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The clock is ticking… and yet the Commonwealth still hasn’t passed a state budget. Localities have moved past being antsy about the situation at this point, and with less than a month to go before the state passes their deadline, local governments are scrambling to come up with a plan B.
David Hutchins, chairman of the Carroll County supervisors, called a special meeting on June 2 so that the board and other county officials could discuss implications of moving into the summer months with no state budget.
The board of supervisors already has approved a budget for the fiscal year beginning July 1, with no tax increase for county citizens. However, if the anticipated revenues from the state are reduced or not available due to lack of a budget, the county may have to backtrack and adopt a new budget that is less favorable to taxpayers.
“With the grueling uncertainty of things that are happening within Richmond, it appears that reaching a budget agreement is becoming more and more of a challenge for the state,” said Hutchins as he called the meeting to order. He explained that he has heard all kinds of predictions recently in terms of a shortfall, but that the numbers keep changing.
Democrats in the General Assembly want to pass a budget that accepts federal Affordable Care Act funds to expand Medicaid coverage to Virginians. Republicans don’t want the Medicaid expansion included in the budget. Neither side is budging.
“I’m not sure there is any precedent within the commonwealth to deal with this,” Hutchins said. “I don’t know we are at doom and gloom at this point, I certainly don’t think so, but I think we need to start looking at how we can be prepared for whatever happens.”
Nikki Cannon, Carroll’s assistant administrator, presented a brief slideshow and overview of what the county and other localities will face if a budget isn’t passed.
“As you all know, the state has until June 30 to adopt a budget,” she began. “Most localities, including Carroll, who have approved their fiscal year 2015 budget based those predictions and projections on fiscal year 2014 state funding.”
However, information that is being obtained now from Richmond predicts a shortfall of up to $350 million.
She also asked the board to keep in mind that 45 percent of state revenue collections are disbursed to local governments.” We’re not immune to being effected by shortfalls in Richmond,” she said.
Last week, the Virginia Association of Counties (VACO) had a teleconference with its members, and encouraged them to have discussions within their jurisdictions about the crisis.
“We’re not the only locality that is having this discussion right now,” Cannon said. “Pulaski County is having a meeting tonight, as well.”
She noted that one of the reasons for these discussions is that the social services fiscal year ended May 31, so localities are already being impacted by the lack of a budget.
While the ball is in the Commonwealth’s court, Cannon explained that there are things that localities can do to spur legislators along, as well as prepare the county in case the state doesn’t meet its deadline. Other counties have discussed options like contacting the governor and General Assembly and encouraging them to come to a decision, looking at possible reductions in expenditures, proposing department cutbacks as part of the fiscal year 2015 budget amendment in July (which would likely require a public hearing), determining which services are essential and non-essential and suspending all capital projects that have not been initiated yet.
Another option would be eliminating personnel costs through furlough. Cannon reminded the board that the county is not recommending that, but it’s an option that some other jurisdictions are looking at.
“State revenue to Carroll runs anywhere from $2.5 million to $3.4 million per month. Operating expenses will remain constant unless internal reductions are made. Property tax revenue is a major source of local funding, which runs depending on when tax tickets go out. We usually start collecting from October to January,” Cannon said.
“Cash flow is a vital concern with delays in state and federal funding, and I want to point out to you that I’m not just talking about state funding. Federal funding is passed through from the state… and we also have some local revenue that’s passed through from the state.”
In closing, Cannon recommended that the county continue contacting the governor and General Assembly members and encourage an immediate adoption of the state budget, and be prepared in July to reduce all possible expenditures. “If they adopt the budget, we need to look to see if we are maintaining the revenue projections that were made during the fiscal year 2015 budget, also.”
“If we were looking at a $350 million shortfall… depending on how [the county] would take those hits could depend on what departments and or services they provided or didn’t provide. Is that a close assumption?” asked Hutchins.
“That’s a hard question to answer, because there is no magic formula in terms of how they are going to pass those reductions on,” Cannon answered. “I will say this: if we experience even a 1 percent reduction in revenue from the state, that would equate to $300,000.”
