COVID costs Des Moines $38M in revenue; services may be delayed

Des Moines City Hall. (Photo courtesy of city of Des Moines)

The city of Des Moines may have to delay some added rental inspections and broadband service to make up for a two-year drop of $37.8 million in revenues related to the coronavirus pandemic, City Manager Scott Sanders said Wednesday. 

In an interview, Sanders said he expects feedback from neighborhood groups who have pushed for more rental inspections, mental health and child care programs, and broadband service, which now are likely to be delayed.

He was right. 

Christopher Morse, president of the Merle Hay Neighborhood Association, said the city should consider cuts in the parks budget — though he hates to see that — rather than services that directly affect residents’ safety.

“There are a lot of opportunities to cut other services that aren’t going to affect some of the most vulnerable people in the community,” Morse said in an interview. “Rental inspections are important. Without those, how do we hold landlords accountable?”

Morse said the proposed delays, which he learned about from a reporter Wednesday, are aggravating after it took his association 10 years to get the city to begin addressing flooding along Merle Hay Road, a main thoroughfare through the northwest part of the city. 

Scott Sanders is city manager of Des Moines. (Photo courtesy city of Des Moines)

The city projects a $25 million reduction in revenues for the budget year that began July 1 and a $12.7 million shortfall in fiscal year 2022. Sanders said the decreases came as a result of residents paying less sales tax, less gas tax, and less for parking, for example.

Sanders said one of the largest drops came in hotel-motel taxes, because many of the hotels were at 10% capacity for a while. City records showed hotel-motel tax receipts are expected to be down $2.9 million from the budgeted $7.5 million for the current budget year, and another $1.9 million next year.

The city is expected to lose 22.6% of its expected revenue from a local option sales tax this year, records show.

In the next few weeks, city leaders will discuss how to cover the shortfall, Sanders said.

Electricity franchise fees also dropped, because many commercial buildings saved power while employees were working from home, and the fee is based on a percentage of power use, Sanders added. Parking fees dropped as people stayed home. 

Building permit fees are expected to slow next spring as some projects are delayed, Sanders said. On the plus side, some new apartments have opened in the East Village and could boost revenues, he added.

To help residents understand the ramifications, the city has scheduled a Zoom workshop Dec. 22 and has built a webpage detailing budget discussions. 

Sanders said the city kept its promise to cut the city property tax levy by 60 cents per $1,000 taxable valuation after voters approved a one-cent local sales tax in March 2019, and cut a few cents more the next year. He plans to propose no change in the levy in this next budget. 

The city will dip into a reserve fund to do that, but not by much. Sanders said the city policy is to keep a reserve equal to 15% of general fund expenses. That reserve sits at 25% now, but Sanders plans to shave that only to 23.5% to raise $2.5 million to $3 million to help offset the shortfall. 

In response to a question, Sanders said he won’t cut the reserve back to the standard 15% because he fears the aftermath of COVID will present budget issues beyond next year, including a possible drop in commercial property valuations and the taxes the owners of the office buildings and other structures pay. 

“We have good reserves, but it’s more about the pace of new services that we were talking about,” said Sanders, adding that no layoffs of city staff are planned.

Sanders said city officials are discussing the possible fallout if many workers don’t return to offices. That could reduce the structures’ value and, in turn, tax receipts.

Perry Beeman
Senior reporter Perry Beeman has nearly 40 years of experience in Iowa journalism and has won national awards for environmental and business writing. He has written for The Des Moines Register and the Business Record, where he also served as managing editor. He also is former editorial director of Grinnell College. He co-authored the recently published book, "The $80 Billion Gamble," which details the lottery-rigging case of Eddie Tipton.