Cedar Rapids officials tout strong financial position as derecho, COVID-19 take fiscal toll

CEDAR RAPIDS — After dealing with the COVID-19 pandemic and the Aug. 10 derecho, Cedar Rapids City Council members this week touted the city’s sound budget practices for being able to respond to the disasters and unexpected expenses.

The council on Tuesday approved a budget amendment accounting for $141 million in increased expenditures, most of which the city incurred because of damage from the 2020 storm, and for $96 million in increased revenue, according to City Finance Director Casey Drew.

Overall, the amended budget totals nearly $779 million for fiscal 2021 — a 22 percent increase from the initially adopted budget.

Fiscal year 2020 — July 1, 2019, to June 30, 2020 — also saw a budget amendment of 22 percent, which brought the city budget to $693 million. Some of that expense involved refinancing of $88.2 million in city debt, which was anticipated to save about $6 million over the life of the bonds but cost money to execute.

The budgets in the three previous fiscal years saw amendments of less than 20 percent and less than $100 million each year.

“Certainly, with all the moving parts that we had in the current fiscal year, a lot of things impacting the current state of affairs, but the biggest thing in the long run is that we’ll get reimbursement for a lot of the derecho expenses,” said council member Scott Overland, chairman of the council Finance and Administrative Services Committee.

“And, at the same time, the city continues to be in very sound shape financially,” he said.

The budget amendment does not affect property tax levies. Amendments are passed to account for expenses that were not budgeted when a budget was created 18 months before the end of a fiscal year, June 30.

Drew said the city prepared the budget amendment, based on high-end cost projections as of late March and early April.

Derecho expenses

Of the added expenses, Drew said $80 million resulted from the derecho. And $18.5 million of the revenue increase comes from insurance ($10.2 million) and Federal Emergency Management Agency ($8.3 million) payments for the storm.

Cedar Rapids officials have said the city expects to pay 15 percent of FEMA-eligible costs, while FEMA will pay 75 percent and the state will cover 10 percent.

“We anticipate recovering the bulk of this from FEMA, and it’s just kind of a timing issue in terms of when that revenue comes in,” Drew said.

Much of that revenue is expected to come in during fiscal 2022, which starts July 1 and ends June 30, 2022.

The city transferred $1.47 million from the general fund to pay for upgrades to facilities that sustained damage in the derecho — expenses that are not reimbursable, Drew said. That includes LED lighting at Veterans Memorial Stadium and changing the floor under the Olympic rink at ImOn Ice Arena to concrete.

COVID-19 shortfalls

The pandemic also caused revenue shortfalls for certain city funds.

Revenue from the hotel-motel tax paid by overnight guests is an estimated $800,000 less than projected when the 2021 budget year proposal was adopted.

For revenue from the parking system — through its lease with Downtown Parking Management — the city will receive an estimated $521,000 less, Drew said.

Interest income also totals $3.6 million less than projected, standing at $1.8 million received through March.

Additionally, Drew said the Cedar Rapids Kernels — which canceled its 2020 baseball season — will not be able to make lease payments on its stadium until its loan payment — extended last year — is paid back over the next five years, for an impact of about $287,000.

Other revenue shortfalls from COVID-19 included the Transit system, which has not charged passenger fares throughout the pandemic; shortfalls at the ImOn Ice Arena, Paramount Theatre and McGrath Amphitheatre, which received $11,000 in state aid for some of the lost revenue; and the Parks and Recreation Department, which offset some losses through changes or closures to services and programs.

The city also spent $187,000 on cleaning supplies and services, and protective equipment such as gloves, masks and driver barriers in vehicles.

External funding sources helped offset some of those expenses and losses, with $3.2 million in COVID-19 relief from the state and $3.2 million from the Federal Transit Administration.

The council eventually will have to review how to spend the $28 million in stimulus funds from the federal American Rescue Plan, but Casey said the budget amendment accounts for $23 million of that.

‘Strong financial position’

Despite the unanticipated expenses, the city was able to tap into funding from its reserves after adopting a budget for new initiatives. Such items include:

— $100,000 for its partnership with Des Moines-based nonprofit Urban Dreams for a workforce program

— $50,000 for the BACK program to provide technical assistance to small businesses

— $50,000 for overtime in the Building Services Department, which has issued a record number of permits for property owners looking to repair damage from the derecho

— $25,000 for the city’s review of its derecho response with Tennessee-based Atchison Consulting Service

“Sometimes, cities are in a strong financial position but they’re cutting all kinds of services, but we’re able to do both in the budget,” council member Tyler Olson told The Gazette.

Council member Dale Todd agreed the city has showed financial strength for how it managed the fiscal toll of COVID-19 and the derecho.

“This is probably the most exciting budget amendment that we’ve ever had,” Todd said Tuesday. “There are several line items there that could break a city if they didn’t have a decent financial plan and a team in place.”

Hotel and convention center complex

The council on Tuesday also authorized the Finance Department to issue a nearly $1.2 million payment to the DoubleTree to cover operating and capital reserve funds for the Alliant Energy PowerHouse convention center and arena complex. The payment is $170,000 less than the nearly $1.3 million payment issued in fiscal 2020 for the 2019 calendar year.

The city-owned DoubleTree by Hilton hotel closed at the onset of the pandemic in March until early July 2020 as the pandemic upended travel and disrupted the hospitality industry.

Hilton manages the entire complex, which Drew said allows the city to save on staffing of each individual venue (the hotel, convention center and arena). The city’s 10-year agreement with Hilton ends in 2024, with a five-year renewal option.

As of June 30, 2020, Drew said the hotel has $34 million in outstanding debt and the convention center has $37.2 million in outstanding debt.

City officials over the years have raised questions of when would be the right time to find a private owner for the hotel, but have indicated that time is not likely to come soon.

Before COVID-19, Drew said the PowerHouse complex brought more than 200,000 people to downtown Cedar Rapids, “which has helped bring significant dollars to our community, and the complex continues to be a positive investment for the community.”

“The financial operations of the PowerHouse Complex are reviewed on an annual basis and have been meeting the city’s expectations,” Drew said.

Comments: (319) 398-8494; marissa.payne@thegazette.com