Most of the country has effectively been on some sort of lockdown, quarantine or social distancing for a month since the president issued his national state of emergency. Due to the mayor’s order, many businesses in Sedona city limits have been without revenue for roughly the same time period.
About two weeks ago, Arizona Gov. Doug Ducey closed nonessential businesses that had remained open.
That means that for weeks, local, county and state governments around the country have collected hardly anything for tax revenue.
While that seems like a mundane topic of discussion given everything else happening, taxpayers should be very worried what local governments are going to do. The federal government can offer loans and grants to governments, businesses and individuals, but there is simply not enough offered to keep local governments functioning if these closures stretch on for weeks or months more.
Most small businesses were able to pay their April rents. But May is two weeks away and they haven’t earned anything toward paying that rent.
Small businesses, especially mom-and-pop operations, typically cannot open and maintain large savings accounts. They operate week to week or month to month, assuming that their revenue earned this month can cover costs incurred next month. They pay their staff and pay their bills on a rolling basis, hoping the peaks in income help them get through occasional downtimes the next week or the next month.
Capital held in a savings account and not reinvested back into operations, expansion, supplies, salaries or future inventory is effectively useless for a small business.
But now these small businesses are depleting what little surplus they had to keep the lights on and the rent paid to take care of their loyal employees, who are now unemployed through no fault of their own.
Small businesses typically don’t have a surplus in backup, and average nationally about five weeks’ worth of cash or savings for the bad times.
The bad times are here.
Catastrophes like fire, natural disaster, burglary or property damage are generally covered by insurance, which doesn’t really exist when government forces otherwise functional and profitable businesses to close down.
Small businesses have had to cut salaries, lay off workers, fire others and do what they can to pay rents, secure loans or beg debt forgiveness from the landlords and suppliers.
All the while a portion of the revenue they earned went to local governments as tax revenue, which has now all but dried up. It is governments’ turn to soon start discussions about who they will begin laying off if they haven’t already.
Local governments pay police officers and dispatchers, water and wastewater line workers, firefighters and paramedics, magistrates, prosecutors and municipal attorneys, in addition to workers deemed “nonessential” by state guidelines but who are necessary to keep governments functioning properly. County governments run jails and enforce the law in unincorporated areas. They run elections and we are in the midst of a major election cycle.
City of Sedona staff have been working at home, mostly. Tourists typically fund about 75% of the city’s taxes. But with near-zero sales tax revenue coming in, soon the city will have to start looking at what departments and staff to lay off or what salaries to cut, assuming the stay-at-home order continues.
The city has a deep surplus, which purportedly exists for worst-case scenarios. If there is a worst-case scenario, this is it. But there’s only a few million dollars in that account, which can keep staff employed only so long. Which city of Sedona staffers can or should be laid off? Parks & Recreation because parks are vastly limited? The Economic and Community development departments? Public Works other than essential functions?
Sedona’s police force is disproportionately large for the city population because we have roughly 3 million tourists a year and, let’s be honest, tourists do a lot of stupid things on vacation. But with the tens of thousands of daily tourists reduced to a few hundred in what is typically the height of tourist season, it begs the question of how many police officers does Sedona need on duty?
The city also has to look at revenue generation. There’s basically been no tax collection in the last 30 days. Even if the economy gets rolling tomorrow, it’ll be weeks or months before tax revenues can be collected at the same level.
It might take months for out-of-state or foreign tourists to feel financially secure enough to book a trip to Sedona, which means the city will be short hundreds of thousands — if not millions — of dollars in its budget and be forced to cut back on services or staffing.
We wonder when those cuts will happen and what they will look like and, most importantly, whether the skilled and trained staff that the city has to furlough or lay off will return once the city needs them, or will they move on to other opportunities during the wait?
Christopher Fox Graham
Managing Editor
