Board prepares for more budget cuts in the coming year
By Tara Donaldson
The good news is, the local economy is beginning to recover. The bad news is, it isn't happening fast enough.On Oct. 27, members of the Prince William Board of County Supervisors sat down with staffers to start planning for the coming year's budget.
On the upside, said Finance Director Chris Martino, the residential real estate market is starting to improve. On the downside, it's not improving very fast.
“This is going to be a very long, slow improvement to come. It's not going to be a very dramatic increase,” he said.
In August, the average single family home in Prince William sold for more than its assessed value. In better times, that would be a given, but August was the first month that has happened this year.
Even better, the average sale price in August (almost $262,000) was higher than the average assessed value in January ($222,000).
Homes are selling again, Martino said, but most of the sales are for homes valued at less than $300,000. There are a few homes selling for $300-700,000 but “virtually nothing is selling greater than $700,000.”
The other good news, Martino said, is that the number of foreclosures has decreased dramatically from a year ago. There were 286 foreclosures in August 2009, compared to 793 in August 2008.
“That's great but I've got to tell you, foreclosures were not on our radar screen at all until 2006,” he said, adding that until the market drop, a bad year would mean as many as six foreclosures in the county for the entire year. The August 2008 figure was the highest over two-and-a-half years but in 2008, the numbers were generally between 500 and 700 per month.
In other bad news, the county's revenue from the car tax is dropping.
“Folks aren't buying cars,” Martino said. “The values are decreasing.”
Car sales are down by 41 percent in August, when the Cash for Clunkers program was running. Nationwide, 23 percent fewer vehicles were sold in September 2009 than in September 2008.
As if that weren't bad enough, the commercial real estate market is in even worse shape. Vacancy rates have been climbing since 2006 and are now at 10.3 percent.
The average commercial property in the county has depreciated almost 15 percent just since January and it appears likely that commercial real estate prices will decline by 25 percent in the next five years -- far more than the 10-percent drop that was anticipated.
“Unfortunately, the commercial market is going down much greater than we had expected,” Martino said.
So it's no surprise that the county is looking at serious budget cuts in the coming year. How serious isn't certain yet, as the revenue situation is still in flux and the budget process won't really begin until after the new year.
But so far, county staffers said they've already cut $7 million out of budget plans and that leaves the county with a $10.2 million hole. In addition, the county will need another $4.4 million to fund critical programs, in some cases because the state and federal governments have cut their own share of the funding. That includes money for police, communicable disease control and child welfare.
One item in particular drew outrage from the board: the state has taken back $100,000 that is being used to keep 10 mentally retarded residents in their homes. Without that money, the residents, some of whom are elderly, will not be able to live on their own and will need to be institutionalized -- at a much greater cost.
That money, said staffers, needs to be replaced immediately or the residents will be essentially homeless.
“They know damn well that every locality is going to pick up the cost of that,” Chairman Corey Stewart (R) said, fuming that state officials didn't decide to cut the money as much as they decided to foist it off on local governments, knowing that local officials wouldn't let their disabled residents be turned out for lack of funding.
Altogether, the county will need $14.6 million to meet its most basic needs in the coming year.
There could also be another complication. The cost of the county's contribution to the Virginia Retirement System could go up by $9 million. That's not included in the numbers because it will be several months before it is certain. The school system's share is likely to be even higher.
But in the meantime, supervisors either need to find an extra $14.6 million, make even more budget cuts or decide to do without some of the programs that have been identified as critical.
The problem is that public safety, schools and roads make up 85 percent of the budget and since supervisors have already said they don't want to make cuts to those areas, they're faced with the task of finding millions of dollars in the relatively small part of the budget that's left; and those programs were already cut to bare bones last year.
They could raise taxes to make up for the shortfall, but Stewart indicated during the presentation that he doesn't plan on that. The chairman said the supervisors would have to make deep budget cuts this year to avoid a tax increase.
“It's not going to be easy,” he said. “We're going to get protests at the board meetings again. I'm sure of that.”
But a decision on that won't be made until spring and the supervisors do have room to raise taxes while still ensuring that residents pay less than they did last year.
Last year, the tax rate was 97.7 cents per $100 of assessed value and tax bills were relatively high. This year, residents got a steep tax cut. Even though the tax rate itself was higher, the average homeowner paid hundreds less in taxes.
Next year, supervisors may look at taking some of that tax cut back. Residents would pay more than they did this year, but not as much as they did last year.
For instance, the current tax rate is $1.212 per $100 of assessed value. If that were raised to $1.224, the average homeowner would pay $60 more next year than this year but it would still be $375 less than next year.
That scenario still leaves the county in the red, however. If the tax rate rises to $1.330, tax bills will be about $325 higher next year than this year, but that's still $110 lower than last year. At that rate, the county is back in the black.
The numbers are still changing, however, and a lot depends on whether the county will need to cough up the extra $9 million for the Virginia Retirement System.
Updates will continue throughout the coming months and the budget process will officially begin after the new year. The supervisors will adopt the budget and tax rate in the spring.