San Antonio is recovering economically from COVID-19, but a deficit in the city’s budget is projected over the next five years, according to a forecast presented to the city council on Wednesday.
The next budget year for 2022 is expected to remain balanced. However, the years after that could see tens of millions of dollars that the city will need to make up as city officials begin to restore cuts initiated during the pandemic. Ultimately, it will be a decision by the city council on how to move forward.
In 2020, the city began cutting back in order to offset the costs of lower sales tax revenues, hotel occupancy tax revenues and other setbacks due to the pandemic.
The city will restore those services in its 2022 budget which takes effect in October, said Deputy City Manager Maria Villagomez.
The restored cuts include “economic development incentives, city wide planning. We had a hiring freeze, the employee furloughs, and street maintenance,” she said. That’s about $37.2 million annually.
From 2023 and 2026, the city could have a deficit in its general fund, which funds most city departments and services. That projected deficit could be as high as $20 million to $46 million each year as the city returns to normal operations, combined with estimated costs of the undecided police contract for the next five years as negotiations continue. The projected deficit is about $148 million.
The city is expected to receive $326 million for recovery from the American Rescue Plan Act, or ARPA, passed by Congress earlier this year. That money can be used to offset some of the city’s projected deficit but it won’t cover everything because of time limits on when it can be used. All funds must be used by the end of 2024 and cannot cover costs occurring in 2025 and 2026.
City Manager Erik Walsh told the city council that the city is determining what would qualify.
“The purpose of that money was for financial stability, revenue recovery -- both past and potentially in the future -- and any immediate needs but we’re going through that process right now,” he explained.
By the time the 2021 fiscal year is over in September, the city is expected to have about $24 million left over, which would be used to offset the upcoming deficits helping balance the 2022 budget.
Years 2023 and 2024 could benefit from ARPA but the city council will determine how to fill any further revenue gaps, said Scott Huizenga, the city’s budget director.
“We took our first shot at providing a revenue forecast for this round. That can change. We’re hopeful that revenue is part of that discussion. The rest of it will be deciding on what the council policies are, especially in those out years as stimulus runs out,” he said.
The city budget over the last two years has remained flat at $2.9 billion due to the pandemic.
The city’s three main revenue sources include sales tax, property taxes, and revenues from CPS Energy, the municipally owned power utility. While sales taxes have rebounded; hotel occupancy taxes, or HOT, performed worse than expected.
The city uses HOT revenues for most of its hospitality dedicated departments and facilities like the convention center and Alamodome. The city lost about $120 million in HOT revenue in 2020 and 2021. It is not expected to rebound to 2019 levels until 2026. The city had furloughed many employees in the Convention and Sports facilities department but those jobs will be among those restored for the 2020 budget.
CPS Energy has faced its own shortcomings from the winter storm. The utility is suing natural gas providers and the Electric Reliability Council of Texas, or ERCOT, over what the utility called exorbitant prices for energy as the cost of buying gas and additional electricity skyrocketed. Early estimates pinned the cost at about $1 billion. The city council approved a CPS Energy request to use loans to off set the cost for the time being.
CPS Energy makes up about 27% of city revenues. City budget officials have not yet factored in financial impacts on CPS Energy.
“We’re not making assumptions on any of that right now. Ultimately it could impact us and we’re closely coordinating with them so that we understand the impact to us but I think it’s too soon for us to know,” Walsh said.
Currently, CPS Energy is owed $100 million in unpaid customer accounts as it paused disconnections during the pandemic.
The budget process for 2022 is expected to take the entire summer. The council will see a 2-year trial budget on June 16 and a proposed 2022 budget in August. It must be approved by mid-September. The city’s fiscal year begins on October 1.
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