The COVID-19 pandemic is causing a lot of financial pain to our local businesses, and many of our residents who have lost their jobs. The pandemic is also expected to cause a good amount of financial pain to state and local governments across the country. Washington D.C projects a loss of $722 million, Montgomery County is expecting a loss of $600M . Prince George’s County officials are also warning a revenue loss due to COVID-19. According to the Washington Post, local governments in D.C. region are revising budgets, halting projects to blunt economic impact of COVID-19. Maryland is expecting a budget loss of $2.8B, and Gov Hogan has ordered a budget freeze to address the COVID-19 impact.
Thanks to our City staff, who have made some initial projections on how the pandemic might impact City’s pocketbook. You can read staff comments here on this week’s Council meeting packet (starts on page 247). The City Council will discuss these numbers at this week’s Council meeting.
According to City staff, College Park may experience $2 million of reduced revenue and additional contingency due to the pandemic. This projection is based on the assumption that businesses will be starting to be back to “normal” by June 30 this year, which marks the end of the FY2020 fiscal year. Most experts think the economic effect of COVID-19 pandemic will continue for at least 3 years.
College Park’s projected losses amount to about 10% City’s total FY 2021 revenues, which is projected at $20.35 million.
The projected loss of $2 million includes losses in revenues from admissions and amusement tax, personal property tax, income tax, highway user tax, hotel/motel tax, occupancy permits, parking meter revenue, garage pay station, and garage parking. It doesn’t, however, account for any impact on City’s property tax revenue. Please read on that later.
Also, please note that the projections are only estimates – the actual figures will depend on how things evolve in the coming days.
Admission & Amusement Tax (Total Revenue $650,000)
City gets this tax on revenues derived from entertainment and amusement activities such as motion pictures, coin-operated amusements, and athletic events. This includes the University of Maryland’s athletic events, which accounts for the majority of this revenue. The revenue is estimated based on 3-year historical trends. With all UMD games closed due to pandemic, staff estimates a loss of 10% each in FY 2020 and FY2021. The FY 2021 estimate may be more if the UMD does not open its games this fall.
Hotel & Motel Tax (Total Revenue $1,400,000)
The hotels and motels in College Park and around the country are experiencing a big hit in financial losses as most Americans have canceled non-essential travel plans due to the Stay-at-Home orders imposed by most U.S. states. About a month ago, the Hotel at the University of Maryland laid off 150 people after temporarily closing its doors. The City projects a loss of 30% of the estimated Hotel & Motel tax in FY20 and FY21 from the hotels in College Park. This tax comes from an allocation of the County-imposed hotel tax (not a separate/additional City tax). The city receives one-half of the 7% tax collected by Prince George’s County. Estimates are based on 2-year trends.
Income Tax (Total Revenue $2,100,000)
With millions of Americans losing their jobs City gets this tax from the part of the income tax City residents pay. The State Comptroller distributes an amount that equals the greater of a) 8.5% of the State income tax liability of College Park residents; b) 17% of Prince George’s County income tax liability of College Park residents; or c) 0.37% of the Maryland taxable income of City residents. Estimates are based on the current year’s projected receipts. Staff estimates a 5% loss of the HUR tax both in FY 2020 and FY2021 due to the COVID-19 impact.
Personal Property Tax: $1,000,000
Staff estimates a total loss of 10% both in FY 20 and FY 21. This tax cut is determined by applying the Proposed tax rate to the assessed value of inventory, furnishings, and fixtures on all businesses located within the City. Assessed values are determined by the State from annual reports filed by each business entity. FY2021 estimate based on $119,331,700 estimated assessed valuation of personal property @ $0.838 per $100 tax rate, same rate as prior year.
Highway User Tax $637,145
The City and the other municipalities get the Highway User Revenue (HUR) from the Maryland Department of Transportation’s State Highway Administration (SHA) on the usage of the State roads and high ways. Estimates are provided by the SHA based on the most recent registration and mileage data on file.
The Maryland Municipal League (MML) has advised municipalities to lower down the revenue figure in the FY21 budget. In its March 21 memo, the MML writes:
“Because so many businesses have shut down and people are hunkering down at home, we can anticipate significant decreases in gasoline sales and vehicle titling. Resulting decreases in gasoline tax revenues and vehicle titling fees that support HURs will depress these revenue receipts and result in lower HUR distributions for both this fiscal year and next. You will want to factor that in plugging HUR projected revenues into your budget revenue projections.”
Staff estimates a 10% loss of the HUR tax both in FY 2020 and FY2021 due to the COVID-19 impact.
Staff’s $2M projection, however, does not include possible losses in property taxes, which may happen if the effect of the current economic downturn continues. The property tax is based on triennial property assessment. The next assessment is expected to happen in early 2022. About 50% ($10 million) of City revenues come from real / property taxes, thus a reduction of property values/housing market may have a significant negative effect on City’s revenue starting in FY2023. Though most experts are predicting a softening of the housing market, they’re still debating the extent of that effect.
Thanks to the good pre-COVID economy, the City can absorb the $2M loss for now without cutting any services or programs. However, if the revenue loss due to the current economic downfall continues, the City may consider adopting other extreme measures, depending on the scale of the future revenue losses. Those measures may include (a) reducing departmental expenses (b) deferring capital expenditures (c) depleting fund balance/reserve (d) staff reduction (e) tax increase.
Let us hope that situations get back to normal soon so that we do not need to take any of these extreme measures.
Please let me know if you’ve any questions. Thank you.
[Disclaimer: The views and opinions expressed in this post are those of mine alone and are not necessarily those of City of College Park, or any other organization that I’m officially affiliated]