Looking Back, Looking Forward–Potential Local Economic COVID-19 Impact

This editorial first appeared in The Daily Progress on Sunday, March 21, 2020.

By. Neil Williamson, President

Unprecedented.

COVID-19 virus is literally changing the way the world operates.

The business impacts of the virus are becoming evident, but the local economic ripple effect of lower tax revenue is yet to be seen.

While the full economic impact of COVID-19 is unknowable at this time, an examination of local economic conditions prior to the self-quarantine may provide a glimpse of the challenges ahead.

Local Sales Tax

imageThe State collects and distributes the Local Option one percent Sales and Use Tax.  Actual distributions are made to every county and city based on the locality in which the tax was collected.

In 2019, this local option sales tax totaled over $18 million for Albemarle County and over $12 million for the City of Charlottesville.

Transient Occupancy Tax

The Transient Occupancy Tax (TOT) is a trust tax imposed on the occupancy of all rooms or spaces offered as guest rooms and rented out for continuous occupancy for fewer than thirty (30) consecutive days. Of the tax collected, 60% goes to the promotion of tourism activities and 40% goes to the locality’s general fund.

While we will not learn the March TOT collections until the third week in April,  The Free Enterprise Forum has learned local hotel occupancy is very low and local hotels are starting to layoff employees.  In FY19, Charlottesville received over $5 million in TOT.

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In addition to the University of Virginia cancelling Final Exercises, The Charlottesville Albemarle Convention and Visitors Bureau is maintaining a list of major, hotel room generating, events that have been rescheduled or cancelled:

The following Charlottesville & Albemarle County events have been cancelled or postponed:

  • The 26th Annual Virginia Festival of the Book has been cancelled.
  • Tom Tom Summit & Festival has been rescheduled for September 21-27, 2020. Ticket sales are postponed for now.
  • The Public Dedication for the University of Virginia’s Memorial to Enslaved Laborers has been postponed.
  • The Charlottesville Ten Miler has been cancelled. The race had been scheduled to take place March 28th.
  • All Paramount Theater events for the month of March have been cancelled or postponed.
  • Most Jefferson Theater events for the month of March have been postponed.
  • James Monroe’s Highland will remain closed to the public until April 3rd.
  • Thomas Jefferson’s Monticello will remain closed to the public until March 30th.

Meals Tax

On Tuesday, Governor Northam issued an executive order reducing restaurant in house capacity to 10 patrons.  The order suggested restaurants offer take out services (and several are restaurants are offing this service) but others have opted to close putting their employees out of work.  It should be anticipated that the anticipated meals tax revenue will be drastically reduced.  In FY19, Charlottesville generated over $11 million in meals tax.

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Commercial Real Estate Tax

Every year local governments request commercial property owners to fill out and return an income and expense form. This form is submitted to the board of assessors and is used to determine the value of the property in question.

In FY19, Albemarle County collected more than $32 million in Commercial Real Estate (including apartments).

Our discussions with landlords over the last few days have indicated they are preparing for rental revenue to drop precipitously and collection expenses to increase.   Based on these factors, The Free Enterprise Forum anticipates a drop in the valuation of commercial real estate in the next round of assessments.  The resulting tax revenue reduction will be felt in FY22 and beyond.

Most businesses are being negatively impacted by the new normal instituted by the COVID-19 outbreak.  Local governments, who are now in their FY21 budget cycle would be wise to reexamine their revenue projections and adjust their spending plans accordingly.

Respectfully submitted,

Neil Williamson

Neil Williamson is the President of The Free Enterprise Forum, a privately funded non partisan public policy organization covering the City of Charlottesville as well as Albemarle, Greene, Fluvanna, Louisa and  Nelson County.  For more information visit the website www.freeenterpriseforum.org

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