For Peninsula localities and their budget cycles, the coronavirus pandemic has created a new level of unknown.
City councils, county boards of supervisors and school boards must complete their spending plans in time for the July 1 start of their next fiscal year. Whether the virus and the hefty economic cost it imposes on some communities will be over by then is far from certain.
What they know is that hotels are empty, restaurant dining areas shuttered, and many retailers are not operating. The busier these are, the more cash flow to communities.
And while the biggest local tax base — real estate — isn’t hit yet by the fallout, there are big questions about the money local governments and schools get from the state.
Property taxes, including those levied on business machinery and utilities’ equipment, account for about 35 cents of every dollar spent by local governments and schools on the Peninsula and in surrounding counties, a Daily Press review of state Auditor of Public Accounts data shows. About 8 cents of every dollar comes from taxes on retail stores’ sales, meals, amusements and hotel taxes. That portion jumps to nearly 12 cents for the Historic Triangle.
Another important question hanging over local governments is what they will get in payments from the state, which gets the biggest chunk of its revenue from income taxes, the revenue that drops sharpest when layoffs and furloughs mount and stock markets fall.
For the Peninsula area, roughly 35 cents of every dollar on schools, police, parks, public works and other services comes from the state. State funding is critical to the biggest dollar item, K-12 schools, and accounts for much of their social services budget. State funds cover a significant part of local government bills for police, courts, jails and mental health services.
Adding to budget-writers’ challenges is a state budget calling for 2% pay increases for teachers next year and 2% the year after that. But the state money for that requires a local contribution, and only covers the number of teachers needed to meet the state’s minimal class size standards. Most Peninsula school boards employ more teachers than the minimum, and they’d have to get raises, too.
Also up in the air is the General Assembly bill — not yet signed into law — which would raise the minimum wage by $2 an hour, to $9.50.
Writing a city, county or town budget is the work of months — and the deadline for local government executives to present their ideas to councils and boards of supervisors is almost always in March or April.
Hampton
Hampton expects to present a “pre-COVID-19” crisis budget April 15, City Manager Mary Bunting said in an email.
The city likely will stick with its current revenue estimates, pegged at a 3.2% increase over the prior year, but will not proceed with any new spending, until the crisis ceases, she said.
“Right now, many of our hotels have closed (and) restaurants that have remained open can only offer limited service and many other businesses have been ordered closed by the Governor. This means our revenues will be down,” Bunting said in an email.
“The challenge we have is that there is currently no good data to estimate the impacts of the COVID-19 pandemic on our revenues or how long those impacts will last.”
Some projects such as adding artificial turf at Darling Stadium, relocating the outdoor police firing range, adding police staffing, a new grant writer and legislative lobbyist positions now are up in the air.
“I think a lot of things right now have put our budget in a state of flux,” Mayor Donnie Tuck said Wednesday. “There is a lot of unpredictability.”
For fiscal year 2021, Hampton revenue projections assumed an $11.2 million increase, city Finance Director Karl Daughtrey said last month. Hampton anticipated generating $357.4 million across some major drivers of revenue: taxes on general property, meals, sales and businesses.
At least $1.3 million of that intake is earmarked for Hampton Public Schools, Daughtrey said.
The city will increase funding to use on a contingency basis and would plan on adjusting the budget throughout the coming fiscal year.
There are no plans at this time to furlough employees, Bunting said.
Hampton, which employs roughly 1,856 people, has reallocated resources and has identified work for all full-time, part-time and hourly workers.
“Many are teleworking, but those that cannot are either socially distanced or in the field,” she said. “… Employees not able to do their normal jobs (such as community center staff) due to building closures, they have been reassigned to other areas of need and/or fulfilling training responsibilities.”
Newport News
Newport News City Manager Cindy Rohlf and Budget Director Lisa Cipriano were slated to propose a budget to the City Council March 24 — that’s been delayed to April 14.
Rohlf said the budget has changed in some ways over the last few weeks but is largely the same. That’s because its larger revenue sources aren’t expected to take big hits.
The pandemic has hurt many retail and service businesses, but those don’t account for large slices of city revenue. Cipriano pointed out that amusement and lodging combine to generate about $5 million in tax revenue per year. Meanwhile, the city’s large industrial businesses generate about $25 million in machine and tool taxes for the city.
The city has not yet shared its projections for expenses or revenues in the current or upcoming fiscal year — staff typically presents those figures and the budget to the City Council before releasing anything publicly.
Rohlf said the current draft of the budget avoids unilateral decisions such as freezing salaries and any major cuts — it also meets the school division’s funding request. Cipriano and Rohlf said they don’t expect the type of fiscal impact that would necessitate harsh measures, but they realize every government is in “uncharted territory” and much can still change.
