HOLBROOK — The Navajo County Supervisors this week adopted the final version of its fiscal 2020-21 budget, with a nice thick cushion against the possibility of a pandemic fiscal disaster.
The final budget includes a 12% increase in the $48-million General Fund, with state and federal grants more than offsetting a big drop in sales tax due to the pandemic.
Better yet, the budget includes a $10.5 million reserve fund.
“The budget leaves us prepared to respond to health emergencies, as well as other emergencies,” said Assistant County Manager Brian Layton in presenting figures unchanged from the preliminary budget the board reviewed two weeks ago.
“This budget focuses on very strong financial reserves and remains intensely focused on keeping operating costs low. The (voter approved) jail district and the (Federal) CARES Act money have left the county on a positive financial footing,” said Layton.
The county will actually cut the property tax rate slightly, but still collect an additional $100,000 thanks to new construction and a rise in assessed values. The property tax should bring in $7.6 million, but will remain nearly $500,000 below the state-allowed maximum.
On the other hand, the projections call for a big drop in both local and state-shared sales tax. This year, the sales tax brought in $20.6 million. Next year, it should yield just $15.2 million, with a projected 30% drop in local sales tax collections thanks to the long business shutdown, the sag in spending in stores and the impact of still-rising COVID-19 cases on the economy.
Budget planners also gained confidence in their projections due to a better-than-expected statewide financial picture.
The Joint Legislative Budget Committee back in April predicted that the state’s projected $1 billion surplus would turn into a $638-million deficit in the current fiscal year – thanks to an historic rise in unemployment and the shutdown of a broad swath of the state’s economy during the “stay-at-home” order period.
But last week, the non-partisan budget analysts for the state revised the predicted shortfall to about $190 million. The shift reflects both a smaller than expected revenue drop and an infusion of federal funding from the CARES Act and other measures. The state had just passed a state sales tax on online sales before the pandemic hit – which limited the revenue losses as people shifted to online spending. Moreover, the $1,200-per-taxpayer check included in the CARES Act gave many people a flush of cash to spend.
The state legislature hastily adopted a “skinny budget” that provided only minimal added funding for schools and avoided any expensive new programs. Lawmakers then fled the capital as infections claimed a handful of their colleagues.
The JLBC analysis predicted the shortfall for the year starting in July will result in a $708 million deficit by this time next year – about $400 million less than originally projected.
Major uncertainties remain. Gov. Doug Ducey held onto about $1.4 billion in federal CARES Act money instead of passing it along to school districts, counties, towns and others. However, school districts are now facing potentially major, uncovered costs should they resume in-person classes. The state’s testing system for the virus has been swamped, along with county health department efforts to identify and isolate freshly infected people, much less to do the kind of contact tracing epidemiologists say they’ll need to slow the spread of the virus.
It’s unclear whether a now bitterly divided Congress will extend the expensive programs that minimized the impact of the initial shutdowns. The expanded unemployment benefits end next month and most of the money for the small business loans and grants has already been spent. Some 25 million people annually are still unemployed, with a national rate of about 10%. Fresh shutdowns in hard-hit states could cause that number to once again rise. The enhanced unemployment benefit not only covers part-time and self-employed workers, it gives about two-thirds of the people receiving benefits more money to live on then they had when they were working. The extra money has buoyed the state economy while limited the financial devastation among the low-income workers hardest hit by the pandemic.
All that uncertainty helps explain why Navajo County made boosting the budget reserve from about $2 million to nearly $11 million its top priority. During the 2008 recession, the big drop in sales taxes devastated the county budget – forcing layoffs and years of wage freezes. The county never built back its workforce, since the effects of the recession lingered in rural counties throughout the state even after Maricopa County had fully recovered.
Moreover, voter approval of a sales-tax-supported jail district late last year also gave the county a welcome, additional cushion.
“We don’t know what the economy is going to do,” said Layton. “So we want to be prepared. During times of economic trouble and sales taxes drop, the demand for government services goes up. We have the infrastructure ready to respond to the continued public health emergency we’re facing,” he said.
The budget did a couple of big spending increases, including an extra $300,000 to continue chipping away at a yawning deficit in county contributions for the Public Safety Personnel Retirement System (PSPRS) for deputies, jail staff and elected officials. The county now contributes roughly 60% of each deputy’s salary to the retirement system, which got into a deep hole due to reduced investment returns and increased pension formulas during the recession.
The budget also includes $800,000 to upgrade the tax collecting software and record-keeping in the county treasurer’s office, since the county collects and then distributes the property taxes for almost every school district and special district in the county.
The Board of Supervisors on Tuesday also adopted stay-the-course budgets for a host of special districts and special funds, often financed mostly by separate property tax levies or state and federal grants. These other funds totaled some $100 million, but that includes a lot of place-holding budget categories for state and federal grants the county may – or may not – receive.
In the general fund, about 41% of the $48 million covers the cost of courts, jails and the sheriff. About 7% goes to the state to support programs like the Arizona Health Care Cost Containment System, about 10% goes to mandated services and about 20% goes for county-wide costs and administration. The reserves amount to 22% of general fund spending.
Supervisor Daryl Seymore complimented county staff on holding the line on the budget. “We’re one of four counties that did not take a property tax increase,” said Seymore. “We’re not always in that position – but we’re glad we’re in that position at this time.”
Supervisor Dawnafe Whitesinger commented, “we have worked for years to be able to present this type of budget. We’ve had many challenges in meeting the mandates that are passed to us through the state and the requirements outlined by the state. We all had to roll up our shirt sleeves to still provide services in a professional and sound way.”
Supervisor Jesse Thompson said, “thank you. You’re awesome. And thank you to every citizen from north to south who has contributed towards maintaining economic growth in Navajo County.”