Covington’s Finance Department is looking to cut costs in its proposed budget for fiscal year 2025, which begins on July 1.
“With respect to the process of this budget, it was developed down to the transaction level,” said Covington Finance Director Steve Webb during Tuesday’s commission meeting. “That is an extraordinary level of detail. It takes a lot of planning from all of the department heads to achieve.”
The current fiscal year concludes at the end of the month, and meetings between the leadership professionals of the different city departments and the elected commission members occurred in the weeks leading up to Tuesday’s meeting.
In addition to the typical departmental planning that occurs during budget season, many of the budget discussions have focused on ways the city could cut costs in the face of an ongoing budget deficit in Covington’s general fund, from which the city draws most of its operating budget.
Finance reports from the end of the last two fiscal years show actual general fund expenditures exceeding revenues by roughly $2.4 million and $2.6 million, respectively. Similar shortfalls have not occurred in the city’s other funds, which are less dependent on tax revenue.
Since last year, Webb has attributed the shortfall to a decline in expected payroll tax income following the institution of work-from-home policies at Fidelity, one of the city's largest employers. As a result of work-from-home arrangements, Fidelity began remitting payroll taxes to the jurisdiction where the employees were completing their work rather than the offices’ location. This meant that if an employee worked from home outside of Covington, they were getting taxed in their home cities, even though they were officially employed out of the Covington complex.
Fidelity announced in February that it would begin requiring employees to spend more time in the office than before, but city staff doesn't believe that this will be enough to close the gap completely. When the payroll tax decline first came to light, Webb suggested reallocating federal American Rescue Plan Act, or ARPA, dollars as a means of operating in the short-term while the city looked into more long-term solutions. ARPA monies were disbursed to cities to help them operate in the face of the economic downturn that accompanied the COVID-19 pandemic.
In spite of these problems, Webb has stated several times recently that the city's overall financial picture is improving.
“In the last several months, we’ve been fortunate to have three of our better months we’ve had in quite some time,” Webb said at a budget planning meeting in May.
Although the finance department’s projections showed that major operating expenses would likely overtake revenues by fiscal year 2026, Webb said that the gap was smaller than the department’s initial projections from January. He attributed this to a variety of factors, namely an overall increase in payroll tax receipts, a reduction in debt service, and new sources of inter-fund transfer dollars, such as a payout from the recent opioid settlement, among other mechanisms. In fact, at Tuesday's meeting, the commission also heard a proposal to move about $1.2 million in unexpected payroll tax revenue into the current year's budget to pay for unscheduled overtime in the fire department.
The department's newest projections also suggested a reduction in the amount of ARPA dollars the city would have to use to replace revenue lost due to work-from-home. As of Tuesday, the city expects the amount of ARPA money needed to bolster next year's budget to be about $6 million, down from the $11.6 million projected for the current fiscal year.
Finally, the city's most recent financial audit came back clean for the first time since 1996 regarding its accounting and record-keeping policies.
“We issued an unmodified, clean opinion for both the financial statements and the major federal programs,” said Morgan Ryle, assurance manager at Barnes Dennig, the accounting firm that performed the audit, in a city announcement last month. “That’s the best you can get, so great work to the team for that.”
Statements from previous meetings suggest that the elected officials have put their hopes in the Central Riverfront Development site as means of addressing the shortfall long term. On Tuesday, the commissioners and Mayor Joe Meyer were complimentary of the city staff's effort to get the budget into a more workable state.
"It was quite extraordinary that something that complex and basically difficult was done very smoothly [and] on time," commissioner Steve Hayden said. "I watched it all happen; very impressive."
"We are really getting down to the minimal operational requirements without a lot of fluff in this budget," Meyer said. "But at the same time, because of the changing circumstances, we have been able to maintain the level of quality of the city services: We are adding people back in; we are continuing with our investment in the city so that we can maintain the progress that we've made through the past several years."
View a breakdown of the proposed figures for Covington's general fund below. You can also read a full text of the proposed budget for all city funds here. The commission will perform a first reading of the new budget at the legislative meeting next week on Tuesday, June 11. The meeting starts at 6 p.m. at Covington City Hall on Pike Street.