IssuesStatewide NewsTaxes & SpendingGovernments Slow to Match Sacrifices Texans are Making During the Coronavirus Lockdown

While businesses are having to make cuts to stay afloat, many governmental entities have not followed suit despite an impending revenue shortfall.
April 29, 2020
Café Medici is a locally owned coffee shop operating three cafes in Austin. That number used to be six, though, before the COVID-19 shutdown.

“We had to close three of them; one for good,” said owner Michael Vaclav, who founded the company with his wife Alison in 2006. “The 2nd and Congress location won’t reopen.”

Vaclav is one of many employers in Texas who are struggling with how to deal with the changes brought about through the response to the current pandemic. 

Headquartered in San Marcos, Heldenfels Enterprises is facing a different set of challenges. Since it qualifies as an essential business and many of its contracts come from state and local governments, there hasn’t been much of a slowdown. 

“For us, [the pandemic] has made us focus on simple hygiene and simple disinfectant, paying attention to more spaces and surfaces than we did before,” said Fred Heldenfels, the president and CEO. “We are also recognizing social distancing.”

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“We are thankful to find ourselves in an essential industry and able to keep the vast majority of our employees at work and earning a paycheck,” he added. “In fact, if anyone who is laid off in the San Marcos area is interested in learning new skills, we’d encourage them to go to our website.”

Not every worker in Texas, though, had an employer that could keep its workers employed in the midst of the pandemic. 

As its revenue dropped from 60 to 80 percent, Café Medici had to lay off 27 of its 50 employees. 

In mid-March, Halliburton furloughed 3,500 employees in Houston for up to 60 days. Employees are working one week on and one week off during the furlough, maintaining benefits but not getting paid for the off weeks. 

The Dallas Morning News reported that Dallas-based hospital chain Tenet Healthcare furloughed 3,400 hospital workers, “citing lost revenue from halt on elective surgeries.” The Massachusetts Nurses Association criticized the move.

“This is no time to be sending staff home, when our patients and our community need us more than ever before,” said Marlena Pellegrino, RN, a medical-surgical nurse at the St. Vincent Hospital.

Though Governor Greg Abbott announced this week the limited reopening of some businesses, like movie theaters, restaurants, and retail stores, businesses are required to keep their building capacity at 25 percent of their maximum occupancy.

While COVID-19 unemployment claims in Texas have topped 1.3 million, one class of employees that seems to have been able to keep their jobs is government employees. 

When Abbott announced his disaster declaration on March 13, he also directed state agencies to provide flexible work and telework policies for their employees. Texas cities have done the same thing. But there are no indications of layoffs or furloughs of government employees that are widespread in most sectors of the economy.

In fact, the Texas State Employees Union has asked that “Texas increase funding and provide hazard duty pay for all state employees.” It suggests that $500 a month would match similar actions in the private sector. 

However, the TSEU does not identify where the increased funding would come from for these raises in light of a likely revenue shortfall for the state. 

This raises a question about how Texas state and local governments will respond to the potential revenue shortfall. 

To date, the state’s response has largely been focused on easing government restrictions on various industries. Many of the waivers on regulation have been focused on healthcare to improve the medical community’s ability to respond to the virus. 

Restaurants have also been allowed to resell retail products directly to consumers, providing another source for food for Texans besides grocery stores and prepared food from restaurants. Similarly, regulations on trucking have been eased to make the distribution of goods more efficient. 

Yet there has been no indication that the loosening of these restrictions will be permanent, and the move was not designed to reduce government expenditures.

The idea of trimming government expenditures was recently floated by Rep. Dennis Bonnen (R-Angleton), speaker of the Texas House of Representatives. The Texas Tribune reported that Bonnen would like to discuss the possibility of taking steps “to immediately identify and execute 5% budgetary savings.”

Texas leaders have done something similar in recent years, asking for 4 percent savings in 2016 and a 5 percent reduction in 2010. However, no actions have been announced yet to address what could be a revenue shortfall exceeding $7 billion in 2021. 

Even with the limited attempts at savings, generally speaking Texas government has not experienced the same cuts in spending that businesses and individuals have during times of crisis. 

In addition to dealing with the state budget, legislators are also going to make decisions about how local governments can address the potential loss of revenue from sales and property taxes. 

Last year, the Texas Legislature placed a 3.5 percent limit on local government property tax increases unless the governments sought taxpayer approval through local elections. But Governor Abbott’s disaster declaration has opened up the possibility that the limit could be increased to eight percent.

In its March 18 update, the Texas Municipal League wrote that the limit can be increased to eight percent “if any part of the city is located in an area declared a disaster area during the current tax year by the governor or by the president of the United States.” It could be that this was triggered by Abbott’s disaster declaration. 

According to The Texas Tribune,  Abbott is uncertain as to whether this is the case. “We’ll have to take a look at it,” Abbott said. “Pretty much the only type of governmental entity that would be affected would be a hospital district, and they weren’t subject to having the rollback rate change.”

At the moment, local governments may see some relief from federal funds in the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act signed by President Trump on March 27. 

For instance, a “non-statewide governmental body with the authority to establish a budget and impose taxes” is eligible to receive $37.8 million through the state. Others are receiving a total of $24.6 million directly from the federal government. 

Perhaps the biggest local recipients of federal funds in Texas are the Dallas and Fort Worth transit systems, which should receive $318 million to reimburse expenses that occurred after January 20, 2020, declining ridership levels before the current downturn.

One Texas city, Arlington, is exercising some fiscal restraint. Its initial efforts include suspending a planned employee raise, freeze hiring for vacant positions, and suspending vehicle and book purchases, with no employee layoffs. Yet the proposed $13.1 million in savings still puts the city’s 2020 expenditures $17.4 million above its 2019 budget

Additionally, earlier this month the city of San Antonio furloughed 270 employees.

Despite these actions, for the most part, Texas’ state and local governments have yet to exercise the discipline and display the generosity seen in the private sector through reducing expenditures and revenue. 

Vaclav pointed to his landlords as examples of both.

“Each landlord is different,” he said. “Some are saying I’m not going to tell you not to pay me, but if you don’t, I won’t close you down. I don’t want to get into the details, but one has been really gracious to make sure we can stay open.”

As for what the future holds, Vaclav is uncertain. 

“Bright spots are hard,” he admitted. “I’m optimistic. Being an entrepreneur, problem-solving excites me. My biggest concern is the six- to eight-month range. I don’t want to take on more debt. I’m focused on how to make it to 2021 spring. I think that is the main focus for us in the food and beverage industry.”


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Bill Peacock

Bill Peacock is a writer and public policy consultant in Austin, TX. He has extensive experience in Texas government and policy on a variety of issues, including economic regulation, energy, taxes and budgets, property rights, and corporate welfare. His work has focused on identifying and reducing the harmful effects of regulations on the economy, businesses, and consumers.