COVID-19 budget woes lead to hiring freeze in GR

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GRAND RAPIDS, Mich. (WOOD) — Grand Rapids City Manager Mark Washington plans to cut at least $13 million from his proposed fiscal 2020-2021 budget due to the COVID-19 pandemic.

“We have a very hampered economy that’s stalled,” Washington told city commissioners as he presented his preliminary budget figures Tuesday morning.

That hampered economy includes an unemployment rate estimated at just under 22% in Michigan. When people aren’t working, they’re not paying income taxes, the city’s biggest revenue source.

While the city’s income tax is coming in from last year, the budget for the upcoming fiscal year, which begins July 1, is expected to take a hit.

“Right now, we have (a) one month loss. And we don’t know how long that’s going to continue at that rate before the economy gets started again,” Washington explained.

The original $553 million spending plan was cut to $540 million because of the expected drop in income tax and state shared revenues.

Washington is projecting a decline of at least 3% in General Operating Fund revenues in 2021. Projections before the pandemic showed a 4% increase in those same revenues.

Washington said his plan minimizes the negative impact to essential services and avoids dipping into the city’s rainy day funds.

But the $13 million reduction may be just the start.

“The City Commission has to adopt a budget in May, which does not give us a lot of fiscal history with COVID-19. With the recent extension of the Stay Home, Stay Safe order, the need for a phased reopening of the economy and continued economic uncertainty, we likely will need to make additional adjustments of another $5 million to $10 million over a variety of funds in the City budget before or shortly after the fiscal plan’s adoption,” Washington said in a statement released by the city in anticipation of Tuesday’s meeting.

“We will continue to proactively manage our finances as the impacts become more certain. This could be a $23 million decrease in overall spending when combined with the $13 million in reductions included in the preliminary fiscal plan. What were once solid growth projections now point to equally solid revenue reductions.”

Grand Rapids City Hall, which was closed to walk-in traffic due to coronavirus. (April 28, 2020)

No layoffs are planned, but Washington has implemented a modified hiring freeze for nonessential positions. Police and fire are exempt from the freeze.

Employee travel and training have been reduced.

The city was able to negotiate additional cost savings with vendors and suppliers, including $5 million in health insurance cost savings under a new contract that does not reduce benefits.

“Really having a renegotiated health care contract that saves us $5 million in fiscal year ’21 is the equivalent of what many employers had to do with massive cuts, layoffs and furloughs,” Washington said.

Despite the cuts, the budget includes $250,000 for post-COVID-19 economic recovery. Those funds will be combined with $2.2 million in supplemental Community Development Block Grant and $1.1 million in Emergency Solutions Grant funding, with $232,500 in unspent funds for the continuation of the Third Ward equity program for a total of a $3.75 million set aside for community recovery.

Washington says the lessons learned during the Great Recession will help the city get through the current downturn. A strategic transformation plan then helped streamline city government. That, along with a mix of large-scale job cuts, including layoffs, millions of dollars in budget cuts and a voter-approved income tax, kept the city from bankruptcy.

“I think we already had the policies in place that required us to begin to save for fiscal resiliency,” Washington said.

The city has scheduled a public hearing on the spending plan during the regular City Commission meeting at 7 p.m. on Tuesday, May 19. Commissioners are set to vote on the budget May 21.

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