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County bracing for COVID-19 financial fallout

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PRINCE GEORGE - The county's financial leaders gave supervisors a stark warning about the fiscal impacts of COVID-19 on both their current-year and upcoming budget, confirming they expect to see some decline in some revenue streams, but much like the virus' impact on the overall economy, how steep those declines will be and how long the effects will last can't be predicted with any accuracy at this point.

Thursday, supervisors met for the first time in nearly a month for a budget work session as they resume development of the FY2021 budget. Days before Governor Ralph Northam's emergency declaration in mid-March, the board would cancel their regular business meeting and a planned work session as COVID-19 began to take hold across the Commonwealth, bringing the state and world to an economic standstill.

Almost a month on from that declaration, the work session took on a different feel as supervisors and county staff adhered to social distancing requirements, putting at least six feet of space between others and, thanks to state provisions, allowing two supervisors, Vice-Chair Alan Carmichael and Supervisor Marlene Waymack, to teleconference in for Thursday's work session.

Much of the roughly three-hour meeting was led by Deputy County Administrator of Finance Betsy Drewry who provided a detailed walkthrough of her department's analysis of the fiscal impacts COVID-19 is having and potentially will have on the county going forward.

While she laid out forecasts for impacts, Drewry stressed there's no way to predict exactly what will happen as there are many unknowns with the ongoing COVID-19 pandemic, such as its duration. Over the last several weeks, as the number of cases soared across America, some Washington leaders have said they hope to reopen the country by May, while others, including Governor Northam, have issued stay-at-home orders that run through June, with the option to rescind early or extend further, while also stressing the pandemic could be a months-long event for the Commonwealth.

From there, she added the recovery period once the pandemic ends aren't known, particularly if all businesses will be able to resume operations. Since Governor Northam's Executive Order 53, which closed non-essential businesses, like barbershops, race tracks, and other facilities, and directed restaurants to close their dining rooms and only operate through carryout, drive-through, curbside, and delivery services, some businesses have begun to experience hardships as rent and payroll become due with limited or no revenue coming in.

Additionally, unemployment has begun to soar across America. According to data from the U.S. Department of Labor, the country's unemployment rate rose to 5.1 percent as of March 28, a three-percent increase from the prior week, in line with sweeping measures by governors across the country to close some businesses temporarily, resulting in layoffs and furloughs, and limit nonessential travel by residents in the face of the pandemic.

For Prince George, Drewry identified the county's tourism and hospitality industries as being particularly vulnerable in the current COVID-19 climate, who also remit meals and lodging taxes to the county. According to Drewry, meals tax goes directly toward the county's economic development fund, which can only be used for related projects, such as providing funding to the Prince George Regional Heritage Center and the recent bust installation honoring the county's namesake in the government center.

Lodging tax is divided 60-40, with the majority going into the county's tourism fund, which carries a similar function to the economic development fund, with those dollars being tied to tourism-related projects. The remaining funds are deposited into Prince George's general fund.

According to Drewry, she expects some impact during both the current and upcoming fiscal year in these particular revenue streams. During her presentation, she showed estimates of the impacts, ranging from "modest," to "significant," to "severe."

For the current fiscal year, which concludes on June 30, the county has collected roughly 67 percent of their lodging tax revenue and year-to-date collections are at "57.71 percent of what was budgeted." Even though the "significant" impact level is being used in most cases, the county estimates anywhere from a 60 to 90 percent decline in remaining collections. That decline could translate to a drop of over $70,000 in general fund revenue from that specific fund.

With that, a drop in lodging tax revenue will impact the county's contribution to the heritage center, which receives 7.5 percent of the tourism fund portion of the tax.

As for meals tax, which is solely devoted to the economic development fund, nearly 60 percent of that revenue has been collected, totaling at roughly 65 percent of the county's budgeted amount. When projecting future collections, the county is expecting a drop ranging from 40 to 80 percent.

Looking more broadly, in what remains a fluid situation, Drewry said the county is expecting a roughly $1.4 million decline in current-year revenues based on existing estimates. The largest drop is expected in personal property revenue, dropping by nearly $370,000, followed by court and clerk fees at just over $232,000.

County courts have been closed for several weeks, thus halting the collection of future fees from ongoing cases though the county is still receiving revenue from cases that have concluded where parties can utilize the state's online payment system to pay outstanding costs.

Real property, or real estate taxes and sales tax are also among those revenue streams expected to take a hit this fiscal year to the tune of $197,370 and $169,220, respectively.

While the county was expected to finish with a surplus of $459,109 in the FY2020 budget prior to COVID-19, the county will now have to tap their fund balance for $981,393 to make the budget whole, based on current estimates.

While the data was certainly concerning for the county, Drewry stressed to supervisors there was no need for panic or drastic expenditure reductions.

"We are not as reliant on the most 'vulnerable taxes' for operations as some municipalities," she said, referring to meals and lodging taxes. "Other revenue collections remain healthy to date and staff will closely monitor and report revenue trends on a monthly basis while monitoring expenditures as well."

She did say the county and board need to "carefully evaluate any requests for 'carryover'" funding or appropriation of excess revenues.

"Fund balance needs to be maintained in the event revenues fall shorter than anticipated [in order] to potentially meet County and School operating needs," Drewry advised.

The declines are expected to persist into next year's budget as current revenue estimates show a drop of $1.1 million, with COVID-19 revenue losses cited for over $1 million of the dropoff.

According to the county, a decline of $348,000 in real property, $290,000 in personal property, and $149,000 in sales tax revenue is expected. These revenue streams are a key element of the county's annual contribution to Prince George County Public Schools as part of their joint memorandum of understanding, which entitles PGCPS to a certain percentage of agreed-upon county revenue pots.

In addition, as the county eyes increasing business, professional, and professional license taxes, COVID-19 is expected to affect the revenue stream in FY2021 with a near-$160,000 decline expected.

The drop in real property revenue in FY2021 doesn't take into account a possible drop in the county's real estate tax rate, as some have considered reducing the rate to its equalized level, 80 cents per $100 of assessed value, six cents lower than its current level.

While the board is expected to advertise a real estate tax rate of 86 cents this week, supervisors do have the option to lower the rate once advertised but they are barred from raising it higher than what was advertised.

Each penny the real estate tax rate is reduced represents approximately $280,000 removed from the county budget, so, at a six-cent regression back to Prince George's equalization rate, Drewry confirmed last month that would result in a loss of $1.68 million in the county's budget.

The county is expected to hold several more work sessions over the course of the next few weeks to further fine-tune the budget as state law requires the adoption of a balanced financial plan for the upcoming year by June 30.