Las Vegas officials don’t yet know how badly the novel coronavirus will hurt the city’s budget, but business closures may trigger financial turmoil that rivals the Great Recession.
But unlike the economic downturn more than a decade ago, this crisis came on suddenly, with an assortment of sales tax-paying establishments shuttering practically overnight.
Health and safety measures enacted across the U.S. are likely to hit all local governments in the wallet but it is expected to strike a particularly hard blow on the city, which collects more than half of its income from consolidated tax revenue — principally sales tax.
“We’re the most undiversified city probably in America, and tied almost exclusively to tourism and entertainment, and there’s a consequence for that,” City Manager Scott Adams said.
But as much as the situation is “very, very critical,” it is also unclear: The city receives tax figures from the state two months behind so it will not understand the effects of the governor-ordered nonessential business shutdowns until May.
So Adams said the city has approached the state in an effort to obtain real-time information to mitigate an immediate problem also faced by other governments as budget preparations for the new fiscal year kick into high gear. For now, the city is operating on unreliable estimates, and those paint a bleak picture.
Adams said the city could be facing a deficit as high as $100 million in its $600 million general fund budget, although he cautioned that the “very wild” preliminary guess would need to be shored up by actual data. For context, the city adopted a budget with a $5 million surplus last year.
In the throes of the recession in 2010, the city forecast an $80 million shortfall and laid off more than 200 employees in a single day. In response to the current crisis, Adams said he has ordered hiring and expense freezes and nonessential employees have been furloughed.
He said it was difficult to speculate what the final effects could be on the city workforce in terms of cuts as city officials try to balance the budget.
Other factors complicate projections of how Las Vegas will be affected: The unknown length of social distancing and business closure mandates, what the recovery will look like and how long it will take for consumer confidence to return to the city.
City officials had already adopted certain precautions prior to the pandemic, including freezing non-critical positions to plan for tougher roads ahead, a practice that led to the present fiscal year’s surplus. The rainy day fund also increased last year to more than $120 million, maintaining the city policy of holding reserves at 20 percent of operating costs.
Throughout the pandemic, Adams said the city has focused on three key areas: Resident health, employee well-being and maintaining critical city operations.
But it has been a struggle in the current climate, he acknowledged, to balance keeping people safe and healthy and preserving economic viability.
“And so our goal, we’re really trying to be positive with our businesses, show them how they can continue to make some level of living but meet clearly the [Centers for Disease Control and Prevention] guidelines because I don’t think we think it’s an either/or,” Adams said.
To that point, the city’s assistance to businesses has included deferring license payments with no penalty, freezing license expirations until the emergency ends and, on Thursday, announcing it would offer up to $2,000 in grant funding to businesses in the city’s redevelopment area to reimburse expenses for securing buildings.
Adams said Las Vegas needs federal support, including aid to cities and emergency relief to non-city workers.
“I think we’re going to struggle just to get our own employees and our own functions through this crisis,” he said. “The financial impact on us is going to be incredible.”
In declaring a state of emergency last week, the city opened itself to potential funding through the state and federal governments.
As the crisis grows, the city has become “very judicious” about resources. Adams said he placed an emergency order three weeks ago for $50,000 worth of hand sanitizer, an unprecedented amount for the city, but it remains on back order.
Illustrating the city’s conservative approach, it announced Thursday it was amending its plan to sanitize high-touch areas at all 70 of its parks due to a nationwide shortage of personal protective equipment, reserving supply for first responders and “other more vital needs.” The plan had been to clean parks twice daily but now staff will sanitize twice a week as normal, and the city is discouraging use of playgrounds and other equipment. Parks remain open, however.