By Randi B. Hagi, assistant editor, with additional reporting by Andrew Jenner, publisher
Harrisonburg leaders are looking at a starkly different financial reality now than they were less than four months ago when the city council approved the $100 million needed to build and open a second high school, which has the Harrisonburg School Board considering a one-year delay of its construction.
The school board will hold a closed session Thursday to discuss with the board’s attorney Kevin Rose the ramifications of altering the construction contract.
The fact that this discussion is happening signals the potentially difficult public policy decision local leaders face as a result of widespread business closures, furloughs and layoffs caused by the COVID-19 pandemic.
Sales, meals and hotel tax revenue — money the city relies on as steady revenue to cover public services, programs and infrastructure — is expected to drop sharply for March through June, as compared to the period from last year.
And all of it comes as city leaders are preparing the next year’s budget, including for the public schools — and whether or not to move forward immediately with taking on the debt for the $100 million to build the new high school, furnish it and prepare its grounds and surrounding road improvements.
“The economy in which those decisions were made no longer exists,” said City Manager Eric Campbell.
He suggested the school board delay the new school’s construction by a year during the city council-school board liaison committee’s special meeting last Thursday.
Campbell said he was “extremely uncomfortable” going forward with a 13-cent real estate tax increase, which was planned to help balance a budget with additional debt payments for the school. The increase would bring the rate up to 99 cents per $100 of assessed value.
By delaying construction by a year, the city could issue the necessary bonds in the spring of 2021. This allows the corresponding real estate tax rate increase to be bumped to the following fiscal year.
School board chair Andy Kohen said the board members “were comfortable going forward with a delay, understanding the city’s situation. Understanding that we are literally all in this together as a community,” but asked if they could try a delay of just six months, or perhaps slowing construction for 12 months without ceasing altogether.
But Campbell didn’t think that would be sufficient.
“We have no idea where we are from a revenue standpoint … really right now it’s frightening,” he said.
Council member Richard Baugh pointed out that, if revenue rebounds faster than expected, “you can always take a look at it again in the interim.”
But delaying construction for a year would push back the new school’s opening until fall 2023.
High school site work continues, for now
Beyond still hoping the school could open in fall 2022, Kohen said the economic impact on those employed by the project should be taken into consideration.
Jim Delucas, chief development officer and chair of the board for Nielsen Builders, Inc., said that between their employees and those of subcontractors, the new high school will employ about 300 people at the peak of construction later this year.
Right now, they’re still doing site work and aiming to pour concrete on May 1, he said.
“We haven’t slowed down. There’s a lot of behind the scenes things going on now,” Delucas said. Their excavator subcontractor that’s preparing the grounds on the property between I-81 and Main Street did take a week off out of consideration for their employees.
One of the benefits of construction is that workers are “social distancing just by the nature of our business,” Delucas said.
The firm has added handwashing stations at the job site and instructed anyone who feels sick to stay home.
“It’s an important economic project to Harrisonburg, and there’s a lot of people that are depending on the job – not only construction workers, but also the businesses around the jobsite,” like restaurants that still offer take-out to workers on lunch break, Delucas said.
Kohen told The Citizen after the meeting that the school board needed to meet with Rose, the board’s attorney on Thursday as, “ultimately, a lot of legal dimensions of the work proceeding, stopping, delaying, are unknown to the board at this time … what are we permitted to do? What will it cost us to take this action or another action?”
What to watch for with the city coffers
City officials won’t begin to know the full extent of the financial crater from the pandemic until the end of April.
That’s when hotel room taxes and restaurant food taxes are due. In March 2019, the city collected a total of $1.29 million in food tax from restaurants and $225,000 in room tax from hotels.
Sales tax was the city’s second-largest source of local tax revenue in March 2019, totaling $977,000. City Finance Director Larry Probst said March 2020 sales tax should be remitted by mid-May.
Probst said that while other local taxes levied on utilities like electricity, gas and water likely won’t be as affected as the sales, restaurant and hotel taxes, other city income from recreation fees and court fines are also expected to fall.
Michael Parks, the city’s communications director, declined to estimate the degree to which local revenues may soon be reduced but said city officials “expect it to be very impactful.”
Maintaining solid financial footing
Financial services companies Moody’s and Standard & Poor’s visited Harrisonburg earlier this year to assess the city’s ability to shoulder another $140 million in debt to build the high school, finish building the Eastern Raw Water Line, and construct a new public works facility.
Campbell said in the liaison meeting that the city maintained its previous bond rating of AA on both rubrics, even with the impending extra debt.
“I was really pleased with that,” Campbell said.
He and his staff intended to go to the bond market to generate those funds – right as the pandemic hit Virginia, making the market “extremely volatile.” Campbell said financial advisors then recommended they delay issuing those bonds.
The high school isn’t the only capital project that could be affected by COVID-19.
Campbell plans to present his budget for fiscal year 2021 to the council at its April 14 meeting.
He told The Citizen that, as soon as the city council approves the budget, it will have to be amended, which could look like “delaying projects … cancelling projects, potential hiring freezes. Everything is on the table right now.”
Campbell said Harrisonburg is “being very prudent and practical in our approach,” responding financially to COVID-19 in a way that maintains core services and vital infrastructure, although it may mean other expenses get cut.
“The challenge is just the uncertainty. We’re still in the middle of the pandemic … we don’t know when we’re going to be able to turn that curve,” he said. “The key to successfully getting through this is to make sure we can adapt appropriately based on the changing environment.”
Allowing a virtual way to conduct public business
The City Council is expected to pass an emergency ordinance during a special meeting this afternoon that will allow the school board and other public bodies, including the council and Planning Commission, to conduct meetings virtually, without a quorum gathered physically in order to adhere to social distancing guidelines.
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