‘This will be painful’ Gorton says Lexington will have to cut $40 million from budget
Lexington Mayor Linda Gorton announced Monday the city was looking at a $9 million hole in its current-year budget, and she predicted a $40 million deficit for the fiscal year that begins July 1.
“This kind of drop is unprecedented in the 46-year history of the Urban County Government,” Gorton said. “It represents a 10% decrease in our general fund revenues. This will be painful.”
On April 7, Gorton said the shortfall in this year’s budget was in the millions. But the city wouldn’t know exactly how much those revenues had dropped until it had more data — including the number of unemployed in Fayette County.
More than 50 percent of the city’s revenue is from employee withholding — a tax on wages. The other major revenue generator is a net profit tax, a tax on businesses. Both streams of revenue have been decimated by the ordered closures of businesses to stem the spread of the novel coronavirus.
Nearly 20 percent of Kentucky’s estimated 2 million workers have filed for unemployment since March. In Fayette County, the unemployment rate is now more than 18 percent, city officials said.
Prior to the coronavirus outbreak, the rate was typically below 3.4 percent, one of the lowest in the state.
Gorton said in early April she had slashed spending in most areas and had frozen hiring to help make up for the revenue loss in the current year. The $379 million current-year budget is already lean — with 15 percent cuts to many spending areas and few new, big-ticket capital projects.
At the time, the first-term mayor said trash pickup, public safety and other public-facing services citizens depend on were not affected by the spending cuts.
Gorton will unveil her budget for the fiscal year that begins July 1 on April 28. More details about what types of cuts the city will implement to balance its books and make up for the expected $40 million loss will be announced at that time, city officials said Monday.
“The economic impact of the pandemic is sudden and deep. We have no experience with anything like this,” Gorton said. “Even so, I have confidence Lexington will adjust to this uncertainty. The government will weather this event and be ready to help rebuild our economy.”
Susan Straub, a spokeswoman for the city, said there will be no tax increases for the upcoming budget. Now is not the time to raise taxes, she said.
Cities and counties across Kentucky are seeing revenues — the amount local governments receive from taxes and fees —in free fall. Local governments in Kentucky’s coal-producing counties, already hit hard by job losses before the coronavirus outbreak, are in particularly dire financial positions.
The $2 trillion coronavirus relief package passed by Congress did not give cities and counties money to shore up revenue shortfalls caused by the pandemic.
Lexington is more fortunate than many cities, Gorton said.
“We will not have to claim bankruptcy. We will manage our cash to stay afloat,” Gorton said.
Over the years, the city has socked away more than $35 million in an economic contingency fund for such emergencies. It also has an additional $11 million in a different reserve account to pay for increases in city employees’ pension costs.
The state rolled back a predicted increase in those pension payments earlier this year to help cities manage cash flow during the pandemic, said Bill O’Mara, Lexington’s finance commissioner.
But Gorton cannot use one tool that other cities have used — she can’t furlough employees. A state statute forbids furloughing Lexington-Fayette Urban County government civil service employees. It’s unique to the Lexington-Fayette County merged government.
Louisville Mayor Greg Fischer announced last week that he was furloughing 380 Louisville Metro employees, a cost-cutting move as Louisville also faces current-year revenue shortfalls.
Fischer has also repeatedly urged Congress to give additional funding to local governments to make up for revenue shortfalls. The money smaller cities and counties are eligible for in the current $2 trillion relief package is for coronavirus-related costs —such as buying masks, gloves and other personal protective equipment and paying overtime for first responders.
Louisville was the only city in Kentucky to get a direct allocation for COVID-19 costs because of its size. Other cities and counties have to submit those costs to the state or federal government for reimbursement.
On Monday, Gorton said the experts the city consults to set its budget revenue estimates predict that it will take a long time for taxes and fees to return to pre-pandemic levels. That could mean several years of very lean spending.
“We have to reset our economy,” Gorton said.
This story was originally published April 20, 2020 at 10:50 AM with the headline "‘This will be painful’ Gorton says Lexington will have to cut $40 million from budget."
