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Cities, towns and counties in Arkansas brace for budget shortages due to COVID-19

A letter from Catherine Cook, City Manager of Hope, AR

Across the state, in every city, town and county, businesses have been shut down, and thousands have lost jobs, savings and retirement incomes that may never return. During these times, Arkansas’ cities, towns and counties are taking extraordinary steps to protect their citizens, properly equip first responders with PPE to fight this pandemic and provide public safety to keep their residents safe and healthy.

Local government leaders are doing all of this while maintaining essential services we’ve all come to rely on in our daily living. Our garbage is being collected each week, our streets and roads remain maintained, our police and sheriffs’ departments, along with our fire departments and emergency medical services continue to work to ensure our public safety. And let’s not forget about the necessity of operating our jails.

Our local governments have, thus far, been able to maintain status quo for citizens while fighting

COVID-19. However, as this pandemic continues, the increased demand for funding will impose severe strains on city, town and county budgets.

Most of our cities, towns and counties rely on sales tax for a significant portion of their revenues. But the coronavirus has disrupted the underlying activity that results in the collection of these taxes. We’re seeing canceled events, scaled-down commercial activity, and small businesses shutting their doors to flatten the curve and mitigate effects of the coronavirus as much as possible.

Local governments — if they were fortunate enough to have cash reserves built up — will burn through them quickly. Already cash-strapped cities, towns and counties in Arkansas are in dire straits as they face plunging tax revenues and spiking costs due to COVID-19. The Arkansas Municipal League recently polled its members and found that local leaders are anticipating an average revenue shortfall of 26.5 percent between March 1 and December 31, 2020, with the primary factors being unanticipated revenue declines and expenditure increases due to COVID-19.

The Association of Arkansas Counties (AAC) compiled information from various state agencies and estimates that counties will see a 40 to 50 percent reduction in road money because, according to Gov. Asa Hutchinson, interstate traffic has been reduced by more than 50 percent. County road funding is dependent upon gas and diesel purchasing. Loss in sales tax revenue is speculative at this point because the March collections do not come in until mid-May. Retail sales have been down 8.7 percent in the last month, according to the state. The state legislature has cut turnback funding by 15 percent for the next year for cities, town and counties. Also, local governments can expect a dramatic reduction in court fines, as well.

Take a moment to consider the Families First Coronavirus Response Act (FFCRA), which requires certain employers, including local governments, to provide their employees with paid sick leave and expanded family and medical leave for specified reasons related to COVID-19. In the private sector, businesses receive tax credits for this mandate. Yet local governments will not receive these same tax credits, leaving cities, towns and counties that are already strained from the added expenditures of COVID-19 mitigation plans to somehow also find a revenue stream to pay for the FFCRA leave. For Arkansas’ cities, towns and counties, the collective price tag is unknown currently. According to the Congressional Budget Office, the FFCRA mandate could amount to $20 billion over the next two years for state and local governments.

This mandate will push local governments to the brink of economic disaster and force them to scale back public services, slash spending, and lay off municipal and county workers.  The cost of the FFCRA mandate will directly impact our local police and sheriffs’ departments, along with our fire departments and emergency medical services. This will leave every citizen in Arkansas vulnerable.

In Hope we know that our small businesses have already been hurt, our restaurants which we rely on as members of our community, supporters of all of our local activities, are finding it difficult to struggle on in the wake of this pandemic.  If local sales tax is reduced by more than 25%, which is possible during this time, many local projects such as overlay of streets and road may need to be cut back.  Projects planned in the local parks may be delayed until another year.  All of these things are possible given the current economic climate.  While your local government is prepared to weather this “2020 Pandemic,” there will be local consequences if some resources are not directed toward City and County governments.

The Coronavirus Relief Fund has provided Arkansas $1.25 billion to help state and local governments pay for the costs of this health crisis. While we enter uncharted water, it is critical to the well-being of our citizens that our cities, towns and counties are provided with the funds needed to continue to battle this virus while maintaining the expected, essential services. Arkansans need their municipal and county governments now more than ever during these unprecedented times. It is crucial that we, the leaders of local government, step up to the plate to face the enormity of this crisis and stand up for the resources we realistically need.

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