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Huntsville Finance Director reviews COVID-19 impact on municipal budget

Published on July 29, 2020

Finance director Penny Smith at a podium speaking about the Covid-19 budget impacts to the mayor and city council

As the COVID-19 crisis unfolds, the City of Huntsville continues to fare well and tackle fiscal challenges that arise throughout the pandemic.

That was the consensus on Wednesday, July 29, during a special City Council work session with Director of Finance Penny Smith, who provided an update on the financial impact of the coronavirus outbreak.

“Overall, we have faced the challenges of COVID-19 well,” she said. “We’ve held our own because of some of the hard choices we made. Next year, we will prepare and we will continue to try to be as nimble as we can.”

An in-depth look

Smith’s presentation offered insight into the City’s financial structure and municipal budget. Part of that included an in-depth look at how COVID has affected City revenues, such as sales and use and lodging taxes.

During the pandemic, Smith said sales and use tax revenue from grocery stores and wholesale clubs jumped considerably. Sales and use taxes from restaurants and sports and entertainment shrunk as venues closed and more people stayed home to slow the spread of COVID-19.

Automotive dealers, which initially declined, have begun to climb again, while retail has also grown some. To date, Smith said sales and use tax is up 2.8 percent over last year.

“However, we should be at 74.5 percent of our budget and we are at 74 percent,” Smith said. “A half percent below budget equals approximately $1 million in lost revenue for sales and use taxes to date.”

The City expects to end the year at less than 0.5 below 2019, meaning its sales and use tax revenue will be about 3.5 percent under budget.* That equals $7 million in lost sales and use tax revenue.

Lodging tax revenue

Smith also discussed lodging taxes, which the City imposes on all persons who operate a hotel, motel, rooming house, lodge or other place for travelers, tourists or transients.

Currently, lodging taxes are down 14 percent from last year.

“As of June 30, we are only at 71 percent of our budget” Smith said. “In revenue, this equals approximately $1.5 million in lost revenue lodging taxes to date.”

The City expects to end this year 25 percent below 2019, which means lodging tax revenue will be 35 percent under budget.** That equates to a loss of about $4 million.

Other sources of revenue include:

  • Gas taxes – In the last three months, Huntsville has seen an average 25 percent drop in gas tax revenue. Smith expects it will fall 7-10 percent below budget by year-end.
  • Simplified sellers use tax (online sales) – It has doubled budget projections and continues to grow. The City expects this trend will persist through the end of the year and into next year.
  • Sanitation charges – Smith said revenues should remain on budget for the year.
  • Property taxes – With the majority collected in early 2020, the City expects to end the year on budget.
  • Permits – They, too, have remained strong throughout the pandemic. Smith said this revenue stream should top budgets by the year-end.
  • Licenses – While this year is expected to end on or near budget, next year will need to be appropriately reduced to account for losses in gross receipts during 2020.

With departmental savings, federal stimulus grants and an increase in some revenues, Smith said the City should not have to dip into its reserves.

Weathered the storm

Despite financial ups and downs due to COVID-19, Huntsville has weathered the storm by limiting new hiring and continually looking for ways to save money.

“The fiscal responsibility with which our administration and the City Council have approached the pandemic is to be commended,” said Huntsville Mayor Tommy Battle. “While we have some tough days ahead, we have done very well throughout this crisis and know we will come back stronger than ever.”

Unemployment is up, but Smith said home sales have remained strong despite the virus. Permit sales are also averaging higher than they did in 2019.

During the COVID-19 period, Smith said over 1,000 permits were issued as compared to 810 at the same time last year.

“It goes to show we are a growing city,” she said. “People are still looking forward into the future. People have not lost hope. They are understanding that while we have a new norm, we can get through this together.”

View the full presentation here and on the City of Huntsville Finance and Budget web page.

*This figure is a projection and is subject to change without notice.

**This figure is a projection and is subject to change without notice.