Tight Times Still Ahead for Virginia and Its Localities

With the economic data released Friday by the federal government that the nation’s economy contracted at a slower rate last quarter, there’s a glimmer of hope that the downturn may be bottoming out.

We can all hope.

But that doesn’t mean that the nation’s economic woes are soon to be behind us. Far from it. For local and state elected officials, the worst might yet be ahead.

It all comes down to tax revenues and how much — or rather, how little — might be coming into local and state coffers in the months ahead. Revenue trends and expected costs and expenses are still diverging at troubling rates.

At the state level, one of the big unknowns is how much in income taxes Richmond will collect in 2010.

New Feature

Sign up for our newsletter e-mailed to you at 8 a.m. each day Monday through Friday.

Click here

The numbers in Lynchburg are even grimmer. In June 2008, the jobless rate was 5.1 percent, but by June of this year, the unemployment rate had grown to 9.3 percent of the work force.

Those are people who are no longer paying payroll taxes, no longer spending as much or eating out as much, therefore lower sales and meals tax revenues. They’re perhaps putting off the purchase of a new automobile or truck and repairing, rather than replacing, the old washing machine in the basement.

All of that means fewer dollars for local and state government in the months ahead.

Fewer new vehicles bought and less gasoline purchased means less money for Virginia’s underfunded — let’s be real, broke — transportation system.

Fewer televisions or new stoves sold at the local appliance store translate into fewer sales tax dollars for public education.

It all points to the mother of all budget nightmares for the General Assembly next January and for local governments next spring.

And that’s not to say that devising state and municipal budgets in 2009 wasn’t a hair-pulling experience for politicians. It was, but the magical appearance of federal stimulus dollars put off the day of reckoning for many.

(For that you can thank President Barack Obama and Congress, the printing press operators at the Treasury Department and legions of Chinese bankers.)

Next year, it’s highly unlikely any dollars will rain down from Washington; that’s when the real pain, the pain put off from this year, will start.

This year, the General Assembly used stimulus dollars to keep from whacking Medicaid reimbursements to the state’s hospitals, rather than increasing the cigarette tax. Our advice to the tax-adverse wing of the Republican Party running the show in the House of Delegates? Don’t count on Obama to pull you out of the fire in ’10.

Stimulus dollars also gave local politicians the excuse to avoid making hard choices. The Lynchburg School Board, for example, was staring at the possibility of a multi-million dollar cut in state money. When federal money became available, division leaders pocketed the windfall and put off any serious reworking of business operations.

Next year, no one at any level of government will be so lucky.

All the bookkeeping tricks have been used. All the alternative revenue sources have been tapped. All the reserves emptied.

That will be when the real pain will start, forcing state and local leaders to make the hard decisions they’ve avoided for years, even this year of the Great Recession.

City councils and boards of supervisors across the state will have to start having the hard discussions with their constituents about what services they can realistically expect from government and how they’ll pay for those services. The message will have to be blunt: There’s no more free lunch, folks.

Will this be how it all plays out? Well, we hope so.