ANNOUNCEMENT

Revenue shortfalls impact the City of Lawton budget

Published Sunday, May 10, 2020
by Kim McConnell

Revenue is the driving factor in crafting the City of Lawton budget for the fiscal year that begins July 1.

Revenues meaning the loss of the money that funds city operations. And, revenues meaning city administrators don’t know yet exactly what they are facing, but they’re pretty certain it’s going to be bad.

City Manager Michael Cleghorn said he’s been doing extensive research on the topic of funding sources for municipal government, as governmental leaders deal with an economic downturn prompted by actions to stem the spread of COVID-19. Cleghorn said his research, backed up by the Government Finance Officers Association and International City Managers Association, compares 2020 to the recession of 2008, when sales tax revenues dropped 23.1 percent.

 

As bad as that is — sales tax accounts for more than half of revenues in the General Fund — Cleghorn said it could be worse. He said Sen. James Lankford indicated the drop could be as much as 40 percent.

“This is a budget that will take a lot of work,” Cleghorn told members of the City Council last week as they met virtually for two budget sessions. “It may require a lot of sacrifices in our budgeting process. We’re doing our very best in keeping our staff working.”

Cleghorn said a 40 percent loss in revenue provides the city with a “completely unique landscape we’ll be working through.” A 20 percent drop in sales tax revenue will be a huge burden to overcome, but 40 percent will be devastating because in Oklahoma, municipalities may use ad valorem tax revenue (a much more stable revenue source) only for debt service. It cannot be used for municipal operations, as it can in other states.

“I don’t know if most municipalities in Oklahoma can survive a 40 percent revenue drop,” Cleghorn said.

 

Complicating the picture: sales tax receipts (meaning the money received by the city) run two months behind the activities that generated them. That means City of Lawton administrators won’t know the effects that COVID-19 had on sales activities in April until June. And, under state law, municipalities must have their budgets in place by June, a goal City of Lawton administrators and council members will meet — even if it means multiple adjustments later in the fiscal year.

There’s another financial consideration in the budget: not as large, but still important to entities that receive the revenue. The hotel-motel tax is a 5.5 percent tax charged on the rental of hotel and motel rooms in Lawton. That tax was expected to generate about $1.3 million in the current fiscal year, until activities that bring people into Lawton began to be curtailed and visitors stopped renting rooms.

Cleghorn said estimates on local occupancy rates range from 7 percent to 15 percent, and using a projection of a 10 percent occupancy rate, city officials are predicting the tax will bring in about half of what past years have generated, or about $600,000. As with sales tax revenue, city officials still are guessing about the revenue loss because those receipts also run two months behind generation.

But, based on the tax generating about $600,000 in the coming fiscal year, that means entities that rely on the tax revenue can expect to see allocations cut roughly in half, Cleghorn said, adding the council will make that final determination.

Under a funding formula adopted by the council, 5 percent of the tax is allocated to the Lawton Enhancement Trust Authority, 11 percent to the city’s economic development fund, 14 percent to tourism, and the remainder to the Lawton Fort Sill Chamber of Commerce and the Lawton Economic Development Corporation.

Cleghorn said the financial data will be analyzed as updated figures come in, allowing city administrators to make refinements in next year’s budget. That’s why next year’s preliminary budget is a moving target.

“This is a placeholder budget, to get through the first quarter of the fiscal year,” he said, noting that more data will allow staff to make more informed recommendations to the council.

 

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