Newtown Businesses Struggle to Stay Afloat During COVID-19

“Extraordinary times call for extraordinary measures.” These are indeed extraordinary times with many businesses forced to close and millions of people out of work due the measures necessary to contain the Coronavirus pandemic. And municipalities like Newtown Township that depend upon business and job related taxes (e.g., Earned Income Tax or EIT) face financial difficulties if the shutdown continues much longer and people do get their jobs back.

It is unknown to what degree the COVID-19 shutdown will affect the Township's finances. Obviously, EIT will likely take a hit due to the temporary or permanent closure of businesses (see chart below). Real Estate Transfer Tax will also likely be, or become, compromised as people brace for a potential financial impact. These sources of revenue fund the operation of the Township – zero mills of real estate tax are dedicated to support General Fund expenses such as salaries of administrative employees, police officers, fire fighters, and public works employees plus all the other day-to-day expenses.

The COVID-19 Domino Effect

This over-dependency on business-related tax can lead to what I call a "COVID-19 Domino Effect" whereby as businesses remain shut and as more local workers are laid off or furloughed, eventually the township will face a financial crisis due to lack of revenue and increased expenses necessitated by the pandemic.

To help keep the township stay afloat until the end of the year, management has already made some "drastic" choices. First, the township declared a “Public Health Local Disaster Emergency,” which allowed it to “suspend such regulatory requirements deemed necessary to respond to this disaster emergency and to conduct Township Business.”

One of the “regulatory requirements” that was suspended was the need for public input or debate when the Township Supervisors approved the following measures by email at the end of March, 2020:

1. the rejection of all bids received on March 4, 2020, for 2020 road program and rebidding the project with a “revised and reduced scope of work” (i.e. much fewer roads repaved; see recommendation from the township engineer here),
2. pull back of a one million dollar road loan to repave 5 miles of road. This loan was originally approved at the February 26, 2020, public meeting (see here), and
3. re-allocation of 1 mill of tax revenue dedicated to debt service (approximately $375,000) to the General Fund to support the day-to-day operation of the Township.

The Board of Supervisors (BOS) ratified these decisions during the “public” meeting via Zoom on April 22, 2020. Listen to the discussion in the following audio podcast.

A Possible Scenario

This action was necessary primarily because the township budget anticipated a limited balance for contingencies. The 2020 budget has a year end projected fund balance (aka “reserve”) of $1,332,287 with total expenditures of $13,081,611. That satisfies the 8-10% balance mandated by Board. Unfortunately, it may not be enough to cover the loss of revenue due to COVID-19.

Looking at the budget numbers, it’s not difficult to imagine a possible scenario in which the township could face a negative year-end cash balance due to the pandemic mitigation efforts. For example, a scenario that assumes a 15% reduction in EIT plus a 10% reduction in other revenue with no expenditure reduction would result in a projected year-end NEGATIVE balance of about $100,000!

To address the need for more contingency funds and end the township’s deficit spending, the Township Manager stated at the April BOS meeting that he will recommend that the general operating budget be supported by a real estate tax next year (listen to the audio podcast above).

As Goes the Success of Local Businesses, So Goes the Solvency of Newtown Township

To stay financially solvent, it behooves the Township to do all it can to help local businesses and their employees get back to work. As a Newtown Township Supervisor I expect that I will be called upon to make additional decisions in the coming weeks and months in response to the dire financial impact on Newtown Township of the Coronavirus pandemic and the emergency mitigation measures currently in place. Consequently, it is important that I and other Supervisors have the necessary information and feedback from local businesses to make the right decisions. That is why I hosted the COVID-19 Business Impact Survey.

[UPDATED 5/17/2020] To date I have received responses from 34 local area businesses, 29 of which are located in Newtown Township (21) or Newtown Borough (8). The following is a brief summary of the responses from these "Newtown" businesses. Download a PDF complete summary of responses to this survey from 21 Newtown Township businesses or view an online summary of ALL 34 responses. No identifiable information is included in the summaries.

