City tax shortfall not that bad
Tax revenues Franklin deemed vulnerable to the economic impacts of COVID-19 haven’t suffered as badly as city officials feared at the start of the pandemic.
According to Finance Director Tracy Spence, meals tax collections — this being the income the city receives from the 7% charge added to the bills of those who dine at Franklin restaurants — did drop in April and May compared to what was collected during each of those months in 2019. But in June, collections bounced back, actually exceeding last year’s monthly total by roughly $31,000. This resulted in an overall decrease of just 7% over the three-month period.
The numbers indicate steady patronage of Franklin’s restaurants, despite the COVID-19-related capacity restrictions Gov. Ralph Northam imposed from March through July 1. Local sales taxes from April through June likewise exceeded the prior year’s totals for each month.
City Manager Amanda Jarratt speculated during a City Council meeting on July 27 that Northam’s stay-at-home order and subsequent Phase I and Phase II reopening restrictions, coupled with a desire on the part of residents to support local businesses, may have actually boosted local sales in some cases.
“I think it just goes to show the support of the community,” Jarratt said. “No one was really allowed to travel so people that were previously leaving the city to go eat in Suffolk and Norfolk and Virginia Beach weren’t doing that anymore; they stayed here and picked up to-go food.”
“When people were going to the stores … and buying the toilet paper and the paper towels and hoarding … they were doing that here at our Walmart and our Dollar General and our Food Lion,” she added.
The additional $600 in unemployment benefits that those out of work had not received prior to the pandemic, coupled with the $1,200 federal stimulus checks, also resulted in, what she termed, a “huge influx of cash” to the city’s population. That said, she acknowledged that not all local businesses are thriving, and that some have suffered significant losses.
The city, she said, has seen over 500 unemployment claims since March. By comparison, it’s average unemployment claims in a year did not exceed 100, even during the 2009 shutdown of the International Paper mill and nationwide Great Recession.
Lodging taxes, which Franklin collects from the 8% charge added to the bills of those who stay at one of the city’s hotels, are another story.
“We’ve taken a hit,” Spence said.
While April’s lodging tax revenue was roughly comparable to last year, May’s collections dropped nearly 50%. June’s revenue was also down roughly 35% from 2019, resulting in an overall 30% drop over the three-month period compared to the prior year.
June 30 marked the last day of the city’s 2019-2020 fiscal year, but its books won’t officially close until August. City staff anticipates a total shortfall of $354,539, of which $87,450 is the overall loss in meals, lodging and sales taxes. According to Spence, the $345,000 set aside by City Council, coupled with $890,000 in vacancy savings from unfilled staff positions, will more than offset this loss, leaving Franklin $880,461 in the black.
Fearing the worst when the pandemic began, Franklin’s City Council had cut about $1 million from its already streamlined 2020-2021 budget per Jarratt’s recommendation. Despite the more-favorable-than-expected numbers Spence presented, Jarratt stood by the decision.
“We still don’t know what the fall will bring,” Jarratt said. “I think what we did in cutting the budget and freezing hiring and travel were the right things to do at the time.”