Illustration by Justin Vaughan
If you’re thinking of those who have gone beyond the norm during the coronavirus pandemic, you might consider the oft-overlooked number crunchers, the men and women who labor over local budgets.
Even in the best of times it’s hard, exacting work.
Lately, it has been even more difficult, as the pandemic has knocked the bottom out of traditional revenue sources such as meals taxes, hotel and motel occupancy taxes, sales taxes, and personal property taxes.
“My career goes back almost 30 years, and I’ve never seen drops of revenue like this, and so quickly,” says Henrico County Manager John Vithoulkas.
The region’s big three — Henrico County, Chesterfield County and the city of Richmond — have all struggled with revenue projections and budget forecasts as businesses close, unemployment rises, and deaths and hospitalizations from the coronavirus continue.
Henrico County, the region’s jobs leader with nearly 190,000 pre-coronavirus jobs at one point, had been on a high in recent years as the economy boomed.
In February, the Bureau of Labor Statistics reported that Henrico’s unemployment rate was a mere 2.6%. Over a few months, the percentage of unemployed quadrupled.
Spring ahead to the first week of May, when the Virginia Employment Commission released data showing that initial unemployment claims in Henrico for the May 2 filing week stood at 2,163. Richmond led the region with 2,290 new claims, and Chesterfield ranked second with 2,185.
About 21,000 Henrico residents applied for unemployment in April alone.
“Currently, we are at 10% [unemployment] in the region,” Vithoulkas said in mid-May.
“The concern we have here is when that 10% becomes 12%, when it becomes 14%, or it peaks at something like 16%. Those are not levels you recover from immediately.”
‘Things can change on a dime’
Like all localities in the region, Henrico prepared one budget for fiscal year 2021, then scrapped it and put together a new budget in about three weeks as the corrosive effects on business from COVID-19 and gubernatorial mandates to corral the coronavirus took hold.
In submitting a revised budget of $1.3 billion on May 1, Vithoulkas attached an open letter saying, “Like millions of businesses and families, Henrico is only beginning to understand the severe impact that the COVID-19 crisis will have on our finances.”
The revised budget came after trimming nearly $100 million that included a delay of capital projects, a 5% across-the-board reduction for department operations and holding open all vacant positions, excluding public safety.
The revised budget also lowered projections for a wide range of revenue sources: occupancy taxes down 49%, meals taxes down 32%, sales taxes down 24% and personal property taxes down 7%.
For the first time since the Great Recession a decade ago, the county administration also floated a retirement incentive program for those eligible to leave the county’s workforce, to help trim costs.
The county’s budget staff, bowing to the unpredictability of revenues, also instituted what Meghan Coates, Henrico’s deputy finance director, calls “an 18-month public hearing.”
“Because of the strategy we’re taking, the board [of supervisors] is actually going to be making quarterly appropriations,” she says.
“We’re in unpaved territory, and we have no idea what the actual deficit that we will experience over the course of this year’s budget [will be].” —Richmond City Council member Ellen Robertson
“They’re going to be considering the [budget] plan in its entirety every 90 days. It’s so we’ll be able to pivot, based on feedback and recommendations that continue to come in and alter the way that we manage the next budget.
“COVID-19 has presented a financial situation that literally no one who has ever worked for county government has ever experienced,” she adds.
“Typically, a local government recession comes on the real estate front, and you can see that coming, and you have some time to prepare. What we have learned from this particular event is that things can change on a dime.”
Coates believes that a lot of localities are making generous assumptions about when the economy will bounce back, but she says data indicate that the economy is slipping into a recession.
“I think the second thing some localities are banking on,” she says, “is that help is going to come — either the federal government or the state government is going to come and bail us out at some point. And that is not an assumption that we have made.”
In the event everything goes awry, Henrico, like other localities, has a rainy-day fund or some version of a reserve. For Henrico, it is $281 million.
Tough Decisions
In Richmond, City Council adopted a $744 million budget — reduced by $38.5 million from the original proposal — but some council members, including those who voted for it in a 5-4 split, cited the likelihood that further trimming seemed inevitable.
“We’re in unpaved territory, and we have no idea what the actual deficit that we will experience over the course of this year’s budget [will be],” said 16-year veteran council member Ellen Robertson, who supported Mayor Levar Stoney’s budget proposal.
“We’ve got a lot of work in front of us on a monthly basis as we look at the actual revenues that come in and the actual tough decisions that we’ll have to make down the road when we get some real numbers and know what actual cuts may be necessary,” Robertson said during a May 11 council session.
John Wack, Richmond’s director of finance, echoes Robertson’s uncertainty about what lies ahead, saying that even the forecast for $38.5 million in lost revenue was only “a mildly educated guess.”
“Doing this kind of monthly review is unprecedented,” Wack says. “We are still estimating for the current year, but we don’t have evidence yet, we don’t have trends yet of the revenue we’re going to be receiving from a lot of these local tax resources.”
