CORONAVIRUS

Iowa's cities fret over how they'll make ends meet

Costs rise while revenue drops, and CARES Act may not help

The city of Cedar Rapids has directed some of the hotel-motel tax it collects to pay off debt for the city-owned DoubleT
The city of Cedar Rapids has directed some of the hotel-motel tax it collects to pay off debt for the city-owned DoubleTree by Hilton Hotel and U.S. Cellular Center, pictured here in 2017. But with hotel closures and plummeting occupancy, that source of revenue is dropping. (Liz Martin/The Gazette)

CEDAR RAPIDS — Unanticipated costs and plummeting revenues are putting a double whammy on local governments, leaving them looking to the state and Congress for a lifeline.

“Hopefully there’ll be monies available to counties and cities that are many times on the front lines of providing services that are critical for people during this time,” said Linn County Supervisor Ben Rogers.

It’s not just a question of how to cover the additional expenses that have arrived with the coronavirus — cleaning supplies and equipment as well as personal protective gear, for example. It’s also maintaining basic public services, Coralville Mayor John Lundell said.

“People still expect us to pick up the garbage and refuse and recycling and provide police and fire and so many of these services,” he said. “There aren’t a lot of options.”

Without additional revenue, cities and counties face hard choices, local leaders say.

Already city hall is being asked to forgive water and sewer bills for not-for-profits and low-income residents, Lundell said. Those revenue streams are stable for now, but the mayor expects that to change because of high unemployment.

“It will be a hard decision because you’re shifting the expense on to the rest of the community,” Lundell said.

Cities and counties already have submitted their budgets for the coming fiscal year that starts July 1, “so there isn’t a great amount of elasticity,” Rogers said.

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“We’re not allowed really to raise our (property tax) levy unless the Legislature gives us flexibility,” he said.

So far, the multiple relief packages approved by Congress have not specifically addressed the needs of local governments — “which is really concerning because we’re just seeing the beginning stages of the impacts,” said Coralville City Administrator Kelly Hayworth.

Cities are in the final quarter of their fiscal year, but when the new fiscal year starts “that’s when we’re going to see even more impact than we are today,” he said.

Iowa, which has a state general fund budget approaching $8 billion, has received $1.25 billion from the Coronavirus Aid, Relief and Economic Security, or CARES, Act.

Of that, $688 million is earmarked for state government. The remaining $563 million is designated for local governments serving populations of 500,000 people or more.

But Iowa doesn’t have any local governments big enough to qualify for those funds, so they will revert to the state.

Local government leaders hope the state will commit some of that money to its cities and counties.

“There’s no requirement for them to share any or all of any amount with the cities, and we have not heard anything about any intent to do so,” Lundell said. “But it could be early in the process.”

He’s right, according to David Roederer, director of the Iowa Department of Management.

“Generally the guidelines come first and then the money,” Roederer said — but the state didn’t receive the Treasury Department guidelines until Wednesday evening.

Gov. Kim Reynolds planned to meet with her team to discuss how the $1.25 billion will be used.

“So we’ll sit down and work with the team today and just kind of take a look at what that looks like and how we can utilize the funding,” she said Thursday.

Reynolds believes the president and Congress have given states “as much flexibility as they can,” but none of the CARES Act funds can be used to replace any current budget expenses.

“We’ll just have to wade through some of the other details that we have and see how that works with our local governments,” the governor said.

Roederer, who is married to a suburban Des Moines mayor, is aware of local concerns.

“We know it’s an issue that’s out there, but we want to see the guidelines before we have that discussion,” he said.

Still, Roederer and the local officials believe the money can be used only for unbudgeted expenses.

That’s a concern for local governments because, while they are incurring additional expenses, “they pretty much pale in comparison to the decreases in revenue that we’re seeing,” Lundell said.

“We just want to make sure that any funding programs recognize that a loss in revenue or anticipated revenue equates to an expense, an out-of-pocket expense,” he said.

In Coralville, for example, the city is estimating a $1.3 million loss of hotel-motel tax revenue, “which obviously is a lot of money for a community our size,” Lundell said.

Cedar Rapids collected about $3.94 million from hotel and motel guests in 2019, according to the Iowa Department of Revenue. It budgeted $2.37 million to pay debts at the city-owned DoubleTree Hotel and Cedar Rapids Convention Center and for operations and losses at the ice arena, and for the Cedar Rapids Metro Economic Alliance.

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It won’t only be city governments that feel the pain of empty hotel rooms. In Cedar Rapids, for example, $1.47 million of the hotel-motel tax revenue went to 22 organizations after a competitive application process.

A Cedar Rapids spokeswoman said staff is compiling information, but won’t know the impact for a couple weeks.

Local governments also stand to lose sales tax revenue because many businesses are closed. Johnson County retailers reported $503 million in taxable sales last year, while in Linn County the amount was nearly $1.1 billion.

Unless it shares its $1.25 billion in federal assistance, the state may be hard-pressed to help local governments in other ways because — like cities and counties — the state’s revenue losses also will be significant.

A month ago, state revenues were up 5 percent over 2019. Thursday, total tax receipts were 1.55 percent ahead of the previous year, but personal income tax receipts were 2.53 percent lower than a year earlier.

Revenue from personal and corporate income taxes “have really taken a hit in the past week or so,” said Jeff Robinson, a fiscal analyst with the Legislative Services Agency. “The actual impact of the economic situation will start to show up in income tax withholding and sales tax fairly soon.”

It’s too soon to panic, Roederer said. In addition to the $1.25 billion, the latest round of federal assistance includes some funding for hospitals and health care.

“So we’ll have to see where all the sources of money are coming from before anybody would say there is not money for one thing or another,” Roederer said. “I don’t think we know yet.”

Rogers said he is trying to stay positive.

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“I mean, we’re realists and optimists,” he said. “We’re still going to have to carry on no matter what decisions are made. So I hope we’re not overlooked. We’re going to continue to operate and provide the services that are critical.”

Comments: (319) 398-8375; james.lynch@thegazette.com

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