“So we’re at about 1.4 cents [on the tax levy], give or take,” Hutchins deduced.
“If our state does not have a budget, we obviously have our local funds available… but I suppose, in your mind, it would be dangerous to use those funds up front expecting to get the other later,” said Pipers Gap Supervisor Tom Littrell.
“I wouldn’t see a danger,” Cannon disagreed. “Obviously we couldn’t sustain school expenses with local funding. But if we’re talking about county general [funds] alone, I think we could for a couple of months.”
“Could we sustain through July maybe? August? There’s a termination point of what we can do, without state or federal funds,” said Hutchins.
“I’d say that critical point would be sometime in September when school is in session,” said Cannon.
“August is the first paycheck out for the fiscal year,” said Carroll County Schools Finance Manager and School Board Clerk Tammy Quesenberry from the audience.
“We would get to a critical point because, keep in mind, the school budget is $40 million dollars, and we don’t have cash reserves for that,” said Cannon.
“Could you put a freeze on discretionary spending?” asked Pine Creek Supervisor Bob Martin.
“The majority of both school and the county budget is personnel, which is why one of the things jurisdictions are doing is looking at capital expenditures first,” answered Cannon.
“What is our approximate rainy day surplus?” asked Martin.
Cannon replied that the numbers change frequently, and not to hold her to any examples she gives out. “I can give you what I’ve worked up as an estimate going into the end of July. In the event of no state budget, it would be roughly $7 million dollars.”
“So in August, that would be around $3 million or so?” asked Hutchins.
It would go fast, replied Cannon.
Following Cannon’s presentation, Hutchins opened the floor to a dialogue between the board and other county representatives.
Circuit Court Clerk Carolyn Honeycutt began by addressing a proposal that she’d recently heard about, that suggested the state first pass a budget, and then talk about Medicaid expansion later. “In 2006, I recall the same thing happening [in terms of a budget not being passed], and the last week of June, we got a budget and all was well. I have faith that’s gonna happen this time, and I’m not too concerned at this point,” the clerk said.
She noted that the state doesn’t shut down like the federal government does, and as far as her office was concerned, she would remain open no matter what happened. “I’ve told my staff that, until we hear differently, that on July 1, they are on leave or furlough. If they come in, it will be on volunteer basis. I am a constitutional officer, and I am sworn to serve. The office will remain open as long as you keep the electricity on and the phones working. I will be there.”
She added that, if the state Supreme Court system shut down, and the system that their office used shut down, they would have to do everything by hand. But, her office would do what it can.
“I’ve seen emails talking about judicial emergencies. What would that be?” asked Fancy Gap Supervisor Phil McCraw.
“Court would still be in session, absolutely. But there are so many offices that come into play here, not just circuit court but general district, juvenile and domestic relations. Also, there is security provided by the sheriff’s office and the New River Valley Regional Jail, which transports prisoners. Court would still be in session, but limited. It would have to be.”
Honeycutt had a question of her own: in the event that her staff does go on furlough, would they be eligible for unemployment?
“Would the employment commission be open?” asked County Administrator Gary Larrowe.
“I would not have a clue,” answered Hutchins.
Commissioner of Revenue Fran McPherson shared the same attitude as Honeycutt. “I think that Carolyn summed it up for all of the constitutional officers. I was elected, so I’ll be here to serve the citizens. I’ve contacted 20 commissioners, and they are all waiting. But they tell me they are assured by their local governments that they will remain open. It’s a waiting game.”
“I’ll remain open too, of course,” agreed County Treasurer Bonita Williams. “If it comes to 50 percent, I will cut the employees to 20 hours each way… but if it comes to the point where the state does reimburse the full amount back, then I expect them to get that full amount. But I’m like Carolyn. I have faith that this will go to the eleventh hour.”
County Sheriff J.B. Gardner was asked if his department would be declared essential services in the event of no state budget. “I don’t know… and the folks I’ve contacted so far have said the same thing. I’d assume we would, because [lack of a budget] won’t stop the sexual assaults, the domestics. All of that stuff is going to continue.”
