Lynchburg City Council

Lynchburg City Council meets on Tuesday, March 24, 2020. 

The city of Lynchburg is likely to lose nearly $3.4 million in local tax revenue this year as the novel coronavirus forces shoppers to stay home and businesses to close their doors.

The blow to the local economy is expected to reduce the nearly $35 million in previously projected revenue by 10%, according to Lynchburg's Chief Finance Officer Donna Witt, who shared the news Tuesday with Lynchburg City Council.

The early forecast does not take into consideration any potential aid from the state and federal government and is likely to change over the coming weeks as the threat of the virus becomes clearer.

Witt said the projection was conservative and was based on a “worst-case scenario” in which local economic activity only begins to return to normal levels in the early summer.

“It's our best guess,” she said.

With the entertainment and tourism industries ground to a halt, the city is predicted to lose virtually all of the nearly $1 million in revenue originally expected to be collected from amusement and lodging taxes over the next three months.

According to Witt, most local theaters have already closed while hotels have begun to empty out.

“We don’t believe that the hotels in April and May are going to have anybody at all,” she said. “People are not traveling, they’re not coming into Lynchburg to see their students. It's going to be really different.”

Meanwhile, sales tax revenues are projected to fall by a quarter and meals tax revenue — one of the largest local funding sources available to the city — could drop by half, from $4 million to $2 million.

Witt said the expected shortfalls could have been much worse if not for a previously robust economy that helped bring in nearly $1 million in extra tax revenue between July and January.

Still, the nearly $3.4 million funding gap presents challenges for a city eager to balance its budget.

Witt suggested council members could tap into a variety of reserve funds totaling $6.6 million to help make up the lost revenue, including a fund for contingencies and a pot of money currently unallocated in the budget.

Witt also proposed taking money from a $1.2 million fund set aside for long-term education projects and a more than $1.3 million reserve fund set aside for the city’s transit system. But she recommended those funds should only be used as a last resort.

“We don’t want to touch it, but in the worst-case scenario these would be funds that would be available to keep things going,” she said.

As Lynchburg begins grappling with the local impacts of the pandemic, the state government also has begun to project major shortfalls. Late last week, Virginia Secretary of Finance Aubrey Layne told lawmakers the commonwealth could lose $1 billion in revenue in each year of the next two fiscal years.

Witt’s announcement did not include revenue projections for the city's still-pending 2021 fiscal year budget. Though tax revenues are expected to decline in the next fiscal year, Witt said it was still too early to know precisely how the virus will impact the local economy in the fall and winter.

Earlier this month, city Manager Bonnie Svrcek submitted a proposed budget that largely continues existing services. The budget projected $35.6 million in local tax revenue, but Svrcek told council members Tuesday that figure will have to be revised as a result of the pandemic.

“We are going to spend some time over the next few weeks refreshing, if you will, our revenues and our expenditures,” Svrcek said.

At-large Councilman Randy Nelson said the city’s finance team should be working under the assumption the economic downturn will continue beyond the end of the summer. He lamented the impact funding cuts could have on longer-term city projects and suggested council members should first take a pay cut “as a token to let everyone know everybody is in the same boat.”

Richard Chumney covers Liberty University for The News & Advance. Reach him at (434) 385-5547.

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