Cottonwood’s administrative staff was planning for a much rosier budget projection before the crisis hit.
In the first two months of the year, Cottonwood’s sales tax revenues were on track to have increased by 7% compared to the previous year, according to Cottonwood Financial Services Director Kirsten Lennon. Lennon said that she had previously anticipated a 2% increase, so the city was anticipating an easy budget process.
The COVID-19 crisis lead to a shutdown of much of Cottonwood’s economic activity, leading to a resulting sharp drop in tax revenues. Though the city only has tax data through March, staff have adjusted projections for this year and the next, anticipating at least a 5% drop in revenues over the next two years.
“Restaurant and bar, hotel/motel, even amusement — that’s going to go down,” Lennon told the Cottonwood City Council at a May 21 budget work session. “All these things that normally are a little bit higher, are going to go down. That’s what’s going to drop during this time. And retail sales, because people aren’t going to go out and buy big items. They’re going to buy food. So when I looked at March’s numbers, even our food for home consumption skyrocketed, but everything else went down.”
As a result, the anticipated general fund budget for Fiscal Year 2021 will drop by 1.74%, going from $27,750,605 to $27,266,585. This drop was mostly accomplished through cuts to payroll. During the acute period of the crisis, all part-time employees were furloughed, saving the city $120,665. In addition, four full-time employees and one part-time were let go permanently, saving the city $322,350. The city is also leaving some vacancies it had hoped to fill empty in order to save money.
While the sales tax revenues and discretionary budget have contracted, the total revenues, and the resulting spending caps that the city budgeted for, went up by 4.22% to $79,227,325, mostly due to an increase in water and wastewater revenues and costs.
“The water rates have gone up, or will go up this year,” Town Manager Ron Corbin said. “Wastewater went up last year. It’s going up again this year. Those two funds alone will have more revenues, given the same number of customers.”
Despite some contraction, the city is anticipating continuing on its goals of lowering its debt — at a total of $37,275,080 as of 2020, after some refinancing for a lower interest rate in 2015 — and increasing its reserves. In 2018, the council increased Cottonwood’s sales tax by .5% with the intention of paying down the reserves. Corbin said that the city’s current level of reserves roughly covers its monthly operating expenses, making it an effective rainy day fund, but that he hopes the city can increase it to create greater flexibility.
“It’s like we’re living check to check,” Corbin said. “We’re solid, we can do it. We’re fine. But I don’t think it’s where we want to be.”
One aspect of the budget that brought controversy from the council was the plan to cut the funding of more than $200,000 to the Cottonwood Chamber of Commerce, with the intention of replacing it with $100,000 in direct marketing funding.
“I hate to see the chamber lose their entire funding, and I’m the one who can maybe bring some history to where we are today,” Councilwoman Debbie Wilden said. “I’m not saying that we should give them a lot of money, but I hate to see us take everything away, for a nonprofit that brings money into the city.”
