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Sequestration Negatively Affects Prince William’s Economy

| January 17, 2014 | 0 Comments | News

At a preliminary revenues presentation before the Prince William County Board of Supervisors (BOCS) on Jan. 14, Finance Director Steve Solomon detailed how unforeseen economic events may lead to unexpected revenue shortfalls in 2014.

Sequestration and the Local Economy

Government furloughs and the Federal Government shutdown in October of 2013 negatively affected business in the county, Solomon explained. Many Prince William residents work for the Federal Government. So, while media across the nation can joke that the “Fiscal Cliff” and government shutdown hardly caused a ripple across the nation, Northern Virginians see things differently.

To be accurate, it isn’t that no one on the BOCS foresaw problems such as sequestration affecting our economy. About a year ago, during the budget process for FY14, supervisors warned against raising taxes, saying we would not know how and to what extent sequestration would affect our county.

However, those warnings were not factored into their staff’s sunny predictions for tax assessments. While they were seeing booms in the housing market, they had not looked as closely at what was happening in commercial real estate, which staff said was more difficult to assess.

Commercial Property Values are Growing at a Slower Rate

While residential values rose by 7.5 percent, commercial values increased only by 2.5 percent, falling short of the expected 3.5 percent growth county staff had expected in the last year. Solomon credited sequestration and the local impacts of the government shutdown for most of the shortfall.

During his presentation before the board Tuesday, Solomon said the good news is that commercial values in the county are rising, if slowly. Comparably, some neighboring districts have seen their commercial values remain flat or even decline. Solomon said he could not yet provide the specifics until those jurisdictions release their own reports, but noted that his counterpart in Northern Virginia have said they are seeing many empty storefronts.

Personal Property Loses Much of its Value

Personal property tax revenues, based on the county tax on automobiles, have also grown at a slower rate than the county staff had expected. The county was expecting a 2.9 percent increase in revenue, and instead they received only a .5 percent increase.

This does not mean that Prince William residents have forgone their cars in favor of bicycles or public transportation. Ironically, Solomon said this is a result of the national economy rebounding. As Americans are purchasing more new cars and trucks, the demand for used vehicles has declined. This affects the value of used automobiles, which is of course subject to the economic “law” of supply and demand.

Since vehicles are not retaining their value as well as in prior years, the county is now taxing personal property that has declined in value. This leads to a decline in county revenue.

Additionally, Solomon explained that as fewer new homes are being built in the county, fewer new drivers are moving into the county. This also slows the growth of personal property revenue.

Sales Tax Revenues are Less Than Expected as well 

Lastly, sales tax revenues, which was estimated to increase by 4 percent has only seen a 3 percent increase.

Solomon said the decrease in sales tax revenue was the result of people being furloughed due to sequestration and the general uncertainty surrounding the Federal Government leading up to the government shut down. As many government workers live in Prince William, these residents curbed their spending.

While Solomon believes sequestration and the government shutdown caused a dip in the local economy, that dip may be difficult to quantify at this time.

“The longer term local impacts of the government shutdown and sequestration are still not certain,” Solomon’s slide read. “We really noticed an effect early in this physical year. We’re monitoring November and December,” he told the supervisors.

He also said that sales increase around the holidays, so November and December may not demonstrate the same decrease in sales as October had.

Supervisors Questioned Why They were not Made Aware of Problem Sooner

Supervisors were suspicious as to why they were receiving this information as such a late date. They believed it was unfortunate timing, since they had instructed county staff to present a budget at a 2.5 average tax bill increase over FY2014 before receiving this new information.

Gainesville Supervisor Pete Candland (R) of Gainesville asked why the Board of County Supervisors had not been made aware of these various negative conditions earlier.

“Just to put a date on the thing, the government shutdown did not occur until October,” Deputy County Executive Chris Martino said.

As the biggest declined occurred within the last quarter of the year, it was not something the county staff had been aware of all along.

Martino said he met with groups in November and December, but his office did not begin to receive the full picture of the situation until December. Meanwhile, economic trends in those two months picked up somewhat due to the holidays.

Potomac Supervisor Maureen Caddigan (R) said that perhaps the supervisors rushed their initial instructions when they had not yet received this critical information. She noted they were also waiting on more information coming from the state government as well, so setting tax rates may be premature.

Candland added that had the board received information earlier, perhaps its members may also have reconsidered how they spent funds in the last few weeks. He named services fees, carryover funds spent on new ball fields and reserve money spent burying power lines.

“We made a lot of spending decisions,” Candland said. “That information I would think would absolutely affect the decision making of the Board members.”

Ultimately the shortfall will cost the county a loss of $14.6 million per year of the 5-year plan. The supervisors will look into alternatives, although it is unlikely they will raise by 5.5 percent more than last year’s bill in order to make up for the deficit.

 

 

© 2014, Bristow Beat. All rights reserved.

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