Northern Michigan could see a $2.3 billion loss in economic activity due to the pandemic, according to a new report from Networks Northwest and Fourth Economy – with Traverse City and Grand Traverse County leaders addressing potential impacts on their coming budgets this week.

The newly released COVID-19 Economic Impact Analysis measures potential losses across key sectors in northwest Michigan, which has a total regional economic output of $13.1 billion. Retail is expected to take the hardest hit, with estimated losses of over $518 million. Manufacturing is closely behind with estimated losses of $474 million, followed by accommodation and food service at $382 million and healthcare and social assistance at $345 million. Cuts in tourism traffic and cancelled festivals and events are also expected to have a reverberating effect.

“The tourism sector is a major employer in northwest Michigan and will experience lasting impacts due to the global pandemic,” the report notes. “The region has already seen a decline in travel and hotel occupancies, as well as the cancellation of events like the Cherry Festival, that will have major short-term impacts on the sector. Long-term, consumer confidence will have lasting effects on businesses and workers in the tourism sector, as visitors decide when/where it is safe to physically visit venues.” According to the study, 19,200 jobs were supported by direct tourism in northwest Michigan as of 2018, with visitor spending totaling $1.96 billion that year. Another $215 million was generated in state and local taxes from visitor spending.

Nearly 24 percent of workers in the region are in “non-critical” occupations that can’t be carried out remotely, such as food service, retail, arts, entertainment, and recreation. That dynamic led to “furloughs and terminations” throughout the pandemic, according to the report, with 33,000 area workers filing for unemployment as of April 18 – “an unprecedented 23 percent of employed residents.” The region is also vulnerable because of its high concentration of small businesses: 54 percent of all employment is concentrated in private businesses with under 500 employees, with micro businesses – those employing fewer than 20 employees – at especially high risk.

“Small businesses are at higher risk than larger firms because they have less liquidity and less cash on hand to weather shocks and emergencies,” the report states, noting that the median account balance for a local small business is just $12,100 and that small businesses typically only have 27 “cash buffer” days, or days they can afford to keep paying expenses with no revenue coming in. “After that they are out resources, and even prior, many will face permanent loss,” the report warns.

Child care is also a looming concern. There are approximately 11,400 children between the ages of zero and five in northwest Michigan who have parents in the work force. Pre-pandemic, there was already an estimated gap in childcare capacity of roughly 900 children. The report states that “41 percent of (child care) capacity statewide could be lost long-term without strong federal support. This could leave thousands of parents in the region without child care options, which for many will be a barrier to employment.”

Grand Traverse County commissioners referenced the report as they discussed potential grim implications for the county’s 2021 budget at their Wednesday meeting. Finance Director Dean Bott said federal cuts shouldn’t significantly impact the county because Grand Traverse doesn’t receive much federal funding except for Friend of the Court. But “state revenues are a different story,” Bott said, explaining that as much as 20 percent of state revenue-sharing with Grand Traverse County could be slashed – an estimated $350,000. How those cuts will be distributed over this year’s and next year’s budget remains to be seen, Bott said. “No information is coming out of the (Michigan Department of) Treasury at this point,” he said.

Commissioner Gordie LaPointe worried about potential cuts to other revenue streams, particularly grant funding. “Common sense would tell us that both the federal government and the state government spent a ton of money addressing this pandemic, and their budgets are going to be affected,” he said. “My take is this could be pretty dramatic.” Commissioner Betsy Coffia agreed. “I think there’s some pretty big tough economic (impacts) coming our way,” she said.

Commissioners reiterated their commitment to maintaining the county’s aggressive payment schedule for its pension debt with Municipal Employees’ Retirement System (MERS), but acknowledged they might have to scale back or cut other areas. County Administrator Nate Alger said he had halted all capital projects not already in progress, paused filling any vacancies except for urgent public safety positions, implemented some staff furloughs and layoffs, and instructed department heads to submit their budget plans by July 1 tailored to upcoming revenue projections. Vice Chair Ron Clous said commissioners needed to back staff in making difficult budget decisions going forward. “I don't want to be the board that people look back on and say, ‘Well, they didn't react when the public sector had to react,’” he said.

Traverse City commissioners Monday also approved a 2020-21 budget heavily shaped by pandemic impacts. City Manager Marty Colburn recommended pausing numerous capital projects and eliminating sixteen summer hires in response to anticipated revenue drops, which could include decreased marina and event venue rentals as well as parking service losses on the Downtown Development Authority (DDA) side. The DDA’s approved budget also included a $50,000 contract with Traverse Connect, which CEO Jean Derenzy said will go toward providing economic and strategic support to downtown businesses to help them survive and recover from the pandemic. While the city’s charter required the budget to be approved by Monday, commissioners agreed to continue discussions into July about financial impacts from the crisis and pass additional budget amendments if needed.