Like the others, he assured that he would be at work, whether he was paid for it or not. “I anticipate furloughs, that’s what I’m afraid of, and we’ll see how many of my folks show up. I believe the majority of them will be right there with me.”
“I agree… I think that most of my staff will be there with me,” said Honeycutt.
“I’m just ashamed of both sides [of the General Assembly] for not sitting down and having conversation. There is no excuse for them not talking,” said Gardner.
“Unfortunately, my department spends money. But as far as supplies in the office go, I’m covered,” said General Voting Registrar Kim Cloud. She noted that her department had hoped to buy new voting equipment, but that project would be tabled if there is no budget. “Most of our expenses have to do with election, and that’s not until November.”
Schools Superintendent Strader Blankenship told the board that he was in a meeting last week where Lt. Governor Ralph Northam assured him that negotiations were taking place and a budget would be passed before July 1. But in the event of no budget, he has already been told that the schools would shut their doors. “I have two concerns with this. Summer school starts in June and finishes in July. We have students who take new courses for credit… but we would have to tell those students that they wouldn’t have that option this summer. Paying teachers would also be difficult.”
Obviously, the situation would become even more problematic if a budget wasn’t reached by August, he added.
Mike Jennings, director of Carroll County Social Services, was at the same meeting with Blankenship and heard the same statements. “We’re not sure how a shortfall will play in. We have a large number of social services programs. And we can’t deny anyone to apply for benefit programs. We would have to keep doors open and emergency services available,” he said.
Victim-Witness Coordinator Teddy Felts told the board that when he was notified of meeting tonight, he sent an email to his grant monitor for a take on the situation. “I didn’t hear the urgency to her reply,” he said. “She told me that funding would be given to programs that have performance excellence standards, which is us, thankfully.”
Even though he isn’t anxious about the situation, Felts assured the board that he felt the same way as the others who had spoken that evening. “I’m emotionally invested in these criminal cases. I will come in regardless if I get paid or not, and I will do what Larrowe’s office and you tell me to do.”
County Attorney James Cornwell was asked to give an idea of the legal implications of not having a state budget in place. He explained to the board that there would probably be a suit filed in the circuit court for the city of Richmond, with a request for funding for essential services.
However, a lack of funding could lead to a domino effect for many of the essential services that would still be up and running.
“The Chief of Police in Galax [Rick Clark] asked me if there was going to be a magistrate to take his arrests to,” he gave as an example. “I can tell you that the federal system, when it was shut down, stopped hearing civil cases and only accepted criminal cases that had to be heard because of the constitutional right to a speedy trial.”
But, in some cases, those deemed “non-essential” positions could lead to the more essential systems falling apart. “For example: how can you have a trial without a court reporter?” he asked.
Keeping that in mind, he shared other concerns about the employees of constitutional officers volunteering their services. He noted that the implications of their volunteer work could lead to complications later on, in terms of employment compensation, penalizations, etc.
Williams asked Cornwell if she worked employees at 20 hours, would it be considered legal.
“In your office, probably so, because you have more discretion,” he said.
“But do we legally have to shut the door?” she asked.
“I don’t think you can. Constitutional officers can’t. You would [all] have to ask your people whether you can do this on a volunteer basis or not,” he said.
As the weeks continue, Larrowe suggested that the first strategy should be making everyone aware of what is going on. “No one wants to be in a crisis, but we want to be in a realist situation about possibilities,” he said.
Hutchins, in closing, asked if any members of the board had anything they wanted to add.
“I’m just greatly disappointed with our representatives in Richmond for not doing what I think is their mandated job: to pass a budget in a timely fashion,” said Littrell. “I’m surprised it went on this long, and I think it will hurt them politically.
“We’re basically being held hostage until we know if we get a budget or if we get cuts,” said Martin.
McCraw expressed heavy disappointment in the possibility of not being able to use the county’s current budget. “After all the hard work we did, trying to help the citizens of Carroll County who are struggling, by not having a tax increase… if we come to shortfall and have to look at the tax levy again, it breaks my heart.”
“I believe we need to be ready around the third or fourth week of June, to take some of these ideas and put them in motion. I’m not that optimistic,” said Laurel Fork Supervisor Joshua Hendrick.