The City of San Antonio faces an estimated $20 million budget shortfall in 2021 and a nearly $89 million shortfall the following year, a result of the coronavirus pandemic’s economic fallout. But officials acknowledge the forecast is slightly optimistic amid the unprecedented uncertainty of property and sales tax revenue and federal support.

Over the next five years, City officials forecast a $379 million shortfall.

On Thursday, City Council considered a flexible, preliminary budget for the next fiscal year that would cut spending on street maintenance, City employee pay and hours, and police officer overtime while canceling other nonessential programs and freezing hiring.

Council will weigh options for funding cuts and reallocations next Friday during a full-day work session. During July, City staff will further refine the budget based on Council feedback, and another draft will be reviewed Aug. 6. Council’s vote is slated for Sept. 17.

The proposed spending adjustments over the next two years will allow the City to achieve three main goals: to maintain levels of community, neighborhood, and social services; to avoid layoffs; and to balance the budget and maintain fiscal discipline “even though we are in the midst of a pandemic,” Deputy City Manager María Villagómez said.

“I do not want to contribute to the unemployment rate in San Antonio” by laying off workers, City Manager Erik Walsh said.

Over the next two years, City staff recommends reductions of $50.3 million in street maintenance expenditures, $12.8 million in personnel expenses (which could include pay cuts or unpaid days off), $11.1 million in economic development incentives, and $7.8 million in police overtime. An additional $17 million would be saved by instituting a hiring freeze.

To further save money, the City will eliminate consulting fees for SA Tomorrow to perform those planning efforts in-house, cancel a management fellow program, and use $1.5 million in emergency funds from its fuel budget and the general fund.

The City’s budget is based on its own projections and those of two economic consultants that produced “optimistic,” “baseline,” and “pessimistic” financial models based on how businesses and the community fare during the pandemic.

“[The City is] a little bit more optimistic than they [the economists] were and in some cases a little more pessimistic,” Walsh said.

Under the optimistic model, the region sees some level of increase in coronavirus infections but the medical system is able to keep up, businesses remain open, and employees continue to return to work, Villagómez said.

The baseline scenario assumes that there will be some level of infection, but not overwhelming. However, there may be a slowdown of economic activity.

The pessimistic projection is that a higher number of sick people will have a larger impact on the hospital system, prolonging the recession and resulting in sluggish re-employment.

Economists Jon Hockenyos and Steve Nivin estimated that nearly 3 percent of commercial establishments in San Antonio closed permanently during the pandemic. That’s 1,732 establishments – most of them small businesses in the hospitality industry.

Hockenyos estimated the local job market will recover in 2025, the same year they expect Hotel Occupancy Tax and property tax revenues will return to close-to-normal levels.

However, he added, the “unemployment [rate is] masking what’s actually going on” because the traditional unemployment calculation doesn’t catch every person who is out of work. Bexar County’s April unemployment rate of 13.7 percent is consistent with actual job losses of 26.4 percent, he said.

Another unknown is what, if any, future federal aid packages may arise to bolster municipalities’ responses to the pandemic or their operating budgets. Thus far, federal relief funds can’t augment the City’s lost revenue but can only help stem the spread of the coronavirus and keep residents and businesses afloat.

Hockenyos said he was pleasantly surprised that sales tax revenue from April came in as high as it did. He predicted it would be twice as bad as it actually was.

“I was wrong,” he said, as it seems the federal stimulus “helped prop up consumer spending. … It was more positive – or less bad, perhaps – than we thought.”

Sales taxes and CPS Energy payments aren’t expected to recover to pre-COVID-19 levels until at least 2022 and 2021 respectively, according to Hockenyos and Nivin’s report.

Layered on top of these discussions is the local and national debate about shifting traditional police department spending towards community health and workforce development initiatives that could improve the underlying causes of crime and poverty.

Most City Council members, including the mayor, have signaled support for looking into such reallocations amid calls to “defund the police.” While less of the conversation on Thursday centered on this element, Nirenberg noted that he would like to see City staff present some options geared toward such changes.

“We ask our police officers to do a lot more than just police work,” he said.

The City was recently awarded a grant that would bring 25 police officers onto the force who would focus specifically on domestic violence prevention and intervention. Walsh noted that Councilwoman Shirley Gonzales (D5) questioned whether policing was the best way to stem domestic violence.

“We’ll be prepared to talk through that with the Council next week,” Walsh said. “It is the epitome of what the ‘defund the police’ [protest] is raising right now.”

Roughly 80 percent of what the City spends on its police department is controlled by its contract with the police union – leaving Council with little wiggle room in what it can “defund” or reallocate.

City staff will be presenting a complete overview of the police department’s budget next week that will include what is covered by the contract and what is not, Villagómez said.

While the preliminary budget suggests the police budget for overtime will decrease, overall spending on policing will increase because of a 5 percent wage increase called for in the contract and the hiring of an estimated 90 to 100 current cadets in training next fiscal year.

For the last six years, the department had a large number of vacancies, Villagómez said. “Over the past three years, the Council direction was [to] fill vacancies for police. So we have achieved that.”

How many police officers the City hires is ultimately up to the Council.

City revenue – through sales taxes, hotel occupancy taxes, and other fees – took an estimated $198.6 million hit this fiscal year. To combat that shortfall, Walsh paused $82 million in street maintenance and other spending, implemented a hiring freeze, furloughed 270 employees, and ceased arts funding contracts earlier this year.

“We adjusted quickly,” Walsh said, recalling those decisions. “The sooner that we deal with our financial position, the better off we’ll be.”

The specifics of what personnel cuts – or any cuts – will need to be made will be developed in July and are pending Council approval, he said. “It could be furlough days where employees may have to take a day off periodically unpaid. We’ll look at some scenarios potentially adjusting down salaries. Obviously, we won’t have pay increases or cost of living adjustments in next year’s budget.”

Those cuts, however they are made, will be “equitable and from the top down” and impact management leadership, he said, including himself.

Public input on the budget will be collected via virtual town halls featuring each City Council district starting Thursday through June 25. An online survey an event information is available at www.SASpeakUp.com.

Iris Dimmick

Senior Reporter Iris Dimmick covers public policy pertaining to social issues, ranging from affordable housing and economic disparity to policing reform and workforce development. Contact her at iris@sareport.org