The city of Sherman is looking for ways to tighten its belt ahead of an expected sales tax shortfall due to the COVID-19 epidemic.
City officials said this week that the city could see about $1 million less than anticipated for 2020, with that number rising to $3 million for 2021. The comments by city leaders come as the city normally starts it budgeting process for the next fiscal year.
“We already know that sale tax receipts come in two months late, so we really don’t know what the hit will be, what businesses are going to be up and which are going to be down,” Sherman Community and Support Services Manager Nate Strauch said Wednesday. “We think some of the bigger businesses around town, such as Walmart and Lowes will actually show an increase, but of course the bottom 90 percent of businesses will show a sharp decrease.
Strauch attributed the shortfall not only to the ongoing closure of many businesses during social distancing, and other recommendations about gatherings, but also the recovery, which could take time and extend into the next fiscal year.
“What everyone would love to see is the so-called drop off the cliff and pop right back up to where it was, but we do not believe that is a realistic goal,” Strauch said. “We believe there are going to be significant delays in restoking demand in the economy, primarily due to the unemployment rate.
“We anticipate when things do bounce back, no matter how quickly they bounce back, they will not bounce back fully to where would expect next year anyway.”
Strauch said the Sherman traditionally derives more of its revenues from sales tax than other cities, who rely more on property taxes and other fees. Last week, the city of Denison announced that it was projecting about a 10 percent decrease in sales tax revenues due to the pandemic and recovery.
“Town Center is the great economic driver of the city of Sherman, and right now it is mostly shuttered,” Strauch said. “The fact that we don’t know what that number will be is terrifying for budgeters, but we will know what it will be and then we will have to adjust our internal budgets accordingly.”
Despite the downturn, Strauch said some businesses, including Lowes, Home Depot, Walmart and Academy, may see profit throughout the ongoing crisis and increase their sales-tax revenues for the city. In other cases, grocery stores may see an increase in sales, but because most of their product is non-taxed, it will not have a significant impact to the city.
“It is really the mid-tier where we think we are going to be hit especially hard — the Belks and the ones that have been deemed non-essential by the governor that would normally make up the big solid middle of our sales tax,” Strauch said.
In response to the expected shortfall, Strauch said the city is already taking steps to lower its expenses and tighten its budget.
While the city has already put in place a hiring freeze, Strauch said the city does not anticipate any layoffs, which he described as “a strategy of last resort.”
Instead, the city is looking to cut its expenses through other means, including limiting training and travel expenses, reducing supplies and equipment purchases. In other areas, the city is considering deferring some maintenance projects and mowing services.
However, the city may also make use of its general fund to soften the blow. Currently, the city maintains about 75 days worth of reserve funding — above the 70 recommended days during normal conditions.
“If this is in fact a sharp fall followed by a sharp recovery, these reserves will help to smooth that out,” he said.
Michael Hutchins is the local government reporter for the Herald Democrat. He can be reached at firstname.lastname@example.org.