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SPIA: Planning Through a Pandemic

Local government finance expert connects municipalities to COVID-19 budget planning resources

Municipalities across Virginia are bracing for the economic fall-out brought on by COVID-19, with many worried about insolvency. SPIA faculty member Stephanie Davis is connecting counties, cities, and towns to valuable financial planning resources – and each other.

Downtown Petersburg, Virginia. Without state and federal help, many local governments across the commonwealth, especially towns, could be making a choice between raising tax rates or reducing services for citizens in order to remain solvent. Photo: Sarah Stierch, Wikimedia Commons.

Just as households are bracing for a financial fallout from the widespread effects of COVID-19, many local governments across the Commonwealth of Virginia are doing the same.

Social distancing and self-isolation guidelines – coupled with Gov. Ralph Northam’s statewide stay-at-home order – mean cities, counties, and towns will be missing out on an important source of tax revenue from local businesses for an extended period of time.

Without state and federal help, these local governments, especially towns, could be making a choice between raising tax rates or reducing services for citizens in order to remain solvent. Some have even started to consider staff furloughs and eliminating positions.

Stephanie Davis, assistant professor of practice in the Virginia Tech School of Public and International Affairs, is hoping to connect public finance directors and city managers to information, answers, and support throughout the crisis. In order to better assess the impacts of COVID-19 on local governments and share resources more effectively, Davis has established a weekly webinar to discuss how localities are adjusting to the budgetary crunch.

“We wanted a place where all of the smaller cities and towns could come together and talk about how their budgets are shaping up,” said Davis, who specializes in public finance and capacity building at the local government level. “Smaller organizations with limited staff may not have access to the same resources and expertise that a larger city might have. This is a place where we can all learn together.”

A screenshot from Stephanie Davis’s laptop as she hosts a financial planning webinar for municipalities across Virginia on May 13, 2020. Photo courtesy of Stephanie Davis.

Although the virtual meetings first began with an effort to connect smaller localities to resources, larger cities are also joining the discussions, which are growing quickly. Davis’ first webinar on April 1 hosted 42 attendees; just one week later, 110 attendees tuned in. Among those represented are the City of Virginia Beach, the City of Norfolk, and several Northern Virginia localities, along with smaller governments like the Town of Pulaski and the Town of Strasburg.

State organizations like the Virginia Municipal League, Virginia Association of Counties, Virginia Government Finance Officers Association, and the Virginia Local Government Management Association have helped spread the word about the webinars.

Davis said the meetings currently focus on facilitating information sharing. “For example, if I get news or guidelines on what the CARES [Coronavirus Aid, Relief, and Economic Security] Act means for local governments, I can pass that along,” she said. “But I can also collect questions, then go out and do some research and hopefully come back to the group with an answer.”

As a former finance director for Powhatan County, Virginia, who led that locality’s budget process during the 2008 recession, Davis also noted how helpful transparency on public policy decision-making processes can be during times of financial duress.

“Through the webinars, we can see how others are approaching both short- and long-term budgetary planning,” said Davis. “This helps our elected officials make better decisions, because those decisions aren’t being made in a vacuum.”

Counties, cities, and towns might see variations in magnitude, she added, but they’re all dealing with the same fundamental problems.

Throughout Virginia, sales tax as well as the meals tax, lodging tax, and business tax represent a significant portion of local revenues for counties, cities, and towns. These taxes are particularly vulnerable to stay-at-home emergency orders and directives to close nonessential businesses. All localities are currently realizing the financial burden caused by these public health guidelines, with local governments across the state anticipating 25 to 50 percent reductions in “vulnerable” revenues.

To address potential shortfalls, municipalities are taking a hard look at three areas: revenue and expenditures for the current fiscal year, which ends on June 30; revenue and expenditures for fiscal year 2021, which begins on July 1; and planned capital or infrastructure projects.

Cindy Mester, deputy city manager for the City of Falls Church, said laying off staff is a last resort for her locality, but they’re taking a hard look at other measures. So far the city has frozen recruiting to fill vacant positions, cut travel and training for personnel, and reduced recreation programs for citizens. Important infrastructure projects have also been put on hold.

“We’re deferring pavement improvements, traffic signal maintenance, crosswalks, and other pedestrian-friendly initiatives that are meant to make our city more walkable,” said Mester. “That’s significant for us, because most of Falls Church was built in the 1940s, and many of our streets are missing sidewalks and other features that make them ADA compliant.”

Other localities might delay the construction of new fire stations, schools, or libraries.

Mester, who is taking advantage of Davis’ webinars, said the synergy of the group and their collective efforts to contribute have been encouraging. “It’s important for us to have a singular, united voice,” she said. “We’ve got to be on the same page in order to advocate effectively at the state and federal level, and these meetings are already helping us do that.”

Although localities are certainly struggling, Davis said the good news is that thanks to the 2008 financial crisis, most are more equipped to meet financial headwinds today than they were in years past.

“The sudden onset of COVID-19 means the current financial situation for many local governments feels particularly severe,” she said. “We had almost no warning, whereas in 2008, we had some time to adjust. But the flipside is that we’ve already learned important lessons in financial resiliency, and by building structurally sound budgets, municipalities are better prepared to weather this storm.”

Written by Emily Roediger