Berkshire County — The effect of the COVID-19 pandemic on the business community in the Berkshires is obvious. Thousands of businesses, from restaurants to retail outlets and those occupying offices, have been shut down. Some may not survive long enough to reopen when Gov. Charlie Baker’s recently announced four-phase reopening of the economy begins Monday, May 18.
Less clear is the precise impact the global public health crisis will have on state and local government in Massachusetts. It is, however, a sure bet that towns and school districts will see substantial revenue drops. They will have to compensate for those losses by cutting spending, raising taxes, dipping into reserves or some combination thereof.
Public officials in Berkshire County aren’t quite sure how severe the cash flow problem will be. There are, in the parlance of former Defense Secretary Donald Rumsfeld, “known knowns,” “known unknowns” and “unknown unknowns.”
We know that the state, facing a projected revenue shortfall of between $4 billion and $6 billion for the next fiscal year, will cut aid to municipalities and school districts, but we don’t know by how much. We know that school districts that rely heavily on state aid are especially vulnerable to heavy cuts, as are those that are dependent on tax revenues that typically originate from businesses that were shut down or severely limited in their operations. Larger communities such as Great Barrington and Lee collect substantial revenues from local-option sales taxes on meals in restaurants and hotel stays, two industries that have been either closed or on life-support during the pandemic.
But invariably there will be other problems that we can’t even foresee, in part because hard data is difficult to come by. One organization that is looking into the economic effects on government is the Berkshire Regional Planning Commission, the county’s regional planning agency.
“This is a challenging task, since the shutdown has been so sudden and far-reaching, and there is so much uncertainty on a statewide level,” Patricia Mullins, the BRPC’s community and economic development program manager, told The Edge.
As Mullins sees it, the impacts of the pandemic to municipal budgets within Berkshire County will vary widely, depending on two sources of revenue: “the degree to which a community was dependent, pre-COVID-19, on state aid and funding, and/or the degree to which it was dependent on local receipts from sales, including food and beverages, room taxes.”
Support for small businesses and what Mullins calls “micro-enterprise businesses” is considered a high priority for BRPC staff, who are researching and applying for potential sources of relief funding beyond the initial stimulus packages from the state and federal governments that have already, in many cases, been exhausted.
Beyond the loss of revenue from the state and local-option room and meals taxes, there is also the possibility of the bankruptcy of homeowners and landlords who are then unable to pay their property taxes, though Mullins notes that portions of the county “continue to experience a strong resale market.”
At a May 7 meeting of the finance subcommittee of the Berkshire Hills Regional School Committee, some members expressed concern about Great Barrington, by far the largest of the district’s three member towns, and its reliance on meals and rooms taxes and how resulting shortfalls could affect the town’s ability to pay its share of the school district’s budget.
Great Barrington has dozens of restaurants and several hotels, most of which have either closed or have been restricted in their operations. Click here to play or download an audio recording of the virtual subcommittee meeting made by The Edge.
“My biggest concern is with Great Barrington’s revenue,” said school committee member Daniel Weston of Stockbridge. “Great Barrington’s revenue is going to be hit the hardest as an individual community.”
While the town of Great Barrington is bracing itself for revenue drops (more on that later in this story), foremost on the minds of Berkshire Hills officials was a possible cut in state aid as the legislature tries to close a massive budget deficit this year and next.
Berkshire Hills business administrator Sharon Harrison told the committee that state aid (mostly in the form of Chapter 70 and 71 grants) accounts for about 10% of the district’s current $26.2 million operating budget. Click here to view this year’s proposed budget presentation, which increases spending by roughly 4.6%.
That low percentage makes Berkshire Hills less vulnerable to state cuts than, say, the Pittsfield Public Schools, which depend on state aid for approximately 65% of the education operating budget. Bracing for the worst, Superintendent Jake McCandless has told the school committee to prepare for layoffs.
