By DINA ARÉVALO, MATT WILSON and XAVIER ALVAREZ
Rio Grande Valley municipalities have begun to assess how COVID-19 will impact city finances as the coronavirus pandemic continues to strangle the economy across the nation.
While local leaders in Hidalgo County anticipate a steep decline in sales tax revenues, on the whole, they hope it will not be catastrophic.
That assessment comes with a catch: the longer the crisis lasts, the harder Valley cities will be hit by its economic repercussions.
April’s sales tax figures — which track collections in February, before local orders prompted the closure of businesses deemed non-essential — already show a decline in all but eight of Hidalgo County’s 22 cities.
Drops ranged from less than a percentage point to 32%, with McAllen and Weslaco exceeding 4% in losses, 14% in Edinburg and 3% in Pharr. While some cities, such as Mission (3%), showed an increase in February, March’s numbers are expected to be grim for all local municipalities.
Here’s how some of these cities plan on weathering the storm.
Mission Mayor Armando O’Caña said he anticipates sales taxes in his city dropping tremendously and that several projects have either been slowed down or put on hold.
According to O’Caña, affected projects include the Military Parkway expansion, and upgrades to the water line in South Conway and sewer lines in both North Conway and North Shary.
O’Caña said the city has a fund intended for natural disaster expenses like hurricanes that has not yet been tapped, and he hopes the Valley doesn’t get hit by a significant storm during hurricane season.
The city’s finance director will give a report Monday after which the mayor expects to have a clearer picture of the situation, although he says the long term economic aftershocks might not fully be understood until the summer.
Mayor Jim Darling said sales taxes make up a significant part of McAllen’s revenue and the pandemic’s impact on local business will certainly affect the city, but the city should be able to weather the storm financially.
“We’ll be OK,” he said. “We’ll definitely have to go into our general fund monies, which are normally reserves.”
Darling also said that bridge revenues, the third or fourth highest form of income for the city, have been significantly impacted as well.
“Our bridge revenues are anywhere between 70-85% down, depending on cars versus pedestrians and those kind of things,” he said of the Hidalgo-Reynosa International Bridge, which the city of McAllen has a stake in.
According to Darling, the city should have enough funds on hand to avoid a drop in its credit rating or major disruptions to city operations.
“From an overall standpoint, we’ve made adjustments in no new hires for a while, no replacements for a while, so we’re making adjustments from that standpoint,” he said. “We want to go forward with the bond issues, we have the money in the bank for that, so that shouldn’t affect us from that standpoint. In fact, we’re doing work right now on bond work and roadwork and drainage projects.”
Darling did say some pending economic development projects may be affected, some of which are in the manufacturing area.
“We’ll see whether any of the ones in the hopper get funded or not,” he added.
The mayor also acknowledged that the overall impact of reduced commerce would depend on the severity of the pandemic.
“It depends on how long it lasts,” he said.
Mayor Richard Molina says he expects a significant decline in sales tax revenue in the city, largely from the retail, restaurant and entertainment industry.
“It’s going to be a drop of … I want to say at least 65%, more than half,” he estimated. “The sales tax has been very, very high at your H-E-Bs, your Walmarts, your meat markets, but in other places it’s just been devastating.”
Molina said he expects sales tax collections from other businesses that have been deemed essential and are still functioning to be impacted as well, due to economic uncertainty and coronavirus regulations. He’s even noticed a decrease in traffic to hardware stores and other retailers that are essential.
“There’s been an additional dropoff because people don’t want to wear the facial covers, so they’ll just end up staying home,” he said. “It’s an uncertain time.”
Still, Molina said that so far, the city is not in financial peril.
“We have to have at least 25% of our total budget saved,” he said. “That allows us to operate with all our staff, 100%, for 90 days. … If this continues, absolutely it could become an issue, but as for right now, we haven’t dipped into that, so we’re still good.”
Molina said at this point there’s no hiring freeze at the city and he doesn’t expect it to affect any ongoing projects.
“We have a park that’s being constructed right now, Northside Park, that is still going. We have a police department substation and a new fire department on Davis Road, that is still going. We have some gymnasiums that we’re going to be building through our parks and recs program, as far as I know that is still going,” he said.
If the virus continues to throttle the economy, Molina said, it will certainly put a hold on future projects.
“It kind of freezes everything. If this continues down, we’re not going to be able to do quality of life projects that we’re usually able to do,” he said.
A month into its response to a global pandemic, the city of Weslaco is still in good financial shape.
That’s according to City Manager Mike Perez, whose conservative fiscal practices have thus far helped the Mid-Valley’s largest city weather the unprecedented health disaster of COVID-19.
“Financially, we’re okay. We’ve got the money to continue to pay our first responders and do all the things we need to do,” Perez said Thursday.
And, beginning in mid-March, the city also elevated its emergency response to the highest level, ramping up its Emergency Operations Center to round-the-clock operation. The city has also made staffing changes — lengthening shifts for police officers and reorganizing other city staff, such as library employees, to one week on, one week off flex schedules.
The changes have added up, however. Over the last 30 days, Weslaco’s “burn rate” — the amount of money it has spent in response to the pandemic — has climbed into six figures. Perez said Weslaco has spent $315,000 to pay for overtime, changes to the police department’s shift structure and the EOC’s COVID-19 response.
“All we do all day long is COVID-19 stuff,” Perez said, including coordinating with residents who need to be tested, coordinating their trips to physicians and more.
Thanks to a healthy cushion in the city’s general fund, the mammoth emergency expenditures haven’t begun to pinch yet, but they will if the emergency continues for a prolonged period of time.
“I think, financially, we’re gonna be fine,” Perez said. “All the cities who have practiced conservative budgeting and have practiced having reserves I think are gonna be OK.”
Financial advisors often tell government entities to maintain enough reserve cash on hand to pay for at least 90 days of operations should revenue streams dry up. Weslaco’s operational reserve exceeds that — it’s between 110 to 120 days, Perez said.
Still, the pandemic’s impact on crucial sources of revenue, such as sales taxes, is something Perez is keeping a close eye on. Already, sales tax figures from February show revenues have begun to slide, according to data released Wednesday by the Texas comptroller.
It will take some time to get a clear picture of how the pandemic will ultimately impact Weslaco. Perez makes it a practice of paying for projects one year in advance, meaning the costs of this year’s infrastructure, maintenance and other projects were accounted and paid for by setting money aside last year, he said.
“So, I’m good this year, but it’s next year I’m gonna have to figure out how much I’m gonna be short and what’s gonna have to be cut,” he said.
In his preliminary estimates, the city could be facing a $3-4 million shortfall at the end of the fiscal year, Perez said. However, the city hopes to be able to tap the federal government for the financial help it specifically created for local governments as part of the CARES Act — the $2 trillion economic relief bill approved by Congress last month in response to the pandemic.
One month in, the city’s finances are still humming. And Weslaco has another “30 days, 40 days” before it will be forced to tap into its Rainy Day Fund, Perez said.
With the city now at its halfway mark for the fiscal year, and after recently receiving guidance about the CARES Act, Perez said he and the city’s finance department have begun a detailed analysis of how the pandemic will impact the city over the long term, and whether it will be forced to dip into its 90-day reserves. They expect to have better financial projections within the next week or so, he said.
“We’re good now, but next year’s gonna be a really tough year for all of us,” Perez said.