By Liz Moomey

liz.moomey@salisburypost.com

SALISBURY — City Manager Lane Bailey has prepared the council for the potential of “significant challenges” when they begin budget talks for the next fiscal year on Tuesday.

The city receives 20% of its revenue from sales tax, which is heavily affected by the business closures and decrease of sales due to the COVID-19 outbreak. Bailey said he is uncertain the exact impact of economic shutdowns and wouldn’t know until the end of the quarter in June. That’s also the end of the current fiscal year.

Bailey said any estimate of sales tax would just be a guess.

During Tuesday’s city council meeting, Bailey said the city’s Capital Improvement Plan calls for a tax increase for the upcoming fiscal years and, generally, city managers “love to recommend tax increases.” The city council will receive a proposed budget presentation May 19.

“This year, I’m not comfortable doing that, given the hardship I see our community facing,” he said. “I don’t know if that’s something that we can do.”

Mayor Karen Alexander in a phone interview Wednesday said she agreed with Bailey.

“I just don’t think we can do that to our citizens,” Alexander said.

She said the city needs to cut costs by forgoing services or reducing it.

Bailey, a veteran municipal manager, said the coming year will be the biggest budget crisis he has dealt with in his career. Alexander said this is toughest time the country has gone through, too.

Bailey is meeting with department heads to discuss possible impacts to their budgets and challenges they are facing in completing the current fiscal year. The city’s finance department, meanwhile, is reviewing the impact of reduced revenue, which could include delaying capital projects and a hiring freeze for all vacant positions.

Alexander said the city is looking for every opportunity to its maximize savings and that the city may be in an adjustment period for years.

Bailey said he is unsure about the impact on future budgets.

“There just isn’t enough information to know at this point,” he said. “So much of this depends on how long a shelter-in-place order is in effect, but given the ripple effect of business closings, unemployment and reduced income there is a very real chance that we could see budgetary impacts for several years to come.”

Funding for local governments is not currently in the next coronavirus emergency relief funding bill, which is up for a vote in the U.S. House.

Alexander said funding may come later on as the priority is on small businesses.

“Small businesses are the most needy,” she said. “They’re needing it right this moment. We’re going to be needing this down the road.”

In a virtual town hall Wednesday morning, U.S. Sen. Thom Tillis, R-N.C., advised local governments to document additional costs associated with COVID-19 response and document loss revenue due to business closings.

“That’s work that the cities, counties, towns need to be doing now so we can sort out at the federal level and the state level what we can do to take the edge off of some of those costs,” Tillis said.

This could become a moment when Salisbury must tap significantly into its fund balance, which sits at 35%. The Local Government Commission’s minimum requirement is 8%.

“Having a healthy fund balance allows a local government to tap into a savings resource when other revenue sources aren’t available or available at reduced amounts to offset the financial need,” Bailey said.

Alexander said the savings were prompted by an economic downturn that hit particularly hard from 2012 to 2013. The city received a letter of concern from the LGC of their low fund balance. And the council made a goal to beef up its reserve fund.

“I’m so glad we did,” Alexander said. “Who would have thought this short of time later that this would happen again?”

Bailey said the city government wants to ensure stability for its citizens during the uncertain time.