As pandemic’s fiscal impact becomes painfully clear, city announces layoffs and other cost-saving measures

By Andrew Jenner, publisher

By March 13, when the health department announced Harrisonburg’s first positive test for COVID-19 and local schools were on a one-day closure that soon extended through the academic year, it was clear that the pandemic’s effects on public health and the economy would be dramatic. On Monday, city staff put some first numbers to that bleak picture in a late-afternoon press release: local tax revenue will fall an estimated $4 million short of projections for this fiscal year, which ends June 30.

That $4 million takes a chunk out of the city’s estimated local tax revenue of $95 million and represents a 3.2% hit to the city’s $123.7 million in projected general fund revenue, which includes other sources beyond taxes. But it also comes as Harrisonburg enters the final quarter of the fiscal year — when most money already has been spent or allotted.

In response, the city government announced a series of cuts, including:

  • indefinite layoffs of most part-time staff,
  • hiring freezes for all non-essential positions,
  • deferment of non-essential capital expenditures
  • and operating cuts to all non-essential services.

City officials notified staff Monday about the layoffs, which will take effect May 10, according to the press release. While officials hope to rehire laid-off workers if positions are restored, the release said there’s no guarantee that will happen.

City spokesman Michael Parks told The Citizen by email that the total number of affected workers is not yet known because final decisions about which employees will be subject to layoffs are still being made.

“For the past two months, we have navigated the challenges of the COVID-19 pandemic with an important goal of maintaining core services to our residents, while protecting and supporting every employee with the City of Harrisonburg,” said City Manager Eric Campbell, in the statement. “But, as the pandemic continues having an impact on our community, it is now clear that we must take action in order to continue providing core services at a time when we have seen the loss of millions of dollars of vital funds.”

According to city staff, local tax revenue for March fell about $625,000 short of projections – a figure that still doesn’t reflect the pandemic’s true economic impact considering times were still relatively normal when the month began.

“We fear the numbers for April will likely be much worse,” Parks said. “We will know those numbers in roughly three weeks.”

The cutbacks announced Monday follow last month’s postponement of construction of the new high school, a decision also made in response to the pandemic’s effect on city finances.

Neal Menkes, financial policy director for the Virginia Municipal League, said university closures and resulting absence of most students mean that college towns like Harrisonburg have lost a degree of protection their economies typically enjoy against downturns.

“This has just been a cessation of economic activity,” Menkes said. “People just aren’t buying anything.”

Ripple effect into FY21 still unclear

From the perspective of managing public finances, Menkes said, the June 30 end-of-the-fiscal-year is a key date. Until then, local governments have to make immediate spending cuts to compensate for lost revenue, such as the ones announced today in Harrisonburg. At the same time, they must develop and adopt budgets for the FY21 fiscal year that begins on July 1, not knowing for sure the degree to which local tax revenues will continue to suffer the effects of COVID-19.

Parks said that while city staff expect to keep seeing lower-than-expected revenues, they have yet to make new projections “because much can change between now and July 1.” For example, he pointed to Gov. Ralph Northam’s announcement Monday of a plan to begin reopening the state economy.

“Today we are moving forward with the assumption that some amendments will be needed to the proposed FY21 budget rather quickly into the new year,” Parks added.

In mid-April, Campbell, the city manager, presented council with a draft budget already rendered somewhat obsolete by COVID-19 – a result of the pandemic striking at the height of the annual budget season.

“I present this proposed spending plan with a clear expectation that amendments and adjustments will be needed based on potential revenue shortfalls and a quickly changing economic environment,” Campbell wrote in a letter introducing the draft.

Menkes, of the Virginia Municipal League, said the timing of the pandemic has derailed revenue projections for localities across the state. It’s especially devastating.

“You’ve gone from earth to the moonscape. It’s that much of a change,” he said.

As city leaders consider decisions about Harrisonburg’s FY21 budget, Parks said city staff have been talking with other officials and economic development experts in the state and region, in addition to internal discussions among staff and the usual collaboration with city council.

A budget work session is scheduled for 5 p.m. today, May 5.

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