As an example of the disparity, Berkshire Hills Superintendent Peter Dillon said Pittsfield was scheduled to receive some $13 million from the state Student Opportunity Act, which is intended to correct inequities and achievement gaps in poorer school districts, while Berkshire Hills was only slated to receive about $30,000.
“This is one of those times where because we’re considered wealthy, we’re not going to get hit as hard as some other communities that are considered less wealthy,” Weston observed.
“I can’t imagine any scenario where we would get zero,” Dillon added. “Even if we half from the state, then it’s a 5% cut.”
Dillon did say there is a “high likelihood” that the district will lose some of its state funding from Chapter 71, which reimburses regional school districts for transportation costs.
School committee member Bill Fields of Great Barrington wondered whether the district’s transportation resources would be strained if schools are allowed to open in September but with strict physical distancing measures in place.
“I bet you schools will be looking at double sessions, which, to me, also has an impact on transportation,” Fields said. “I think September is going to be very challenging.”
Double sessions, or separate sessions for half the students in the morning and the other half in the afternoon, would diminish class sizes to comply with social distancing protocols but would presumably double the bus routes. And of course there is the question of whether, even if schools are to reopen in September, parents will feel safe putting their kids on buses.
Berkshire Hills is also weighing the uncertainty of whether towns will be able to hold town meetings to pass their budgets, which include the assessments they must pay to send children to the regional school district.
West Stockbridge’s annual town meeting is still slated for Monday, June 22, while Great Barrington postponed its town meeting until Monday, June 22, and Thursday, June 25. However, Stockbridge has tentatively rescheduled its annual town meeting for Monday, Aug. 3, well after the end of the fiscal year Tuesday, June 30. That means when Berkshire Hills starts its new fiscal year Wednesday, July 1, Stockbridge will not have appropriated any funds to send to the district.
Great Barrington town manager Mark Pruhenski told The Edge the selectboard will make a decision on whether to postpone the annual town meeting again at its Monday, May 18, meeting. At that time, the board will speak with town moderator Michael Wise. One alternative to postponement, he said, would be to hold the town meeting with a reduced quorum “so that at the very least we could get a budget passed.”
Earlier this month, the state legislature passed a bill allowing towns “to lower quorum requirements for open town meetings to not less than 10% of the existing quorum level. These lower-quorum town meetings would only be able to act on warrant articles approved by the selectboard, limited to the town’s budget and acting on federal deadlines,” according to the Massachusetts Municipal Association.
“I think that, de facto, puts us in a one-twelfth budget, but we can do some thinking and talking about that,” Dillon said of Stockbridge’s decision to postpone.
If towns are not able to hold town meetings and pass budgets by Tuesday, June 30, then the selectboards can pass monthly budgets based on the previous year’s budget. That means there will be no increases from the previous year until a town meeting can be held to formally pass the new budget.
The good news for Berkshire Hills is the school committee is dropping hundreds of thousands of dollars into excess and deficiency, a reserve fund for regional school districts similar to the so-called “free cash” towns are allowed to accumulate. The total in E&D, Harrison said, will be almost $1 million, which could provide a cushion for potential revenue shortfalls down the road.
“This may be the last time we’re able to replenish it for awhile,” Dillon surmised.
In anticipation of feeling the squeeze, some towns are putting projects on hold. The town of Lee, for example, has reportedly cut its proposed budget for next year, gutting its capital spending plan and putting on hold a $3 million Main Street water main replacement.
As for the earlier question of how dependent larger towns like Great Barrington are on meals and rooms taxes or even on state aid, The Edge turned to Pruhenski and town finance director Susan Carmel.
Pruhenski said he has been asking department heads to tighten their belts. As reported earlier in The Edge, the town has furloughed 14 employees, mostly in the libraries, which were closed at the end March, and delayed filling two positions in the Department of Public Works.
