Drops in state revenue sharing, decreased road funding due to fewer people driving, and tuition and per-pupil funding losses are just some of the potential impacts that could reshape local budgets as government and school officials brace for an uncertain future.

Traverse City commissioners will have their first in-depth review of the city’s proposed 2020-21 budget at a virtual study session Monday at 7pm. Nearly every category of the budget – which was prepared by City Manager Marty Colburn and covers the time period of July 1 to June 30 – contains references to coronavirus, a “health and economic disaster…(that) is having a tremendous impact on all of us,” Colburn wrote. While property values, the city’s single largest source of revenue, were calculated pre-pandemic and will remain steady, the city is anticipating significant cuts in state revenue sharing, decreased event revenues (such as venue rentals at Hickory Hills), and drops in transient slip rentals and fuel sales at Clinch Park Marina. In downtown Traverse City, where staff have stopped enforcing parking meters, parking service losses are estimated at $1 million in the 2019-20 budget and $1.4 million in the 2020-21 budget.

To offset declines, Colburn’s budget recommends numerous cuts this year, including scrapping the planned asphalt replacement of two city parking lots ($130,000), a park sign replacement project ($30,000), a fire detection and suppression system at fire station 1 ($131,000), and the installation of downtown surveillance cameras ($100,000). Sixteen summer hires will be eliminated, including seasonal childcare, police bike patrol, parks, cemetery, and marina staff. “It’s important for this summer for everyone to recognize and adjust expectations of how all the parks, boulevards, and open spaces may look from time to time,” Colburn says. “With less staff time, we will prioritize or even cut out certain maintenance areas.” Colburn says staff will also likely be unable to address high water issues for the foreseeable future, though the city will “make it a priority to protect, save, or repair public infrastructure.”

The city’s budget also recognizes the impact of the pandemic on residents and business owners and includes measures aimed at supporting them. Colburn is recommending not raising water or sewer rates this year and dismissing any penalties for users through at least June 15. “Shovel-ready” city infrastructure projects will continue as planned to “allow many contractors, businesses, and citizens to be employed while working on public projects that benefit the community,” Colburn says. The city and Downtown Development Authority (DDA) will also enter agreements with Traverse Connect for economic development services to “support the private business sector in getting back on their feet,” according to the city manager. Colburn concluded his budget by recommending “calm” and a conservative approach to planning, adding: “It is important that government…stay vigilant in providing critical services, which this budget provides, as well as investing into our community now as well as for the future.”

Grand Traverse County’s fiscal year follows the calendar year, meaning county budget discussions won’t ramp up until fall. County Administrator Nate Alger says staff are working now to gauge potential impacts of the pandemic, but that it’s too early to tell how the county’s bottom line will be affected. “We are hearing there are going to be potential cuts in (state) revenue sharing,” says Alger. “Our first two revenue-sharing payments were what they were supposed to be, but I understand the third and fourth quarters could potentially be impacted.” Like the city, the county’s biggest revenue source – property taxes – should remain stable, but any cuts to the $1.8 million the county receives annually in state revenue sharing would have a “significant” impact, Alger says.

Local officials are closely monitoring another state funding stream: Act 51 funds, which are generated through fuel taxes and vehicle registration fees and distributed to the Michigan Department of Transportation (MDOT), county road commissions, and cities and villages for road and transportation projects. Colburn’s budget notes MDOT is projecting a 8.5 percent drop in Act 51 funds for the upcoming fiscal year. Drivers staying home means fewer vehicles on the road and less gas being purchased, flattening sales that help fund road projects. The Grand Traverse County Road Commission receives $12.5 million annually in Act 51 funds, according to Manager Brad Kluczynski. MDOT’s projected drop could mean a $1-million plus cut for the Road Commission – “a pretty substantial chunk,” Kluczynski says, which could require scaling back road projects.

The Road Commission also receives approximately $4 million annually from a local millage that also distributes funds to the City of Traverse City and the villages of Fife Lake and Kingsley. That one-mill millage will go to voters in November for renewal, with both Colburn and Kluczynski stressing the importance of its passage to area road projects – particularly if state funding is cut. “Because of having the millage, 45 percent of our primary roads are in good condition right now,” says Kluczynski. “Statewide, only 21 percent of roads are in good condition, because many counties don’t have these kinds of millages. If we can get this millage (renewal), by the end of another four years we should have 80 percent of our primary roads in good condition.”

Educational leaders are also preparing for potential financial fallout from the pandemic. Northwestern Michigan College (NMC) was already facing a $100,000 shortfall in this year’s budget before decreased revenues hit at the Hagerty Center and the college’s housing and bookstore. NMC has furloughed supplemental staff and committed to not raising tuition for the next academic year, but is still getting its arms around its 2021 fiscal year, which starts July 1. The college is planning for an estimated 15 percent decline in enrollment, though Vice President of Finance and Administration Vicki Cook says NMC is “actively working to mitigate that as we develop plans to deliver learning for the fall. Those plans include face-to-face, online, and hybrid learning options.” NMC is anticipating a reduction in state funding of 15 to 25 percent, which could total $1.5 to $2.5 million in lost revenue. The college received some relief in the form of $2.2 million in funding distributed under the federal CARES act, with $1.1 million going directly to students for aid and the other half allocated for operations.

“As with nearly every sector of the economy, higher education, including NMC, will face a significant economic hit,” Cook says. “Fortunately, NMC has been a responsible fiscal steward and has reserves for a rainy day and has strong community support. While that will help ease some of the impact, the economic reality that is unfolding is truly unprecedented.”

Traverse City Area Public Schools (TCAPS) is also preparing for potential cuts in state funding, studying a range of scenarios that could include no changes in per-pupil funding to losses ranging from $100 to $300 per student. With 10,000 students in the district, those losses would quickly add up. “A three-hundred-per-pupil cut – we would be able to survive it, but it would be devastating,” TCAPS Interim Superintendent Jim Pavelka told board members last week. “The reason we have a rainy day fund is for what we’re going through right now, and it is raining out.” Pavelka added that any budget adjustments required to be made in response to the pandemic would still keep classroom education as the highest priority.

“I can assure the public that the first part of the budget process revolves around students learning and what we can do to provide every child with a positive educational experience in this district no matter what happens,” he said. “This district will be here, and it will be a quality district. It may look a little different, but we are in a good position to go forward during these very, very trying times.”