Louisville lawmakers may allow the city to issue bonds or take out a line of credit to make up for delayed and potentially diminished taxes, including the net profit taxes that make up about 11 percent of the city’s budget.
An ordinance passed unanimously by Metro Council’s budget committee last week would authorize the city to borrow up to $240 million, which could fund about four months of operations.
Daniel Frockt, the chief financial officer for Louisville Metro, told the Metro Council’s budget committee that the city may need a way to get cash until property and corporate profits tax collections resume.
"We would rather have it and not use it than need it and not have it," he said.
Frockt also said the ordinance permitting borrowing would not extend the government’s authority to spend.
Although the measure passed out of committee with unanimous support, some council members expressed concern about using debt to fund operations. Typically, Louisville Metro reserves that tool for capital projects such as building a library or resurfacing a street.
Councilman Anthony Piagentini of District 19 raised questions about the long-term implications of the move.
"I don't want to turn what is a short-term flexibility option to help us out in extremely extraordinary circumstances to turn into a long term crutch, to justify a lack of fiscal discipline," he said. "And so that that's my only concern."
He wanted to know how long the city would be on the hook for this debt. Frockt responded by saying the city would intend to pay back any debt before the start of the fiscal year in the summer of 2021.
Experts say this type of borrowing is typical for state and local governments. Adam Levin, a principal associate at The Pew Charitable Trusts, said the state of Rhode Island and city of Portland, Oregon, are among those governments considering short-term debt because of the pandemic.
Something all of these governments will need to consider is how they pay back what they borrow in a short time frame. At the moment, that could require creative solutions if city revenue comes in lower than anticipated, Levin said.
"To the extent that cities and states are facing a pretty big unknown going forward, everyone has a lot of questions about what’s going to be happening in the next, you know...pick an amount of time," Levin said. "And everyone’s going to be facing probably revenue shortages."
Despite those questions, Louisville Mayor Greg Fischer will present a tentative budget to the Metro Council with major cuts this Thursday. He has asked repeatedly and publicly for federal support to cities for operations outside of COVID-19 response, but that support may not come. And last Friday, he announced the city would indefinitely furlough about 380 employees starting in early May.
There are two things happening in parallel. On one hand, the administration has to lay out how it wants to spend whatever revenue it expects to come in. On the other, it needs the option to borrow in case that revenue is late or lower than anticipated. And all of this is happening without knowing when the economy may reopen.
Thursday's budget address will also include an update on the state of the city, Fischer said on Monday. Much has has changed since the last such speech in February, but many of the challenges he outlined then, including affordable housing and climate change, still remain.
