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Fiscal Issues to Consider During the Coronavirus Outbreak


March 18, 2020 by Mike Bailey
Category: Finance , COVID-19

Fiscal Issues to Consider During the Coronavirus Outbreak

One of the questions we’ve heard from local governments with regard to the coronavirus relates to the potential impacts on fiscal issues. In this blog, we will explore some of the issues you may want to consider from a fiscal / finance office perspective. We’ll review business continuity, revenue implications, and local economic impacts.

Business Continuity

We’ve heard a lot about the need to be prepared to provide for the continuity of operations in anticipation of a variety of potential scenarios. The most common example has been an earthquake that would make it difficult to continue normal operations. Those who have been in local government for a while will remember similar discussions around such topics as the “bird flu” and other potential pandemics. The current healthcare crisis — at least in certain parts of the state — is now presenting that very situation. In these circumstances it is even more important that local governments deliver the services that our communities rely on. Additionally, our employees need to be assured that they will continue to be paid and have reliable health insurance benefits.

Hopefully your government has indeed responded to these recommendations by creating a “continuity of business operations” plan (COOP). Resources exist within the construct of the National Incident Management System (NIMS) to help you in thinking through the various issues to consider as you review your ability to provide business continuity for your government and community. FEMA offers a Continuity Tool Kit with several resources to help you review and prepare for such activities as:

  • Connecting to systems remotely,
  • Maintaining human resource systems and data,
  • Producing payroll, and
  • Addressing other related fiscal office needs.

The ability to support procurement needs, pay vendors, and deposit payments in a timely manner are also considerations. Any ability to recover state or federal disaster relief funds (should they become available) will rely on sound bookkeeping and accounting records during this period.

Thought should be given as to what your office would do if a staffmember(s) became ill and was unable to contribute their efforts in the traditional manner.

  • How “deep” is the organization (how many others might be available to set up or fill in as needed)?
  • What are the skill sets of various staffmembers? Which staffmember may be able to support functions previously performed by another staffmember who cannot work due to illness or other complications (such as caring for a loved one or small children when schools are closed)?
  • Has the organization practiced working remotely to assure that systems are accessible and will function properly? How will your staff access necessary resources when they aren’t working in their normal workspaces?

These considerations and more should be some of what the leadership of the local government is reviewing to assure that we can continue to support our agencies and provide ongoing services to our communities.

Revenue Implications

Another question we’ve heard relates to the potential impact on local government revenues. There are certain types of revenues that will be at greater risk than others. As a result, this issue will be impacted by the type of revenue structure within your government. Those who largely rely on property taxes are likely to be more stable than those who have a large exposure to consumer or business activity levels.

Many local governments rely on sales taxes or (for cities) business taxes of some type for a significant portion of their revenues. The strong local economy over the past 10 years has enabled year-over-year increases in these revenue types; However, a consequence of the coronavirus may be a disruption in the underlying activity that results in these taxes. We’re seeing many events being cancelled, a scaling down of commercial activity, and even the closing of many smaller businesses that rely on foot traffic for clientele. If these continue for any length of time, the “trickle through” effect will be a decrease in the related sales, business & occupation, and other taxes.

Many local governments are expressing concern with regard to the types of work often performed by hourly employees in their community. Will less restaurant and tourism traffic result in layoffs or lower wages for these employees that will translate into a lower level of retail activity? That seems likely – at least to some degree. In addition to reduced sales tax revenues, we'll likely see lower lodging taxes, admission taxes, motor vehicle fuel tax (MVFT) state-shared distributions (due to fewer people driving), and other related revenues and fees.

A global pandemic emergency on this scale is unprecedented in our lifetimes — So how should you go about estimating the scale of the potential impact on your organization’s revenues?  First, you should review your revenue profile and assess the degree to which your organization is susceptible to revenue impacts related to the virus.  With so many unknowns, your analysis should be based on the best information you can gather, with ranges of impact. Information sources could include:

  • Your agency’s historic revenue performance during relevant recession periods.
  • Information from the local public health office that suggests the most likely trajectory of the virus in your area.
  • General guidance from peer cities or counties that may have more expertise and experience in forecasting revenues.
  • Reports from major businesses that generate retail sales tax.

If the risk exposure to your revenue sources is significant, you might consider adjusting revenue forecasts for the current budget. Additionally, many are beginning work on the next fiscal year (or biennium) budget, and the onset of the virus raises questions as to the potential impacts on those estimates as well.

Fiscal policy

We have consistently encouraged local governments to develop fiscal policies to help guide their thinking for a variety of scenarios. Fund balance reserves is a common fiscal policy topic. MRSC has detailed guidance to assist your agency in thinking through the right levels of fund balance and the scenarios under which using a portion of fund balance might be appropriate. One of the examples we’ve used in our training relates to economic disruptions similar to those caused by a pandemic.

While I was at the City of Redmond our council utilized a base level reserve of 8.5% (the reserve to rely on in the event of a big earthquake or something similar). In addition, the city added a 4% “economic stabilization” reserve to the fund balance. This might be just the time to review that policy and see to what extent the current coronavirus outbreak might qualify as an economic disruption.

As always, it is important to work with others in your local government team (your policymakers, staff leaders, and potentially, outside resources) to review your unique circumstances and arrive at your best decision.

Local Economic Impacts

Lastly, your government may have a role in supporting a vibrant local economy. It may have an economic development function that can shift into a bit of a different role now, since many of the smaller, local businesses in our communities are dealing with unprecedented challenges. As discussed above, many employees in our communities rely on an hourly wage. As restaurants, tourist venues, and similar establishments scale back or close, this impacts individuals who rely on these jobs for their income. I’ve heard that the typical response has been a referral to unemployment insurance. That may prove to be the most practical approach to helping anyone who find themselves unemployed or under-employed. In fact, the Washington State Employment Security Department has programs specifically designed to respond to the coronavirus situation.

If economic development support is one of your organizational responsibilities, I’d recommend assessing local options that can support small businesses most likely to be affected by the disruptions. This is likely to be a difficult time for many of them.

Conclusion and Additional Resources

At this point there are more questions than answers with respect to the impact of the coronavirus on local government finances. At a minimum, I’d recommend reviewing your business continuity capabilities, assessing potential impacts on current and future revenues, and reviewing options to assist those who may be in need as we work through the current health crisis.

Here are some additional resources for you to use:


MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.

About Mike Bailey

Mike Bailey joined MRSC in September 2018 as a Finance Consultant. He has worked in local government finance since 1980 and was the City of Redmond Finance & Technology Director for the past 10 years.

He is a former president of the Washington Government Finance Officers Association (WFOA) and served on their Executive Board. He was chair of the GFOA Budget and Management Committee and is the local government representative to the Streamlined Sales Tax Project.

Mike is a CPA and his BA and MBA are from the University of Puget Sound. Mike conducts workshops on local government financial management, budget, and financial leadership and leads council retreats and strategic planning processes.

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