound counterintuitive, but the bonded projects are there,” Shelton said. “It’s in the bond obviously. That money has to be spent by law. That source of funding for those projects is secure.”
Even though the bond projects are only in the design phase currently, the city has allocated around $8.9 million to go to the projects out of the total $10 million. Typically, the remaining funds not spent act as a cushion in case a project runs over budget. For now, the remaining $1.1 million will remain frozen as the city assesses other needs.
The city also has around $2.9 million of excess funds from the previous fiscal year. Typically, any rollover funds are reinvested in the city’s capital plan. Instead, Shelton’s administration is proposing to place the bulk of those funds in the general fund as a safety net and to only place $917,000 into the city’s capital fund.
Municipalities do not get receipts from a month of sales tax revenue until two months after a month has ended. For example, Tupelo will not get its sales tax receipts for the month of April until the month of June.
Kim Hanna, the city’s chief financial officer, told the Daily Journal that the latest financial statistics reflect that of the city’s overall revenue, around 56% comes from sales taxes.
“This cut in revenue is just the beginning,” Hanna told the Daily Journal in a telephone interview. “We’re doing this early because we’re anticipating it will come and we need to prepare our departments to think about what’s coming.”
Outside of the city’s general fund, Tupelo’s main tourism agency, the Convention and Visitors Bureau, is also being forced to curb back on its operating expenses. The agency is funded by a 2% hospitality tax funded from hotel, motel and local restaurant purchases.
With less people traveling, staying in hotels and purchasing food at restaurants, the bureau has also had to trim some of its budget.
Neal McCoy, the director of the CVB, told the Daily Journal that the bureau on the advice of the agency’s board made an initial cut in expenses of approximately $980,000. Of that money, around $700,000 came from unbudgeted excess revenue from the previous fiscal year and the remaining cut came from its advertising budget.
“The big thing is this is not anything that we have ever planned for, but what we have planned for is an emergency for when we need to go into our reserve account,” McCoy said.
Even though the bureau does have a reserve fund, it has not tapped into the fund, as of right now. Although the economic future temporarily looks bleak, McCoy said the bureau has a 30-day plan in place for how to respond once the local economy can open back up and once people begin traveling again.
“We are then going to have to work on long-term recovery of what this pandemic does to the way people travel,” McCoy said.
That long-term plan is what bureau officials are currently trying to create.
The city’s financial decisions come at a time when the city of Oxford voted to furlough approximately 135 city employees to proactively curb some of its operating expenses.
Oxford Mayor Robyn Tannehill said in a social media video that the furloughs would begin on April 23, and the employees would receive medical benefits during the furlough period.
“We know that by furloughing them now and implementing these cost cutting measures, we have the best opportunity to hire them all back full time in the fall. That is what this board has been laboring over for weeks,” Tannehill said.
Oxford, a college town, receives around one-third of its total revenue from sales taxes, according to Tannehill. The city has also enacted a temporary hiring freeze, a travel ban for city employees and temporarily suspended some city services.
Since cities don’t receive sales tax receipts for a current month until two months later, municipalities can only project what revenue losses will be for now. City leaders won’t officially know the decreased sales tax revenue for April until June.
Even though sales tax numbers are not yet known, the figures are almost sure to drop since a statewide and local shelter-in-place order have been in effect for nearly a month.
Shelton is preparing to enact a local economic recovery task force composed of community leaders. The Tupelo City Council is set to discuss and vote on the task force at its next meeting on Tuesday.