May 2021 Note: Since writing this post originally in Oct. 2021, local governments have received aid from the federal government through the American Rescue Plan. We've catalogued all our posts about relief for municipalities, and continue to help customers to secure and manage recovery grants. Let's talk about how our revenue discovery system can help your municipality make long-term investments that benefit your taxpayers.
COVID-19 has rewritten our concept of normalcy and uprooted financial stability for small businesses, essential workers, and individual community members alike. When these communities feel confused, afraid, and unable to support themselves — they look first to their local leaders for guidance. The pandemic has not spared our counties and municipalities. In fact, 88% of U.S. counties have reported budget constraints resulting from the coronavirus upheaval. Of that majority, most have indicated an increase in local expenditures to meet community needs and a decrease in revenue to support these costs.
Local governments feel the growing tension to address community health needs, the struggles of local businesses, and the pressures of tight budgets impacting every economic sector. Many companies have been forced to enact layoffs, furloughs, and rounds of early retirement to maintain operations. Understaffed and overburdened, local governments also face the challenges of fielding regulations, enforcing health and safety measures, and addressing community questions ranging from taxes to voting concerns, to available relief resources.
To better serve their communities and ease the financial burden of today’s pandemic, local governments can use the following three ways to unlock new revenue channels.
Initiating tax and fee audits can help municipalities recover missing revenue and increase financial stability. Is the municipality experiencing residential and commercial growth or annexation? How are taxes and fees on gross revenues being computed? An audit can identify issues or concerns under these circumstances, to determine if all taxes and fees are being properly collected and remitted by utility providers, cable companies, the State, and other responsible parties and collected and remitted to local governments.
When conducting any audit, local leaders should first determine what data will be needed from the auditee and other sources. Next, the municipality should issue all required audit notices. After analyzing and comparing the data, the municipality may present its findings and establish actionable steps towards improving fiscal responsibility, accuracy and efficiency.
Take, for example, a successful revenue review in Quincy, Illinois. In a municipality with no formal audit system, local leaders took the initiative to engage Azavar to conduct a baseline compliance audit. This review recovered over $20,000 in missing hospitality taxes — a 2% increase in the city’s overall revenue. As a result, Quincy also eliminated short-term housing ordinance ambiguities and streamlined their tax filing and collection processes through digitization to prevent future revenue gaps.
This example provides a valuable reminder for capturing revenue—local governments should pay attention to changing markets such as short-term rental and visual entertainment and make sure their ordinances are up to date. In Quincy’s case, this meant looking at the volume of short-term rental hosts and online travel companies operating in their community and educating taxpayers on ordinance interpretation and compliance.
By implementing standard compliance review procedures, local governments can prevent revenue collection deficits from compounding and confront providers who are making errors with hard data. Once these errors are corrected, it is imperative to ensure compliance moving forward.
Amidst the COVID-19 pandemic, municipalities must be flexible and able to adapt quickly. As many municipalities struggle to reconcile legacy tax administration procedures with social distancing measures, digitizing tax filing and collections can improve adaptability and lighten the burden on shrinking municipal teams.
By streamlining tax administration duties, local governments can reduce the staffing time associated with traditional filing methods. A digitized system can also improve compliance by detecting errors most human administrators might miss, as well as ensure important data and paperwork are traceable.
Real-time access to financial data is another benefit of a digitized tax system, also enabling interoperability. Having accurate data allows for better decision making and allocation of scarce resources which ultimately saves on overhead costs and returns a better value for the taxpayer dollar.
Filing and calculating taxes and fees can be confusing and time-consuming for taxpayers — especially with COVID-19 affecting their business operations and employment statuses. Local governments can simplify this process through digitization and standardization. By providing taxpayers with simple tools and resources for filing taxes and paying bills efficiently and accurately, municipalities also help to improve customer service with important constituents.
While certain fiscal best practices can be implemented at any time to improve accuracy and efficiency, the pandemic has prompted additional government intervention. As part of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, the federal government provided $150 billion in direct federal support to eligible local governments to cover expenditures incurred due to COVID-19.
To qualify for a Federal Emergency Management Agency (FEMA) grant, recipients and applicants must be state, territorial, tribal, or local governments, and the grants must go towards eligible emergency funds. For qualifying municipalities, FEMA funding may be used to cover the costs of pandemic-related emergency protective measures that address immediate threats to public health and safety.
Once eligibility is confirmed, the following forms must be completed:
To streamline the application process, FEMA has its own digitized system with step-by-step instructions. Applicants must first participate in a virtual briefing. Next, they create an online account in the Public Assistance (PA) Grants Portal to submit the request. Once the Request for Public Assistance (RPA) and COVID-19 Streamlined Project Application have been sent, FEMA will review the grant submission and if approved, funds will be administered to the grant recipient.
Key employers in the American economy and centers for public resources in every state and local government must remain agile to support their communities throughout the course of COVID-19. By maximizing revenue, implementing common-sense technology solutions, and accessing available relief funding, local leaders can ensure the public — and government employees — are better positioned to manage the financial challenges brought on by today’s pandemic and effectively move toward financial recovery.