How 'Almost A Virtual Shutdown' Will Impact The Phoenix Budget

By Christina Estes
Published: Friday, April 3, 2020 - 8:28am
Updated: Friday, April 3, 2020 - 12:53pm

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Christina Estes/KJZZ
Phoenix City Hall.

Phoenix leaders were told to toss out the trial budget they received and start all over. Just three weeks ago, the city had a surplus of $28 million. Today, the city is facing a deficit that’s nearly that much — and maybe even more. 

During a presentation to the City Council on Thursday, City Manager Ed Zuercher said council members need to approve a flexible budget that starts July 1st that’s not too optimistic or pessimistic.

“We’re recommending preparing potential cuts in phases so that you’re able to evaluate those cuts against the economy in real time throughout the next 18 months,” he said. “That means we’ll be assessing and adjusting monthly or even more often throughout 2020 and 2021.”

Retail sales and tourism and entertainment account for about 30% of Phoenix’s general fund revenue. The city won’t get a sense of the sales tax impact from business closure for another month because there’s always a lag in tax collection and reporting, but they know it will be significant. That's why Deputy City Manager Jeff Barton is asking all city department heads to start working on budgets that include cuts of 25%. During the Great Recession, Barton said Phoenix revenue losses were between 6% and 12%. 

“What happened to us in the Great Recession, we had a slowdown,” he said. “What we’re seeing now is almost a virtual shutdown or stoppage. We’re getting very little sales tax revenues in at this point and time.” 

Barton presented four scenarios to the council with budget deficits ranging from $26 million to $128 million depending on how long the downturn lasts. 

Although the state has designated some of its rainy day or contingency fund to coronavirus efforts, Barton strongly advised against Phoenix using any of its $55.4 million contingency fund. That’s because rating agencies look at the fund when they rate the city. The stronger the ratings, the lower the interest rates Phoenix can pay when it issues bonds.

Some council members asked about using money from the $2.2 trillion Coronavirus, Aid, Relief and Economic Security (CARES) Act to address the city’s deficit. It appears Arizona could get over $4 billion from the federal government with Phoenix and other large cities and counties splitting $1.3 billion of the state's share. But Barton said the language requires the money be used to cover costs directly related to the coronavirus that were not already covered in their budgets and cannot be used to make up for revenue shortfalls.

“This is not going to be the magic elixir or the magic bullet to fix what we’re projecting may happen to us over the next couple of months," he said. 

The council will discuss a revised budget next week with plans for public outreach yet to be announced. Before the coronavirus outbreak, Phoenix had planned a series of public budget hearings across the city to begin April 2.

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