Regional leaders discuss jobs, taxes, baseball

Editor's note: Editors and reporters from the Times-Dispatch Editorial staff and newsroom met with the chief executives of the area's four largest localities on Friday, Feb. 27. The conversation focused on the state of the regional economy and its impact on local governments, but also included discussions about the future of baseball in Richmond and regional cooperation. Below is an edited transcript, organized by the topic under discussion, of our conversation with Richmond Mayor Dwight Jones, Chesterfield County Administrator J.L. "Jay" Stegmaier, Hanover County Administrator Cecil "Rhu" Harris Jr., and Henrico County Manager Virgil Hazelett.

THE ECONOMY

Times-Dispatch: Start with the metaphor of the canary in the mineshaft. County and local government is the first level that sees the changes: sales taxes, foreclosures -- it's going to be visible on the streets. My question to all of you is: When did you see the conditions first changing for the worse? What were the signs and then what prompted you to realize, "Hey, this is pretty big"?

Virgil Hazelett, Henrico county manager: I think we first saw it right after the first of the year in 2008. Obviously, the economy was moving along fairly well in 2006/2007, but in all of our projections -- revenue projections and so forth -- we could see a slowdown. We did see a small slowdown in the last half of 2007 in reference to the building industry. Sales taxes were moving along as they always had been in Henrico.

But, as we develop in Henrico, we depend a lot on the trends in the building sector -- and that building sector started down. The number of houses available, the number of subdivisions that were being platted, the number of activities going on was all beginning to slow down. As we got into 2008, we could see that there were some dramatic differences . . . .

After January or February of 2008 we earnestly began to start looking at what was going on -- both inside the county as well as national aspects. As I said, the one thing we were confused about was the aspect that sales taxes were continuing to move up whereas the building community was slowing down and beginning to do so dramatically as far as what it was putting in the pipeline for future instruction.

Commercially -- we're a little bit different in Henrico in that we're a very strong commercial market -- and commercially we were still active. It has begun to slow down, but it was very strong in '08.

Jay Stegmaier, Chesterfield county administrator: I would echo much of what Virgil said. I guess it was last January when I sat down with our assessor and we began to go through our budget. The picture was that we got through '07 OK, but '08 was not looking good. By the time we adopted our budget in April '08, we had a pretty good bead on the idea that things were going to get pretty tough for local government.

That's why if you looked at budget for '09 -- the current year -- it was a very tight budget in a historical sense. We stopped adding positions, basically. Chesterfield has been growing so fast that that was a very unusual step. So, we were already back to a 1990-1991 type of scenario.

As Virgil said, sales taxes were looking pretty solid but the other thing that was starting to worry us was that gas was going up. Car sales were falling off the cliff. Next to real estate, car sales are our second biggest tax base for local government. So, we saw that going down. As you followed through the '08 calendar year, by the middle of last summer, we knew we were looking at a pretty serious problem. Not just in real estate but also in the personal property portion of the tax base.

By September, we were looking at values of SUVs and pickup trucks, which make up about 60 percent of our personal property tax base, those values were off by about 30 percent from the prior year. So, we saw some real issues there.

I think in a sense, we were fortunate that we were able to see it coming, but I would say, even as late as September, we didn't see it as seriously as it ended up being by the time we got to the end of November. From that point on -- that's when sales taxes began acting very strange. You'd get a month where it would be down 5 to 10 percent and the next month where it would be up 3 percent. It was as if consumers were having a hard time figuring out whether they wanted to spend or not.

Times-Dispatch: What is the status of your sales tax the first half of this fiscal year?

Stegmaier: We're down in the 4 to 5 percent range -- it can't get any worse.

Rhu Harris, Hanover county administrator: The stimulus in 2008 also confused people. A stimulus check goes out to our constituents and so they do have a little extra money. And many of them went to our establishments in the region and spent it so that kind of masked a little bit of the recessionary trend.

Virtually that same scenario you've heard in Chesterfield and Henrico we saw in that January/February timeframe from a real estate standpoint. We tried to react accordingly in the fiscal year '08-'09 budget and certainly took down much of the numbers we were anticipating in real estate increases.

