Dallas Budget Report Gives Insight Into How Local Economy Is Navigating Pandemic

We’re just five months into the current fiscal year budget for the city of Dallas and some interesting findings are popping up.

A recently released budget report is really giving us a glimpse of how the city's economy is doing throughout the pandemic. It was presented in detail to the Government Performance and Financial Management Committee last Monday.

In the fall, Dallas City Council approved the nearly $4 billion budget. City leaders say it is no easy feat keeping track of the spending.

The city’s budget and management services team conduct monthly budget reports – something that is done every year – but it's especially important to pay attention to during such a challenging time.

“We do take that monthly reporting very seriously. And it is something that we do every year. It becomes really important when you have a tornado, followed by a pandemic, followed by civil unrest, followed by a winter storm – so I really appreciate all of the city staff, in particular, our budget office, for tracking this so carefully,” said Elizabeth Reich, Chief Financial Officer for the city of Dallas. “Because it does keep us on track and it does help the city council make decisions. That’s precisely what they will do with the information in the report.”

Sales tax surprise

According to the latest budget accountability report that tracks spending data up to Dec. 31, 2020, there are some departments that are over budget, some that are under budget and others that are on track.

“We did have to cut quite a few expenses in order to match our expected revenue. Right now, it’s early in the fiscal year but we’re on track with our budget,” said Reich. “And of course, there are some things that are coming in above budget and some things that are coming in under budget, but overall things are tracking as I might expect them to.”

One big finding shows some good news – sales tax collections are coming in higher than the city expected. The city of Dallas works with an economist that they have a contract with to help them figure out their sales tax forecast.

That sales tax revenue is forecast to be $16.2 million over budget, which is a good thing. It’s extra money that can be moved to another part of the city’s budget to keep it balanced.

“We budgeted fairly conservatively on sales tax, not knowing how long the pandemic would continue to affect people’s behavior in terms of purchases,” Reich said. “And while our sales tax receipts are still lower than they were a year ago, which was pre-pandemic, they are higher than we had expected and budgeted for. That is going to enable us to cover some other areas where we might have higher expenses other areas where maybe our revenue is not coming in where we expected it to be.”

Going over budget

There are other parts of the budget that aren’t doing as well.

Both Dallas police and the fire department are projected to be millions of dollars over budget due to overtime expenses.’’

According to the report, DPD is projected to be $5,028,000 over budget due to $5,775,000 in increased overtime for officers that are associated with the effort to crack down on violent crime and homicides. City leadership and new police chief Eddie Garcia are evaluating the current trajectory. A presentation will be made concerning the overtime hours during the Public Safety Committee meeting on Tuesday.

The report also shows that Dallas Fire Rescue is projected to be $2,577,000 over budget primarily due to $3,418,000 in increased overtime crews that are working the citywide COVID-19 vaccination efforts, as well as increased backfill expenses from quarantined uniform staff.

“The Dallas economy was strong before the pandemic, our economy is on a really firm foundation,” said Reich. “Overall, we are not where we were a year ago. We’re not at pre-pandemic levels, but we are a little better than we budgeted and that’s always good news for the city because we have so many needs for the community. There are things that are over budget, things are under budget – we will make it all balanced, that’s what we do every year.”

The struggling hospitality industry is also hurting the city.

City of Dallas

This graph shows Hotel Occupancy Tax (HOT) collections are down significantly since the start of the pandemic and haven't been able to recover. The tax is the largest single revenue source for the Kay Bailey Hutchison Convention Center.

The events sector is projected to be $22 million under budget because of event cancellations at the center. Events are down as expected due to restrictions on large gatherings.

Overall, the city council could make some big decisions on amending the budget as early as this spring. They'll decide what money gets moved to the places that need it, relying on staff and experts to make those recommendations.

“We have to pay attention to what the council has put forward in terms of priorities, what the community needs,” Reich said. “And we are constantly scanning our environment and looking at the various plans we have in place in determining where would it be best to put if we did have additional money, for example, where is that needed the most? Where is that going to help us move forward to meet the city council’s goals the best?”

Concern for property values

But city leaders are also worried about other possible effects of the pandemic that could impact the budget in the future, including the possibility of property values falling.

Residential markets are doing really well right now, but the appraisal district is more concerned about commercial parcel holders potentially asking to have values reduced because of the pandemic.

“Because they are either in restaurant or hospitality industry and they haven’t had the revenue in the last year,” Reich explained.

“That is a concern for us because right now we have budgeted for those values to be the same or to increase 3.5% and if we’re not able to maintain that value, then we will need to make cuts to the budget beyond those we’ve already made to deal with COVID.”

That’s why the city says it is hoping for more relief money from the government as the year goes on.

“It’s critically important. We have a lot of expenses for this pandemic, also frankly just for running the city and providing the services that the public expects and deserves,” Reich said. “We are where it’s at, we want to be able to continue to provide those services and we don’t want to have to raise fees or taxes and other things to do it.”

Building permits

Another glimmer of good news can be seen in the building permits data.

Building permits, which are required for all construction in Dallas, can also provide insight into upcoming activity in the housing market and other areas of the economy.

According to city leaders, permits are a key indicator of the confidence developers have in the economy. A decline can indicate developers do not anticipate economic growth in the near future.

While applications for building permits dropped off at the start of the pandemic, the numbers picked back up to near normal throughout the rest of 2020.

City of Dallas

"Since that time, it’s picked back up and it’s been pretty consistent since then," said Kris Sweckard, director of the office of Sustainable Development & Construction for the city of Dallas.

High dollar commercial projects are continuing to move forward as normal, which you can see in the green line on the graph showing building permit valuation data.

City of Dallas

“Typically you see some really big projects in there. And when you see spikes on giving months, that’s because there’s one or two very large projects, multi million dollar projects that are getting permitted," Sweckard said. “It provides jobs for residents. The front line construction workers, behind the scenes project managers, architects and engineers that are involved -- that’s a economic boom for a lot of different industries.”

Sweckard said his department is projecting a slight decrease in their revenues out of caution for the unknown.

"Because we don’t quite know how things are going to be bad. The biggest question in our minds and in the industry's mind, is what’s going to happen with office space?" Sweckard said. "A lot of people started working from home. And you read about different estimates on the number of people who are going to continue working at home versus who’s coming back to the downtown office complex. The office market is really sort of the biggest question mark in the air right now.”

The city of Dallas runs a financial transparency website to provide access to financial documents, reports and data. To see the monthly budget accountability reports, click here.