Economic Forecast: Cooler and Cloudy

The boom times are over in Prince William County. At the final meeting of the year, the Board of County Supervisors listened to a stark report on the state of the county's economy -- an $18.1 million shortfall for the current fiscal year -- and a bleak forecast for next year as the residential housing slump continues.

When the supervisors return Jan. 9 for their first meeting of the new year -- an election year for all seven members -- they will immediately be faced with decisions on where to cut spending or how much to raise taxes as they formulate the county budget for fiscal 2008.

"I just want to say that 2007 will be a year of big decisions," said Chairman Corey A. Stewart (R) at Tuesday's meeting.

Christopher E. Martino, director of finance for the county, told the supervisors that in September his department had projected a revenue shortfall for the current fiscal year of about $10.2 million, but in the last quarter of the year the picture got worse. "In July things changed dramatically," he said. "By November, 50 percent of the homes sold in the county sold for less than their assessed value." Most of Prince William's tax revenue comes from real estate and property levies, so that if home values and the number of home sales go down, so does the amount of tax collected.

He said county revenue also declined in the areas of sales tax and consumer utility taxes, which are generated mainly by the sale of cellphones. County officials said that this year's $18.1 million gap could be covered using "rainy day" funds and other discretionary money. County Executive Craig S. Gerhart told board members that they had to be prepared to give the county staff guidance at next month's meeting on how they wanted to fund programs and whether they wanted to raise property tax rates to make up for the shortfall that is expected in real estate tax revenue.

Martino said that if the board insists on sticking to proposed spending in its five-year plan and if the tax rate remains the same, supervisors will be looking at a $72 million deficit in fiscal 2008. If the board kept spending at the same level as this year with the same tax rate, it would have a $13 million shortfall.

The board will start finalizing the 2008 budget next month. Under Virginia law, local governments cannot operate at a deficit.

"I think what we are going to have to do is to look at every line item in the budget, look for things to cut," said Supervisor John D. Jenkins (D-Neabsco).

Jenkins asked Gerhart if he planned a hiring freeze to save money.

Gerhart said that the county would practice managed hiring, meaning that some jobs that came open might be left vacant or be filled with current county employees. "We are going to have to look at some expenditure freezes to save some money," he said. "I don't want to say we are going to do some kind of hiring freeze, though."

Martino outlined four tax policy options for the board for the next fiscal year.

One would keep the tax rate unchanged. Because home assessments will decrease, the result is projected to be a revenue shortage of about $13 million.