Richmond’s reduced budget included a 2% pay raise for city employees, $10 million less in new funding for city schools and a hold on a variety of new positions.
The city has two kinds of general fund reserves that make up its rainy-day funds: the unassigned fund balance and the Budget and Revenue Stabilization Contingency Reserve.
As of June 30, 2019, according to the city’s Comprehensive Annual Financial Report, the Budget and Revenue Stabilization Contingency Reserve stood at $14 million, and the unassigned fund balance was $111.5 million.
“In order to fill a projected budget gap in the current fiscal year ending June 30, we are planning to use less than half of the Budget and Revenue Stabilization Contingency Reserve and leave the unassigned fund balance untouched,” Wack says. “The initial planned use was $6.2 million.”
He adds that there are no plans to use rainy-day funds in the upcoming fiscal year, according to the fiscal year 2021 budget adopted by City Council.
Cuts and More Cuts
In Chesterfield County, the region’s most populous jurisdiction with 352,000 residents, the fiscal year 2021 budget had a 24-hour shelf life, says Matt Harris, Chesterfield’s deputy county administrator for finance and administration. “We proposed a budget on March 11,” he says. “The governor’s state of emergency announcement came the following day.”
In response, Chesterfield budget makers cut $50 million to reduce the budget to $723.6 million, $10 million less than the current budget for the fiscal year that winds down June 30.
In late May, the Board of Supervisors snipped the budget again by nearly $2 million, bringing it to $721.8 million, but it could be amended even further, if necessary.
The county furloughed 500 part-time and full-time positions the first week of April, noting that 10% of the positions were already vacant. In the most recent round of cuts, savings were realized with a policy not to fill vacant positions. Harris says if projections turn out to be less than expected, “we can pause” and go slower.
He notes that the county also has a $70 million rainy-day fund for emergencies.
Hanover County Administrator Cecil “Rhu” Harris, who is retiring this year, said the pandemic forced him and his staff to cut the county’s fiscal year 2021 budget by 4%, or $10 million, over a month’s time.
The revised $266.7 million budget preserved jobs but eliminated a proposed pay hike and instituted a hiring freeze, among other steps.
“It’s in such an incredibly tightened time frame from any of the other recessions or downturns or anything that we’ve had to work through over my career,” Harris says.
“We’re all trying to ask what the effect will be in our current spending and in our next year’s spending.”
In anticipation of even greater declines in revenue, Harris has included $2.1 million in new projects in the budget but put them on hold until Jan. 1, 2021.
The Future of Work
Although many county and city facilities, from parks to libraries, were closed or operated with reduced service or access during the early days of the pandemic, officials are hopeful all of that will be a distant memory once the COVID-19 outbreak is conquered.
Officials across the region characterized the reopening of services as coming in slow waves, with measures being closely monitored and subject to revisions in step with guidance from the governor and the state health department.
Like many big companies and small businesses, local governments — as well as state officials — have leaned on telecommuting to keep services in intact, and that might profoundly affect the future of work.
“Right now, we’re processing permits faster than we ever have, believe it or not, remotely,” says Henrico’s Vithoulkas. Going forward “there is going to be a greater emphasis on teleworking and technology,” the county manager says.
He says discussions he’s been having with senior staffers have included an exploration of whether a local government needs a huge inventory of office buildings to function.
“There may not be a need to spend $20 [million] to $25 million on a building, if we can use [telework] technology” he says.
Cari Tretina, Henrico’s chief of staff, adds that about 90% of county employees whose jobs are appropriate for telework have been working remotely during the pandemic.
Harris of Chesterfield says that, excluding school and public safety personnel, “at least 80%” of Chesterfield employees are teleworking at least partially.
Jim Nolan, press secretary to Richmond’s mayor, said “the overwhelming majority” of the city’s essential workforce have been at their regular posts, citing police and sanitation workers among them, while others are telecommuting during the pandemic.
Anne Waring, a spokesperson for the state’s Department of Human Resource Management, says that reports from state agencies indicate that many have anywhere from 60% to 80% of their employees teleworking.
“Telework has helped employees and their families manage child care and school closures, as well as allowed the commonwealth to balance the needs employees have to care for their families or elders,” Waring says. “Our teleworking and scheduling flexibilities for the workforce have enabled Virginia to deliver core citizen services during this challenging time.”
Robert Taylor, executive director of the Kornblau Real Estate Program at the VCU School of Business and an expert on commercial real estate, forecasts “a big societal change” in the way people do their work and says a lot of proposals are being floated.
Among them are a possible push into more telecommuting, creating more space between workers in existing buildings as a precautionary step, or a hybrid approach where employees would share workspaces with other colleagues on an alternating schedule, with some working at home and some coming into the office.
“I’m like many people [who wonder], gosh, what is going to happen?” Taylor says.