Survey questions include:

• How long have you been in business?
• What are your top concerns in operating your business during the COVID-19 pandemic?
• Is your company open, operating at a reduced capacity, or closed as a result of COVID-19?
• Were any changes that you made to your hours of operation done proactively, mandated, or because of a change in demand?
• Have you had to reduce the number of employees working for your business as a result of the COVID-19?
• If your workforce has been reduced or you anticipate a reduction, please indicate how many employees are/may be impacted.
• How do you expect your sales/revenues to change in 2020 Q1Q2 because of COVID-19?
• What is your most pressing need right now local government may be able to help with?

The majority (52%) of Newtown businesses surveyed have been in business over 10 years, but a significant 21% have been in business for less that a year. Regardless of years in business, over 70% of respondents cited two top concerns: (1) reduction in customer demand (62%), and (2) lack of cash flow to cover operating expenses (76%).

The majority of Newtown business respondents are small businesses: 62% employ 1 to 5 people and another 21% employ 6 to 10 people. Only 23% of these businesses are open with regular business hours, 27% are operating at a reduced capacity, and 50% are closed.

Health Concerns

Among the 28% who cited "health concerns" as one their top concerns, some urged compliance with guidelines when allowed to open. "Keep everyone safe. Open businesses when safe to do so. Allow us to have limited access to building," said a Newtown Borough Financial Services business owner. "Keep Social Distancing in place until we have the testing needed to make sure people are evaluated So we don’t have a relapse," said a convenience store owner.

Some other results:

The question “Have you had to reduce the number of employees working for your business as a result of the COVID-19?” generated the following responses:

• 41% indicated “Yes, temporarily”
• 3% indicated “Yes, permanently”
• 38% indicated “No, I have not reduced employees”
• 17% indicated “Not yet, but I anticipate a reduction in employees”

Significantly, 69% of Newtown business respondents indicated that they expect a “Large Decrease” in sales/revenues for Q1Q2 (January through June, 2020) because of COVID-19 and only 3% expect no change.

The following are selected comments from Newtown business respondents regarding their most pressing needs.

• Covering high lease payment in Village at Newtown [from a beauty salon that opened recently and anticipates a large decrease in revenue]
• Loan & rent forgiveness! Stimulus money to help us get back in business [from a respondent in business less that a year and anticipating a large decrease in revenue]
• Grants or stimulus packages to help small businesses. A 6 month moratorium on any signage/ banners to promote business such as Grand Re-Opening, special sales, etc. [from a respondent in business for more that 10 years and who expects a 30% to 50% drop in revenue]
• Need to get PPP loan. Applied day 1, have yet to receive funds. This will allow us to remain open. Without it, we will likely close.
• I cannot apply for the Paycheck Protection Program (PPP) because my independent local bank is not offering it. All other local banks are only offering this service to their current customers.
• Funds! I was open for three weeks and was forced to close. Not sure I can rebound after this [from a beauty salon that opened recently and anticipates a large decrease in revenue]
• As a sole proprietor who is not able to operate my business, the most pressing need is funds to be able to pay my bills until business returns months from now. Once this does come to an end, a huge focus on local business and getting people out again will be needed.

Two respondents offered suggestions for how the Township can help aside from providing monetary aid:

• Keeping us informed, Follow federal government guidelines.
• Getting us all to follow the personal distancing rules as set out by our leaders in government. I believe if we all follow that, this will run its course quicker. I do believe our Government has done a pretty good job considering the situation.

The Township has done a good job keeping the public informed by issuing 5 “Management Press Releases” detailing what it is doing to cope with COVID-19 and maintaining a page dedicated to COVID-19 information and resources. Access these via the Township website: www.newtownpa.gov

If you are a local Newtown area business owner who has not yet taken my survey, you can still take the survey and give me your feedback: https://www.surveymonkey.com/r/KMZPN76

If you are/were employed by a Newtown Township business, please take my COVID-19 EMPLOYEE Survey: https://www.surveymonkey.com/r/6HTHQML