“We’ve asked them to identify funding they can turn back to us at the close of the fiscal year,” Pruhenski said, adding that, at this point, he is more concerned about the “out years” than the next few months.
Carmel said the town has three main sources of revenue. Property taxes account for fully 88% of revenues, while state aid is a mere 4% of revenues. The rest of the revenues come from what is known as “local receipts”: department revenues from fees, permits and the like; motor vehicle excise taxes; and local-option sales taxes on rooms and meals. Those account for between 7% and 10%, depending on the year. That percentage might be higher this year because the town took in roughly $1.6 million in cannabis revenues, which also fall under the heading of local receipts.
Carmel said it is too early to say how much revenue the town has lost in meals and rooms taxes because there is always a lag of a few months between when the taxes are collected and when the state sends the towns’ shares back to them. Great Barrington also has $2.9 million in free cash and proposes to spend $2.5 million of it at town meeting in order to limit tax increases. Click here to see the proposed fiscal year 2021 budget.
In an interview, state Rep. William “Smitty” Pignatelli, D-Lenox, said he expects the legislature, which is conducting business remotely during the pandemic, to take up debate soon on Gov. Baker’s $44.6 billion budget proposal. Because of the pandemic, the governor’s budget proposal will surely change.
Pignatelli acknowledged that the state does need to give “some guidance” to towns on what to expect during the budget season from the state government. In terms of the inevitable cuts in state aid to municipalities and school districts, Pignatelli said he would prefer a straight percentage cut no matter what the wealth of the community. He cautioned, however, that great care should be taken to ensure that harm is held to a minimum.
“Cities and towns are hemorrhaging money and businesses are hemorrhaging money,” Pignatelli said. “The state has hemorrhaged a lot of money, too, so where’s the money gonna come from?”
Pignatelli is concerned about the Berkshires’ cultural and tourism economy, especially if the Boston Symphony Orchestra cancels its 2020 summer season at Tanglewood.
“If we lose this summer and we still don’t have a vaccine in the fall, it’s going to be a very long winter and towns need to prepare for it,” Pignatelli added. “So I believe the federal government’s next stimulus should be for municipalities.”
State Sen. Adam Hinds, D-Pittsfield, who represents all of Berkshire County on Beacon Hill, agrees. Hinds wrote an op-ed in the Boston Globe late last month arguing that the nation’s economy can actually “be rescued by rescuing state economies.”
Hinds called the federal government’s lack of focus on aiding states like Massachusetts “a looming obstacle to the Commonwealth’s recovery from the economic devastation caused by the coronavirus pandemic.”
“To ensure the recovery is not undermined, state government needs to be positioned to support the economy. But that won’t happen until Congress focuses federal stimulus dollars on investments in state and local governments and locally directed infrastructure projects.”
In a brief Edge interview, Hinds said he recently sent a letter to all 52 towns he represents in Berkshire, Hampshire, Franklin and Hampden counties. Hinds told them not to pay attention to the Baker’s initial budget that was proposed at the beginning of the year.
“We’re in a situation where the treasurer reported that the lottery, the largest source of unrestricted local aid, is down 30% in revenue,” Hinds told The Edge.
The Senate normally begins debating the budget at the end of May, but Hinds said lawmakers are holding off for another couple of weeks “because we want to see what the federal government might do.”
Hinds and Pignatelli agreed that raising taxes during a recession caused by a pandemic is not a good idea. Another option is dipping into the state’s reserves, also known as the rainy-day fund, currently at $3.5 billion. Hinds said it is a forgone conclusion that the fund will be used; it’s just a matter of how much. Still, Hinds remains optimistic.
“I’m grateful for all the good things that we have now while there’s so much uncertainty and chaos,” Hinds added. “This is crazy.”
Crazy is one way to put it. But amid the knowns and unknowns, one previously underused word has made a comeback.
“We’re joking that ‘pivot’ is the word of the pandemic,” Dillon quipped. “We’re all pivoting constantly.”