Loudoun supervisors on Tuesday adopted the $3 billion annual budget as they prepared it before the COVID-19 pandemic sent the county into lockdown. But they have also put $100 million in reserve and delayed new hiring as the county government works out what the pandemic’s effects will be on tax revenues.
Supervisors and county staff members began writing the budget before the viral outbreak closed schools, brought many businesses to a halt and sent people in isolation in their homes. But with much uncertainty still surrounding the pandemic—including how long it will last, and how deep its impacts will be to the economy—county budget officers don’t yet have a handle on what its effects will be on government finances.
Some revenues, notes a county report, will likely be somewhat stable. The county makes most of its money from real estate taxes, which stayed relatively stable during the Great Recession. But other revenues, such as sales and use taxes or fees at Parks and Recreation facilities, could drop precipitously.
County staff members are building preliminary projections around the most pessimistic of models laid out by Moody’s Analytics, a subsidiary of the credit ratings firm. That model assumes 13 percent peak unemployment, with full employment not returning until 2025; 9 million to 15 million infections in the U.S., peaking in June and abating in September; and no additional federal stimulus. It also assumes a 20 percent hospitalization rate for the virus and a 4.5 percent fatality rate, with less than half as many ICU beds as needed becoming available.
Moody’s own baseline scenario is less pessimistic, with 3 million to 8 million infections peaking in May, a 1.5 percent fatality rate, additional federal government action, and a 4 percent excess capacity of ICU beds. New infections are predicted to abate by July. Only in the very rosiest of projections will there be enough hospital beds, ICU beds, and ventilators available.
Putting $100 million into reserve would cover the expected budget gap that would result from an economic slowdown of that magnitude, plus a larger hit to real estate tax revenues, resulting in a potential $96 million shortfall in the budget.
The approach allowed supervisors to adopt the budget as written, rather than possibly restarting deliberations now.
That $100 million would be split between $40 million for the county government and $60 million for schools, and would give supervisors the option to hold off on new spending until they know whether they’ll have the money for it.
The $40 million cut to the county budget, if needed, would come from freezing new spending such as hiring, opening new facilities, and county employee raises. But for now, no full-time, regular part-time or long-term temporary county employees will lose their jobs or see pay cuts, County Administrator Tim Hemstreet said.
“No one is happy with this,” said County Chairwoman Phyllis J. Randall (D-At Large) Tuesday night. “This is a fiscally responsible thing to do and we don’t have choices, but we did not want to do any layoffs, and we did not want to decrease any current pay. That was the first goal, and we are achieving that goal with this.”
As the budget picture becomes clearer, those plans could move ahead as money is released from the reserve.
The county also will not be issuing any new long-term debt until Hemstreet and his finance staff determine the market is right for it.
Supervisors established a new real estate tax rate of $1.035 per $100 of assessed value, a penny cut from the current rate. That rate was above the previously projected equalized rate—the rate at which the average homeowner sees the same dollar amount in their tax bill, which was $1.01 per $100. For a $500,000 house, the difference between the two rates is $125 annually, at $5,050 at the new rate.
But the pandemic’s economic impacts could come with a dip in property values, also impacting real estate tax bills and revenues. With a large enough dip, tax bills at the beginning of 2021 could drop.
Only Supervisors Caleb A. Kershner (R-Catoctin) voted against the budget, arguing the tax rate should be lower.
“Our citizens are going to quite frankly feel the pain of this, and I don’t think raising the rate rather than keeping it at what we know to be the equalized rate is the right thing to do at this time,” he said. “A lot of our citizens in Loudoun County, they are going without work, they are burning through savings.”
Other supervisors from both sides of the political spectrum challenged Kershner on that argument.
“I think overall our residents are going to see a net tax bill decrease under this scenario, so I will be in support,” said Supervisor Kristen C. Umstattd (D-Leesburg).
Supervisor Michael R. Turner (D-Ashburn) said of the difference in tax rates “this is not even pencil dust—it is the space between pencil dust. Let’s try and stay focused. … The equalized versus property tax rate is just not relevant to this discussion. Maybe somewhere down the road, but right now it’s just not relevant.”
And Supervisor Matthew F. Letourneau (R-Dulles) pointed out no supervisor has proposed cuts to the budget sufficient to actually carve out the nearly $5 million needed to cut the tax rate by the usual half-cent step.
“Not one person made enough motions that would actually lower the tax rate from what was put forward, and so anyone voting against this right now, that is not how your motions reflected in [budget deliberations],” Randall said.
Letourneau also said the fact that some people will not be able to pay their taxes going forward is “a reason to be careful about reducing the tax rate any further, because we have employees that are working every day, and we have to be able to pay them.”
However, he cautioned, the county’s recent massive investments in catching up Loudoun’s public employee pay scales with those of other Northern Virginia jurisdictions were needed, in large part, because Loudoun County government was slow to start offering raises again after the last recession—something he said managers should watch closely this time.
But supervisors were unanimous on other measures, such as the $100 million reserve and freeze on new hires.
The future of Loudoun government’s revenues remains uncertain for other reasons, too. In addition to uncertainty around the county government’s actions, the governor and state lawmakers have indicated they will have to revise the state budget again. Previously, county budget officers had expected millions in new funding from the state for the local government; that is cast into doubt again as the General Assembly plans to reconvene April 22.