Texas counties brace for budget shortfalls because of pandemic

Tumbling tax revenues, increased expenses hitting county budgets

By Jody Seaborn

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The stories are increasingly common. A local media outlet reports that a Texas county's commissioners court and other county officials are bracing for large budget losses and hard decisions as the economic fallout from the coronavirus pandemic takes its toll on county finances.

COVID-19 IllustrationThe budget shortfalls caused by tumbling tax revenues and huge expenses related to the pandemic extend beyond counties to include the state, cities and school districts. Losses in oil and gas revenue are exacerbating the budget crisis for many Texas governments. Furloughs, layoffs and cuts in vital services and programs could follow.

A recent analysis by the National Association of Counties (NACo) found that the COVID-19 pandemic could affect county budgets collectively by at least $144 billion through the 2021 fiscal year, with counties potentially facing $114 billion in lost revenue and $30 billion in additional expenses. The severe fiscal impact affects counties of all sizes, according to NACo's analysis.

A first sign of how severely the pandemic and economic downturn will hurt the state's and local budgets came May 1 when Texas Comptroller Glenn Hegar announced that sales tax revenue dropped 9.3% in April compared with what the state collected in April 2019. The year-over-year drop from $2.85 billion to $2.58 billion was the largest decline in state sales tax revenue in 10 years, Hegar said.

Sales taxes are the state's largest source of revenue and a major source of funding for counties after property taxes. Other county revenue sources include fees, grants and charges for services.

Here are a few snapshots of the challenging fiscal year ahead for Texas counties:

Harris County has incurred at least $43 million in additional expenses because of COVID-19, according to NACo's analysis, and expects to continue paying $11 million each month. A bright spot? Harris County's property tax revenues should remain stable through the end of the year, Houston Public Media reported April 30. But next year is anyone's guess.

Bexar County estimates that the pandemic could cost its general fund $70 million to $100 million, a revenue loss of 14 percent to 20 percent, San Antonio's KSAT-TV has reported. The county has announced a hiring freeze and halted capital projects.

Montgomery County's Commissioners Court has directed department heads and elected officials to keep their 2021 budgets lean, according to The Courier of Montgomery County. "My opinion is, don't come ask for anything," Commissioner Mike Meador said in late April. "It's going to be a real different budget session this year." The county begins its budget workshops July 27.

Fort Bend County is facing a projected $11 million to $14 million in lost revenue. The Commissioners Court has approved a hiring freeze and instructed department heads to target 20 percent of their current year budget for cuts, which are expected to total about $7 million, according to the Houston Chronicle.

Webb County's Commissioners Court, anticipating an $11 million drop in revenue next fiscal year, voted May 11 to freeze all nonessential expenditures for the rest of this fiscal year, the Laredo Morning Times reported.

The federal government has provided some help. The $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act approved in March included $150 billion for state and local governments, with about $11.24 billion allocated for Texas. Of that amount, $5.06 billion was set aside to help local governments meet COVID-19 expenses.

Only cities and counties with populations larger than 500,000 were eligible to receive money directly from the U.S. Treasury Department, however. The federal government has sent just over $3.2 billion of the $5.06 billion allocated for local governments in Texas to six cities (Austin, Dallas, El Paso, Fort Worth, Houston and San Antonio) and 12 counties (Bexar, Collin, Dallas, Denton, El Paso, Fort Bend, Harris, Hidalgo, Montgomery, Tarrant, Travis and Williamson).

The population criterion excluded 242 of Texas' 254 counties from receiving federal money directly. Counties with populations below 500,000 are eligible to apply with the state for a share of the remaining $1.85 billion available to local governments in Texas.

In addition, Treasury Department guidelines say money from the CARES Act can be used only for expenses incurred dealing with the pandemic from March 1 through Dec. 30. The CARES Act prohibits local governments from using federal relief to cover revenue shortfalls.

State and local governments say more substantial aid and greater flexibility in its use are needed. The Texas Association of Counties has joined with NACo and other organizations representing local governments to call for direct, flexible funding to counties and cities of all sizes.

On May 15, the Democratic-led U.S. House approved the $3 trillion HEROES Act, which would send almost $1 trillion to state and local governments. The bill faces resistance in the Republican-led U.S. Senate, which likely won't take up another relief package until July.