The budgeting process for the city of Madison is a well-established practice.
Revenue for the city comes from various sources. The largest source is the sale of electricity to residents, businesses and others. It's been modestly easy to forecast, although there is always weather variability, which may cause sales to go up or down. Fortunately, the cost of purchased electricity goes up and down in lock step.
Sales tax revenues are also substantial and have been fairly consistent over the years. Property tax revenue is the easiest to predict.
On the expense side, city officials bring together requests for various departments and outside agencies, and the commission approves spending that essentially matches revenue.
But forecasting for 2021 will be harder. We think it's fair to say there is more uncertainty with revenue forecasts now than there has been in a long time. Electricity sales will depend on both the weather and the economy, which is still unclear considering the national and world recessions.
Sales tax revenues are equally unpredictable. Will the COVID-19 pandemic slow down or accelerate? Will there be a tourism season next year? Will schools be open to in-person classes or essentially shut down?
The state of South Dakota ended its June 30 budget year with a surplus, mostly by cutting expenses to offset lower-than-forecasted revenues. And there is still a possibility of a special legislative session this year to address budget shortfalls in the year we just started.
Will the city of Madison (or any other government entity dependent on sales tax, utility sales or other variable taxes) be able to forecast revenues seven to 19 months from now? It will be hard.
City officials will do their best, but adjustments may need to be made along the way. We do believe, however, that shortfalls in revenues should be balanced with spending cuts, rather than additional taxes on citizens and businesses.
-- Jon M. Hunter