Soldotna predicts sales tax losses

Apr 24, 2020


The Soldotna City Council got an early look at the beginning of the fiscal year 2021 budget at its meeting Wednesday. City administration wanted to give the council a heads up on what they might see in terms of financial repercussions of the COVID-19 pandemic.

Sales tax is a huge chunk of Soldotna’s revenue. City Manager Stephanie Queen says the city anticipates the biggest hit being in March and the current quarter, with things slowly recovering over the next fiscal year.

“We are anticipating a reduction of sales tax revenue in the current fiscal year of about $800,000, essentially about 10 percent of the year in total reduction. And then, for FY21, the budget we’re building, we’re anticipating essentially double that, so, a 21 percent reduction, which is equivalent to $1.7 million reduction,” Queen said.

The city looked at 28 categories of business sectors to try and drill down on which will be most affected. Tourism, restaurants and bars and arts and entertainment will likely be the biggest sectors hit. Retail, not so much, although retail sales increase in July and might not this year without as many out-of-town visitors. Even the low price of gas is having an impact, as many retail stores in Soldotna sell fuel.

“That’s a long way of saying that we really applied the best methodology we could think of to try and land at a number,” Queen said. “And I can’t tell you with what degree of confidence we feel about these numbers, other than we know that our neighboring municipalities went through a similar exercise and we are landing kind of in the same ballpark.”

Overall, Queen says the city is in good financial shape to weather the COVID-19 downturn in the economy, as the city had an unassigned fund balance of more than $11 million as of June 30.

Queen says the city has taken steps to trim spending to make up the revenue gap. Hiring has been paused and all capital projects have been reviewed to see which can be postponed. She told the council to expect to see a slim budget for next year but not one that drastically reduces services.

“We are in a healthy financial position,” Queen said. “We will bring you a budget that shows lots of reductions, so it’s going to be a conservative budget that we’re building that shows a lot of cost savings. But we have not anticipated bringing you a budget that offers a disruption to the essential services we provide. And we’ve done that recognizing that the fund balance would allow us to do that if the council agrees that that’s the right approach.”

The council in 2015 set a policy to maintain $5 million in reserve in expectation of the unexpected.

“So we’re experiencing that worst-case scenario in terms of no one could have imagined, we really couldn’t have planned for, but we always know something like that could happen. I think in our case, that $5 million reserve would be available for us to dip into to maintain operations. I think that will be unnecessary given the fund balance that we have that is currently unassigned,” Queen said.

In the same meeting, the council approved a revamping of the city’s Storefront Improvement Program, which provides matching funds to upgrade the exteriors of city businesses. Now, businesses can apply for up to $1,000 to improve their web presence, whether that’s developing a website or adding eCommerce capabilities to an existing site. More information about the Virtual Storefront Improvement Program is available at www.soldotna.org.