Localities Are Re-Writing Budgets. So Should the State.

by James A. Bacon

It is obvious to some people that COVID-19’s body blow to the economy will have a devastating impact on state/local government finances. Old Dominion University professors Ron Carlee and Robert McNab have estimated that local governments in Hampton Roads are losing at least $16 million a month in local taxes, while local governments across the state are losing $60 million monthly or more. And the blood-letting is getting worse.

Hotel occupancy and revenues were only 80% of normal levels in early March. By the end of the month, the estimate, revenues were running only 20%. Sales, business-license, hotel & motel, restaurant & food taxes comprise a “vulnerable” category of local government revenue amounting to $637 million in Hampton Roads and $2.9 billion statewide.

Unlike the federal government, the professors write, state and local governments must balance their budgets (unless, I might add, they engage in hidden deficit spending like running up unfunded pension liabilities and falling behind in building and infrastructure maintenance). “It’s not time to panic,” they write in the Richmond Times-Dispatch, “it’s time to prepare.”

Some local governments are acting proactively. Fairfax County and Chesterfield County are among those slashing budgets — including next year’s — in anticipation of declining revenues. Remarkably, Chesterfield is anticipating a decline in revenue sources funneled through the state even though Governor Northam and General Assembly budget writers have yet to re-work the budget passed earlier this year before the full dimensions of the COVID-19 crisis were apparent.

Chesterfield announced yesterday that it would furlough more than 500 part-time and full-time employees beginning Saturday, reports Richmond BizSense. Local officials said 40% of county revenues were tied to consumer behavior such as retail sales and travel. “Included in that percentage is the county’s dependence on state revenues which are tied to directly to employment and spending.”

“We’re trying to rebalance our proposed budget to what we think the next fiscal year’s going to bring us in revenues, and we’re trying to preserve our full-time workforce as much as possible, to be as productive as possible over the course of the next year,” said County Manager Joe Casey.

Likewise, Fairfax County is projecting significantly less revenue, driven by drops in sales tax collections, hotel stays, car tax collections, business taxes, and other areas, reports WTOP News. The county is expected to put off some or all of the new programs for schools, police body cameras, and affordable housing that had been proposed in an earlier presentation of the budget,

Said Board of Supervisors Chairman Jeff McKay: “The world has changed since that budget presentation, and so will our budget.”

Question: What the are Governor Northam and legislative leaders waiting for? Hopefully, we’ll see some action when the veto session begins in about three weeks.

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14 responses to “Localities Are Re-Writing Budgets. So Should the State.

  1. They are waiting for April 22.

    We will see the amendments April 11. They have been in process for weeks, I’m sure.

    Informing you or me what is going on is not in the checklist, probably.

    • When the late Harold Sugg told me about editorial writing during my internship at the Roanoke Times (ahem, 40 something years ago….), he said we were to wait until the end of the battle to shoot the wounded. I really do think it is less than helpful to carp from the sidelines during the crisis.

      I am positive the work on the budget is underway, and there is no point in making early announcements. The situation changes daily. Another week could really change the revenue prediction, good or bad. The main amendments we will see will seek to give the Governor and Secretary of Finance more maneuvering room, perhaps more than the GA wants to grant. And if the announcement involves layoffs (highly likely) then leaking that to Bacon’s Rebellion in advance doesn’t strike me as a good communications plan.

      When it’s out, Dick and I will be waiting to comment. Pounce, if need be. I’ve already made comments more than once about how pessimistic I think we need to be. Rose colored glasses will be ridiculed. The release from the Senate R’s yesterday was discouraging because it implied Northam is not reaching across the aisle for their input. He needs to.

  2. In a perverse sort of way- this takes the economy down further… right?

    • Yes, that multiplier effect works both ways. You often say that government spending has its economic upside and I don’t think I’ve disputed that. I just think the first person to decide how to spend a buck should be the person who earned it. 🙂

  3. re: ” I just think the first person to decide how to spend a buck should be the person who earned it.”

    Indeed. Do you owe anything back for that public education and public roads?

    😉

    • I told you, I’m solipsistic. I assume they are just there for me to use.

      On a serious note, if there is one group of gov employees I hope will be better appreciated, it’s teachers.

      • Learned a new word! And yes… many parents are going to develop a whole new appreciation of what teachers “do”…… and that’s not a bad thing. They’re worth every taxed penny they get IMHO.

  4. As usual Virginia’s better run localities are getting ahead of the inevitable budget issues while our incompetent state government wallows in silence and indecision. Did I misunderstand when Aubrey Layne said the state budget would take a $1b hit this year and next? If I understood correctly we can basically handle that through the Rainy Day fund and some of the slush funds held at the state level.

    So, all you defenders of our state government in Richmond … is the official estimate of our budget problem limited to $1b this year and $1b next year? If not, what exactly was Layne trying to say?

  5. Layne is basically tap-dancing… rope-a-dope until he gets a better idea of the damage..

    an easier job for localities with much smaller budgets but even locally, it’s hard right now to really calibrate the loss of revenues. The best they can do is a low and high range.

    That’s also what Layne is working off of – but it’s a much larger beast with a lot more moving parts.

    Why are you so quick to jump on Layne anyhow?

    Doe ANYONE in any state have a good idea right now?

    Geeze!

    • If you don’t have a good idea then don’t quote specific numbers. Why is this hard? The last thing we need is for the General Assembly to re-convene thinking the budget deficits are well within the various reserve funds held by the state. If Layne doesn’t know the answer he should just say that.

      • It dont work that way Dude. I bet it doesn’t work that way in your company either!

        You hold your tongue until you have the facts… no? oh wait… we
        do have a problem like that with some politicos…

      • He does know. I bet he is seeing the deposit reports on a near hourly basis, with year over year comparisons. I’ve worked with TAX, the folks in other finance departments. They are good. Will they be listened to?

        • he does not know how it will play out… everything is in flux right now.

          It’s going to be pretty bad – maybe very bad but no sense in getting
          into it yet when what he says , may change , by the hour or week.

          No one in their right mind gets into that kind of discussion. It has no purpose other than to thrill the naysayers… which are circling like
          vultures right now.

        • In NoVa businesses are ramped down now, but far from totally shut down. If deposit reports are Layne’s financial guide and forecasts for the course of the pandemic are to be believed, then wait until late May — when new cases and deaths peak in Virginia, customers have learned to take the risks of social contact seriously, unemployment hits new heights, and businesses have had three months of adjusting to this panic under their belts — to see how bad it’s really going to get.

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