TML Coronavirus Update

Urgent Updates

If city revenues drop due to the coronavirus impact, may a city still spend on budgeted amounts?

If a city has an unreserved fund balance, also known as “reserves” or a “rainy day fund,” the city council could consider using those reserves for any shortfalls in the existing budget. Doing so would require the city council to adopt a budget amendment to the original budget ordinance.

Texas cities may generally only spend money in strict compliance with the budget, except during an emergency. Tex. Loc. Gov’t Code § 102.009(b). State law authorizes the city council to make an emergency expenditure as an amendment to the original budget only for a grave public necessity to meet an unusual and unforeseen condition that could not have been included in the original budget through the use of reasonably diligent thought and attention. Tex. Loc. Gov’t Code § 102.009(b). An expenditure necessary to cope with the impact of the coronavirus would almost certainly constitute a “grave public necessity” under the statute.

Home rule cities must also consider any guidance or restrictions in their city charters on the use of reserves. In addition, many cities (home rule and general law) have adopted formal policies governing the level and use of unrestricted fund balance, and would need to act in compliance with those policies. General guidance from the Government Finance Officers Association on the use of fund balance can be found here.

Has the Centers for Disease Control issued guidance on critical infrastructure employees who may have had exposure to COVID-19?

The CDC has issued interim guidance for implementing safety practices for critical infrastructure employees who may have had exposure to a person with suspected or confirmed COVID-19. To ensure continuity of operations of essential functions, the CDC advises that critical infrastructure workers may be permitted to continue work following potential exposure to COVID-19, provided they remain asymptomatic and additional precautions are implemented to protect them and the community. The guidance applies to, among others, federal, state, and local law enforcement, 911 call center employees, Fusion Center employees, hazardous material responders from government and the private sector, janitorial staff and other custodial staff, and workers – including contracted vendors – in food and agriculture, critical manufacturing, informational technology, transportation, energy, and government facilities.

Has the EEOC provided additional guidance on Equal Employment Opportunity (EEO) laws?

Yes. On April 6, we reported that the EEOC had provided guidance that focused on the application of the Americans with Disabilities Act (ADA) during a pandemic.  Yesterday, April 9, the EEOC published Q&As addressing the application of other equal employment opportunity laws and updating its guidance on the ADA.  The Q&As specifically address disability-related inquiries and medical exams; confidentiality of medical information; hiring and onboarding; reasonable accommodations; and harassment on the basis of national origin, race, and other protected classes.

Additionally, the EEOC has created a webpage that provides COVID-19 resources in the employment context, including a pre-recorded webinar addressing frequently asked questions on EEO laws and COVID-19.

Are property owners entitled to the temporary property tax exemption for properties allegedly damaged as a result of the coronavirus?

To be determined. Yesterday, Senator Paul Bettencourt (R – Houston) requested the attorney general’s opinion on the matter. Senator Bettencourt’s request centers on the question of whether the new property tax exemption applies only to property that has suffered physical damage as the result of a disaster, or if it also applies when property has suffered economic loss not associated with physical damage. The answer to that question has clear ramifications for how properties are valued this year in light of the current coronavirus pandemic. Properties have not suffered any physical damage due to the coronavirus, so interpreting the exemption to only apply when properties have been physically damaged would mean the exemption is not available for property owners due to the coronavirus disaster. However, if the term “damage” is read to encompass economic loss, then some commercial property owners will potentially be able to receive a partial property tax exemption this year. Regardless of the answer, the exemption almost certainly will not be available to residential property owners, as residential properties have suffered neither physical nor economic damage due to the coronavirus.

By way of background, in 2019, the legislature passed House Bill 492 by Representative Hugh Shine (R – Temple), which was signed by the governor. The accompanying constitutional amendment, House Joint Resolution 34, was approved by the voters at the November 2019 election. H.B. 492 grants a temporary property tax exemption for certain property damaged in a disaster, with the amount of the exemption corresponding to the amount of damage to the property as determined by the chief appraiser. The new exemption serves an alternative to the previous system of disaster reappraisal in which taxing units had the discretion to authorize property reappraisal following a disaster. That disaster reappraisal statute was repealed by H.B. 492.

Cities interested in submitting briefs on the opinion request may do so electronically by emailing briefs to opinion.committee@oag.texas.gov. The attorney general typically encourages briefs to be submitted within 30 days of the attorney general acknowledging receipt of a request. However, because Senator Bettencourt requested an expedited response, briefs should be submitted as soon as possible.

Further Updates

If a city has insufficient reserves to cover costs due to the coronavirus, what options does a city have to balance its budget?

First, a city council can make difficult decisions regarding reducing or eliminating programs, deferring expenditures, or otherwise finding additional efficiencies on the expenditure side. These are major policy determinations to be made by city council after being thoroughly briefed on the financial status of the city.

On the revenue side, options are a bit more limited, especially during the current fiscal year. While grant money has been made available through federal stimulus legislation, many of the details on disbursement are still unknown.

Most formal debt issuances generally are not meant to cover a city’s operating expenses. Debt instruments like bonds and certificates of obligation are issued for major capital projects. One exception is a debt instrument called an anticipation note, commonly referred to as a tax note. Cities are authorized by state law to issue anticipation notes to pay operating expenses or to fund a city’s cumulative cash flow deficit, so long as the note matures before the first anniversary after the notes are approved by the attorney general. Tex. Gov’t Code § 1431.009(c). For all debt instruments, the debt is required to be paid from a pledge of taxes, revenue, or a combination of the two, depending on the type of debt obligation.

A city may also consider a bank loan, though there are some limitations. Unlike the statutes authorizing formal debt instruments, like bonds or anticipation notes, which expressly authorize a city to pledge taxes or revenues and create a sinking fund, no clear statutory authority exists for a city to levy taxes or revenues in support of a bank loan. Without clear authority to do so, a bank loan to a city to be repaid over the course of more than one year could be considered an unconstitutional debt. The safest interpretation of the relevant law is that a city can likely only take out a bank loan if the loan is repaid within the current budget year. A city wishing to take out a long-term bank loan should do so only in reliance upon an opinion by its city attorney or bond counsel.

How can we encourage Congress to allocate more stimulus funds to all local governments?

Congress is contemplating a fourth stimulus package, which would follow the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act provides funds directly to units of local government with a population that exceeds 500,000.

On April 7, Congressman Joe Neguse (D – Colorado) introduced the Coronavirus Community Relief Act to provide a separate $250 billion stand-alone fund for COVID-19 related costs for communities with fewer than 500,000 residents.

We encourage you to contact your member of Congress to show your appreciation for their leadership on the CARES Act and to encourage the passage of the Coronavirus Community Relief Act.

Where can I find archived issues of the TML Coronavirus Updates?

TML Coronavirus Updates are archived by date here and by subject here.

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