Loudoun supervisors have set county staff members to work writing the next annual budget amid the uncertain fiscal picture of the COVID-19 pandemic.
The county budget staff typically begin its work writing the next fiscal year’s budget almost as soon as the current one starts, which means early revenue estimates that tend to vary widely between supervisors’ initial budget guidance and their vote to adopt a budget in April. But that uncertainty has been multiplied this year, as County Administrator Tim Hemstreet begins work to write a budget that will begin in July 2021, more than a year after the COVID-19 pandemic began in the U.S. but—vaccine or no—while the country will likely still be feelings its economic effects.
One of those effects is on the county government, which has been running an emergency pandemic response since March. Hemstreet said the county is “essentially operating two separate operations”—the response, and the county’s normal operations, such as they are during the pandemic. The county’s operations have already been cut back as the government implemented social distancing, telework, and flexible leave policies while also redirecting some funding to the pandemic response.
Additionally, all new spending in this year’s budget remains frozen. The current fiscal year’s budget was mostly written before the pandemic, sending supervisors scrambling in March to adapt to the new pandemic as schools and business abruptly closed. They mostly achieved this by freezing new spending and hiring.
Even if a recovery is swift, Hemstreet advised, the county will be limited in how fast it can catch up to supervisors’ goals—hiring new employees and integrating them into the county’s operations takes time.
The pandemic has also had variety of impacts on real estate values, the main source of local tax revenues.
“Residential prices are continuing to increase, but commercial values are decreasing, and in some cases significantly as an impact, or a forecasted impact, of the pandemic,” Hemstreet said. “When it comes to tax policy, that makes it very tricky in terms of deciding what to do with the real property tax rate when you have such a difference based off of property class within your real estate portfolio.”
The continued growth in the price of residential land more than balances the sinking values of many types of commercial land in the county overall, leading to a forecasted 0.5% increases in assessed values overall in the next year.
County supervisors often talk about the real estate tax rate in terms of the equalized tax rate—the rate at which the average property owner pays the same dollar figure in taxes despite changing values. But with commercial and residential property values headed in different directions, the next tax rate is a more complicated discussion—and the difference is a warning sign to those watching the county’s tax revenues.
“I don’t think in the last ten years we have had such a large forecast variance between the homeowners’ rate and the commercial rate,” said Assistant Director of Management and Budget Caleb Weitz. “So, what this is indicative of is the highly uncertain situation, and a lot of volatility in our largest and historically most stable revenue source. So, as staff, we can’t underscore that enough, that that gives us some concern that our main revenue source, that is very stable, is experiencing these levels of volatility.”
It also means that a tax rate that splits the difference, for an overall equalized rate, will actually mean higher tax bills for homeowners—“a pretty significant tax increase, the biggest that I’ve certainly had on my part of during my time on the board,” said finance committee Chairman Matthew F. Letourneau (R-Dulles).
And a lot can happen between now and supervisors’ budget discussions in the spring. Hemstreet cautioned it’s too early to fixate on a specific tax rate because revenue projections are still preliminary.
Supervisors on the finance committee recommended preparing a budget at the equalized tax rate, currently forecasted to be $1.035 per $100 of assessed value—the same tax rate as today. They also asked for options for a three-cent decrease to $1.005, the current estimate for an equalized tax rate for residential property, and a one-cent increase, which is typically done to give supervisors some idea of what else department heads would like to get if they had the funding, and give them the option of swapping those requests for ones that are funded at a lower tax rate.
Loudoun County Chair Phyllis J. Randall (D-At Large) asked to revise a version of the guidance which asked for options for up to a 3-cent increase.
“People are really hurting, and I don’t think we’ve done it correctly in years past, when we’ve gone down when we didn’t really need to, but this is the time when we should go down,” Randall said. The board’s finance committee passed that recommendation 3-2, with Supervisors Juli E. Briskman (D-Algonkian) and Koran T. Saines (D-Sterling) opposed, on Oct. 13. It will now go to the full Board of Supervisors for a vote.