While the proposal is largely the same as it was before the coronavirus rocked communities across the country, staff are working on versions with more significant revenue loss. “We’re preparing for the worst but hoping for the best,” Rohlf said.
York County
York County Administrator Neil Morgan said the drops in hotel occupancy and the ban on in-restaurant dining are why he’s already working to cut by 5% the budget he presented in mid-March. He’s expecting to present recommended revisions April 21.
Morgan had been looking for a $395,000 bump in meals and hotel taxes and a $435,000 increase in sales tax revenue, to help deal with a drop of $580,000 in taxes from Dominion Energy’s idled Yorktown coal fired generators.
Those, along with a projected $435,000 in sales tax revenue, $255,000 more from the state and a $1.6 million increase in real estate tax collections should have covered a 3% increase in the budget, including a 2.5% pay increase for county staff and a $1.1 million increase in the local contribution to the school system.
James City County
James City County Administrator Scott Stevens is already cutting spending, since he expects revenue will be less than forecast in the budget for this fiscal year.
The coming spending plan may look similar to the budget he had expected to publish before the pandemic.
But he said he’d carefully monitor spending.
Stevens said he expected the local economy to “click back pretty fast” after the pandemic ends.
Williamsburg
While Williamsburg’s budget is normally presented to the City Council by March 20, this year City Manager Andrew Trivette pushed it up to April 20.
But before then, Trivette will brief the council on a worst-case scenario about possible revenue losses.
He’ll also outline his ideas about how to maintain public services and the healthy city balance sheet he’s expecting will help the city weather the coronavirus challenge.
Isle of Wight
While Hampton’s Bunting plans to present a pre-COVID-19 budget, Isle of Wight County Administrator Randy R. Keaton started revising his budget recommendations weeks ago, fearing the virus would spread to Virginia, as it did last month, and cause major — if unpredictable — disruption.
He’s decided to suggest making some of the spending recommendations he was planning to make — a 2% pay raise for county employees and 14 new positions in several departments as well as some $388,000 the School Board had requested for its new positions — contingent on sales, meals and hotel taxes holding up.
Keaton said he had been looking for about a $497,000 increase in those taxes in order to fund that recommendation — a sum that will now go into a contingency fund. That increase accounted for more than half the $877,000, or 1%, increase he had been thinking of recommending.
“We’ll have a better idea in the fall where we stand,” he said.
Gloucester
County Administrator Brent Fedors says his county typically doesn’t like the contingent funding approach — a tack recommended by state Sen. Steve Newman, R-Bedford, when the General Assembly, alarmed by the rapid spread of coronavirus and the economic hit parts of the nation were already seeking, debated the state budget last month.
“We are scaling revenue projections across multiple lines in efforts to approximate reasonable estimates to move forward with, accounting for potential economic conditions over the coming 12 to 15 months,” he said.
Fedors last month proposed a catch-up budget after four lean years of scrimping and saving, with a 1 cent increase in the real estate tax rate to fund a nearly 4% increase in general fund spending. Supervisors, thinking they might need to go further, had proposed a public hearing — since postponed — to see if county residents might be willing to see an even larger rate increase to fund other needed spending.
Now, Fedors said, “We will be discussing a COVID-modified budget with our board moving forward, anticipating contraction.”
While he doesn’t generally go for the kind of contingent funding Keaton is suggesting in Isle of Wight, Fedors said he’d ask the Board of Supervisors to reconsider some spending cuts — though he’d suggest revenue would need to grow before increasing any nonessential spending.
Poquoson
Poquoson City Manager Randy Wheeler said he and his staff are working to put the finishing touches on his budget proposal.
“We have incorporated the impacts of Executive Order 53 into our assumptions for the budget document. So yes, we have revised our initial projections and reduced proposed spending,” he said, referring to Gov. Ralph Northam’s March 24 order banning gatherings of more than 10 people, ordering restaurant dining areas to shut and closing schools through the end of the school year.
The impact of the Northam’s March 30 stay-at-home order “will be things that we will need to deal with during the budget consideration,” he added.
Smithfield
Smithfield’s interim town manager, Sandy Wanner, said he’s revising revenue projections downward both for the current year ending June 30 and fiscal 2021.
Wanner said the adjustments he is making for both years include a hiring freeze this year and no new positions for fiscal 2021. He also is considering no pay raise next year until revenues improve.
Lisa Vernon Sparks, 757-247-4832, lvernonsparks@dailypress.com
Dave Ress, 757-247-4535, dress@dailypress.com
Josh Reyes, 757-247-4692, joreyes@dailypress.com
Steve Roberts, 757-604-1329, srobertsjr@vagazette.com
