Slumping tax revenues have created a projected $2.6-million shortfall in the Payson general fund budget, prompting the council on Thursday to approve two-day-a-month furloughs for all town workers.
The sharp reduction in sales and income tax in November and December took town officials by surprise, after what had looked like the start of a recovery in October.
As a result, even using all of a budgeted $1-million loan from the water department will still leave a projected $1.6-million deficit.
The council unanimously approved Town Manager Debra Galbraith’s recommendation on the furloughs Thursday night. That should save about $750,000 between now and June.
Then the council scheduled a special session for next Wednesday to figure out how to shave another $750,000 from this year’s budget.
“The state budget meltdown has not left us the luxury of postponement,” said Mayor Kenny Evans in support of the immediate furloughs — which will send even police officers and firemen home two days a month without pay.
“We have no other options big enough to deal with the crisis we are facing,” said Evans. “We realize the pain it causes anytime we have a reduction or a furlough and we understand the multiplier effect it has on the community. But bad as it is, it is determined by the numbers we see coming back from the state.”
The biggest hit in the $13.5 million general fund budget came in the form of local sales tax collections, which have lagged 15 percent or about $900,000 behind budget projections made back in June.
State shared sales tax — collected by the state and distributed based on population — is $121,000 behind projections.
The town has suffered even from plunging auto sales, with tax revenues about $106,000 behind projections.
The share of money the state gets from income taxes dropped 10 percent — a $158,000 hit. State payouts to local government income taxes lags more than a year behind collections so the income tax revenues held up well as the recession started, but now are reflecting the downturn. Because of that lag, income tax revenue will remain low even a year after the economy actually recovers.
The bleak numbers in November and December snuffed out hopes of an early recovery in town revenues inspired by the October jump.
“Back in October it was like, ‘wow, we’ve turned the corner,’” said Evans. “Unfortunately for us, we turned the corner for one month.”
In a council study session before the meeting, Galbraith laid out some options for closing the budget gap. The town has little ability to raise more revenues by increasing taxes mid year and has already raided the water department’s reserve funds for a $1 million loan.
The town’s payroll runs to almost $8 million annually. The two-day-a-month furloughs for half a year will save about $600,000 to $750,000.
The council asked Galbraith to work out the details of some of the other options before next Wednesday.
The budget report presented on Thursday estimated that a 5 percent, across-the-board pay cut would save another $183,000 to $247,000.
Much of that would come from police, with its $1.8 million in annual salaries and the fire department with an annual payroll of $1.3 million — with another $400,000 for police and fire dispatchers. Those two departments account for nearly half of the town’s payroll.
The town could also eliminate all part-time and temporary workers, which would mostly affect the parks department and the fire department’s on-call program. That would save about $123,000.
The town could also change various employee benefits, like boosting the share of the health insurance plan workers would pay out of their own pocket from 19 to 25 percent. That would save about $80,000 in six months.
The budget estimates also raised the specter of reducing contracts with community agencies, like the Payson Senior Center and the Humane Society of Central Arizona. The town currently has yearly contracts with the Humane Society for about $89,000 and some $138,000 with an array of other groups.
Evans said the council at present hopes to leave intact a roughly $650,000 fund balance for emergencies through the end of the year.
Bleak budget predictions for local government issued by State Treasurer Dean Martin proved the last straw for the council hoping for an improvement in tax revenues in a recovery that at least in Rim Country has failed to boost sales.
“Our biggest problem,” said Evans, “isn’t that we don’t have outsiders coming into town and spending money — it’s that our local residents are going to the market and spending $50 when they used to spend $100 — and that becomes a self-fulfilling prophecy.”