McHenry County projects up to $22 million in lost revenue for fiscal 2020 because COVID-19 shutdowns

New report shows potential impact of reduced property, sales and income tax revenue on county

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McHenry County is projected to see upwards of $22 million in lost revenue for fiscal 2020 because of COVID-19-related shutdowns, according to a May 5 report from the county's Director of Finance Kevin Bueso.

The report gives projections based on four different COVID-19 recovery scenarios which range from $6.9 million in revenue losses up to $22.1 million.

These projections are based off of the impact that COVID-19 shutdowns have had – and will continue to have – on property taxes, motor fuel taxes, sales taxes, income taxes and other economically sensitive revenue items that the county depends on.

Currently, 66% of the county's revenue comes from 20 sources, which are sensitive to disruptions in economic activity, such as a global pandemic, according to the report.

Revenue projections are divided into the best- and worst-case scenarios of two COVID-19 recovery types: a "prolonged V-shape recovery and a W-shape recovery."

The recovery models were named for the shapes made by mapping out different projections of economic activity for the rest of the fiscal year. The two models have one key difference – one shows that economic activity will be down for the next few months before recovering slowly and the other shows that it will recover and then dip again later in the year.

District 5 County Board Member Michael Skala, R-Huntley, said he had a number of concerns with the information used in Bueso's projections.

"I felt that the numbers were greatly distorted," Skala said.

The report projects a 12% reduction in property tax revenue for 2020 in three of the four recovery scenarios outlined, resulting in $8 million in projected losses.

As head of the county's Finance Committee, Skala said he believes the reduction in this year's property tax revenue will be much less drastic than that.

In April, the board passed an ordinance waiving late fees and interest for the first installment of this year's property taxes. Given that 67% of the county pays their property taxes monthly through escrow accounts, the ordinance only applies to 33% of county residents, Skala said.

"With the amount that [Bueso] is projecting, he's basically saying a huge portion of that 30% is not going to be paid," he said. "He's also making the assumption that none of those property taxes are going to be paid within the 60-day window of accruing back those dollars into this fiscal year which, again, I think is a huge fallacy."

Regardless of actual revenue lost for fiscal 2020, McHenry County Board Chairman Jack Franks said the economic effects of COVID-19 shutdowns will be felt throughout the county for years to come.

"We've been catapulted into the worst economic situation since the Great Depression," Franks said. "Only about half of working-age adults are actually working."

According to Bueso's report, the best-case scenario for the preferred recovery type, "the prolonged V-shape", accounts for the stay-at-home order to remain in place through the end of June followed by a five month period of getting "back to the new normal."

In this scenario, disruptions to property taxes are minimal (2% reduction) and economic activity remains at 60% of the county's average for April, May and June before climbing to 75% in July, 85% in August and 99% for September-November.

This, the absolute best-case scenario outlined in the report, would result in $6.9 million in lost revenue for the county.

In the worst case V-shape recovery scenario, economic activity sits at 40% from April to June before recovering slowly and tapering off at 90% at the end of the year.

This would cause the local unemployment rate to exceed 15% of the population, putting a greater strain on revenue sources. Even with the 10% increase in federal stimulus funds projected in this scenario, the county would be down $18.5 million.

In the best case W-shape recovery type, economic activity falls to 40% April-June, begins to recover in July (75%) and August (95%) but then falls back to 40% in September because of a second round of shutdowns that could occur if the virus becomes widespread in the Fall.

This projection forecasts that economic activity would pick back up in October (75%) and November (85%) and predicts that the county would see a 15% increase in stimulus funds and grants from the federal government.

Even with this extra help, this scenario anticipates $20.2 million in revenue losses.

The worst case W-shape scenario is nearly identical to the best case scenario but forecasts that economic activity would remain at 40% for the months of September and October before climbing to 85% in November. This is projected to result in a 25% increase in federal funding to the county and $22.1 million in lost revenue.

Skala pointed out that, after property taxes, the report's next two budget lines projected to be hit hard by the pandemic – the Motor Fuel Tax and the county's portion of Regional Transportation Authority sales tax – are used to fund county road projects and do not support operational costs.

"So we may need to delay road projects but it's not like it's impacting the day-to-day operations of the county," he said. "When you take those things out of [the report], that number decreases greatly."

Skala said he has asked members of the finance committee to recreate the report with what he feels would be "more accurate data." He said the report should also account for the areas in which the county has saved money over the last few months such as building closures and having employees work from home.

Bueso's report lists employees working from home as an expenditure, stating that the county spent more than $320,000 this year on COVID-19-related purchases including software licenses so that employees could work remotely.

According to the report, there is "an expectation" that the rest of the year will look more like the prolonged V-shape recovery models, but Franks said the County Board must be prepared for any outcome. This means trimming the county's operational budget wherever possible, he said.

As part of this effort, Franks announced a proposal on Monday to reduce the salaries of county elected officials by 10%.

"Government is not immune to the economic realities that our citizens face," he said.

Franks said he has been working with congressional representatives to secure more federal stimulus money for the county.

"I think we're going to see another stimulus plan that will help our counties because of our reduced revenues," he said on Monday. "So we'll see where that goes."