Austin’s Economic Forecast Is Unsurprisingly Bleak

City budgeteers project COVID-19 recovery could take two years

photo by John Anderson

The local economy could take two years to return to a state approaching normalcy, according to a briefing delivered to Austin City Council on Tuesday, April 7.

Presentations from the city’s deputy chief financial officer and budget lead Ed Van Eenoo and Jon Hockenyos, president of financial consulting firm TXP, outlined the bleak future Austinites should expect as the city and world recover from the COVID-19 pandemic.

The five-county Austin metro area could see the loss of around 261,000 jobs, or an unemployment rate of about 25% – levels last seen during the Great Depression. Nationally, the unemployment rate is projected to reach 32%. Workers in the “food preparation and service” sector will be hit hardest, with a projected loss of 88,418 jobs (about 81% of that workforce), while those in the “sales and related occupation” category could lose 63,932 jobs, per the TXP forecast. Hockenyos noted that in our region, a 2% change in job growth leads to a 1% change in sales tax.

For the city of Austin, the total loss in General Fund revenue due to the pandemic – mostly from sales tax, which accounts for 23% of the GF – could be between $38.3 million and $57.6 million in the current fiscal year ending Sept. 30. That reflects dual scenarios of a “rapid” or “slower” recovery from pandemic-prompted hardships. The GF pays for services that aren’t expected to pay for themselves, like public safety, health and human services, and parks.

Enterprise funds that are nominally self-sustaining, like the utilities, airport, and convention center, are facing “moderate” or “severe” impacts; TXP’s analysis shows hotel occupancy down 95%, and passenger counts at AUS are similarly reduced. Austin Energy and Austin Water have seen declining commercial and increasing residential use as customers stay and work from home; the utilities and City Hall are taking steps to mitigate the impact of spiking utility bills on residents.

Van Eenoo outlined several approaches that Council could take to address the budget shortfalls created by both these revenue declines and emergency COVID-19 relief spending – about $4.5 million so far, with $25 million more (including $10 million to offset utility bills) set for approval Thursday, April 9. (The federal CARES Act is expected to direct about $150 million toward the city’s budget, but rules are still being developed to govern what’s reimbursable, and at what amount – typically less than 100% in disaster scenarios.)

The two forecasters agreed that economic recovery would not begin for several months, which means adjustments will be needed to the current FY 2020 budget – which called for adding 30 police officers, building three new fire stations, and funding wage hikes for city employees. A city hiring freeze is in place, and departments have been asked to cut spending; the two efforts are expected to yield about $14.4 million in combined savings.

The city will benefit from the deferral, for two years, of the 3.5% revenue cap on property tax collections that was supposed to take effect in FY 2021. That means the city can, and almost surely will, seek to go to the old 8% level before to replenish its budget reserves and defray continued shortfalls. However, Van Eenoo said his team remains on track, as required by the revenue cap legislation, to present the FY 2021 budget on July 13 for an Aug. 13 Council adoption, a month earlier than in the past.

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