One slight difference we have from Henrico and Chesterfield is that we saw the sales taxes drop off sooner because of some of the differences in the companies that make up our sales tax collection. We actually have a little more construction industry -- people like Carter Machinery -- people who are in the road building/tractor type of sales. So, we actually saw our sales taxes drop off in the April-May timeframe.

We started losing ground in the first part of fiscal year '09 and continued into the current year . . . .Our sales tax is down about 8.5 percent and I think some of the competition that Henrico has opened up over on the eastern end of town certainly drew away some of the traditional shoppers that Mechanicsville had. That's a cumulative year-to-date number for the entire county.

Times-Dispatch: As we turn to Mayor Jones, of course in 2008, it was Del. Jones and you became mayor in January. You might share your perspective of actually being in the House of Delegates where you were getting state budget projections and now you're at the local level and you're dealing with the consequences of the state budget.

Dwight Jones, mayor of Richmond: It's real interesting to go from the state perspective to the local perspective. I, of course, was looking at the reduction in the pipeline, and looking at the reduction in the schools. And we're looking at that from the standpoint of balancing the state budget -- and then I find myself in the position of wanting to get more and more from the state on the local side.

I think having only been on the job for 60 days, I can agree with most of what has been said. I think to a lesser degree our sales tax is down about 3 percent for the fiscal year. I think the psychological impact of a recession is an important thing for us to discuss. We see the real numbers, but people are responding psychologically to what they hear on the television. I think that is informing their behavior.

One of the concerns we have is that our tax assessments will probably be flat, but we're concerned about the collection of those property taxes because people are feeling like they have to hold on to that money. And some people have lost their jobs.

REAL ESTATE

Times-Dispatch: Are the appeals of tax assessments up?

Jones: I haven't seen any spikes in the appeals. The assessments have already gone out.

Hazelett: On the assessments front, one of the concerns I'm hearing -- I don't know about you -- but for us in Henrico, a lot of the big companies are going out of business, so the commercial space in next year's assessment -- that commercial space is going to reflect the economy in the red.

Stegmaier: We know where we are in the coming year. The issue is the next year. It is going to have a more dramatic impact on generated revenue from businesses, taxes, and so forth. So, while we have to concentrate on this coming fiscal year, of real concern is next year. We'll have the full impact of all these activities going on -- the reduction in businesses, the vacant properties. The residential base, I think, is holding up fairly well. Yes, Chesterfield's got a reduction in reassessments, and I've still got construction activity in both residential and commercial, but what we're seeing is these layoffs and reductions in businesses. They are going to create a vacant space.

I was at a church finance committee meeting a couple weeks ago with an individual who is in the business of renting space in shopping centers. He was very upfront -- but a little jokingly -- he said, for the first time he had every space in every shopping center rented. But he said, however, they might be paying 25, 30, 40, or 50 percent of the normal rent. Their focus is on having people in the facilities rather than having vacant buildings.

Hazelett: As the mayor said, this is a psychological thing that we have to do it. But if there are people in those buildings and you can help them and assist them with a reduction in rents, in the private business sector, that's a positive. The next year is a totally different year from this coming year -- not '09-'10, but '10 -'11 is a real issue for all of us.

Stegmaier: I think we all see that coming. The real estate assessment issue is a complex one and I know looking at Chesterfield, we're down a couple percent on average. But looking at averages, some parts of the county are in the oven and some parts are in the freezer. One of the very strange things that's going on in the real estate market -- which I think are going to raise some issues around that appeals process -- is that the entry-level housing market is very solid.

There's a lot demand for houses in, say, the $200,000 range. But you can look at the high end, which is where builders have been concentrating -- and I guess it takes as much effort to build a million-dollar house as it does a $200,000 house, but they're going to make a lot more money on the million dollar house. So what's happening in the market is that the million-dollar houses are selling for $750,000. So, we're seeing, when we look at our records, fairly dramatic cuts from the highest-end housing. But the demand has shifted to more affordable housing.

So, there's no dropoff in the $200,000 range. From the perspective of an elected official to his constituents, it's hard to explain why the people with the fancy houses are effectively going to get a tax break and the people in the affordable houses aren't. But that's the way the code is -- you assess the property at market value.

ECONOMIC DEVELOPMENT

Times-Dispatch: If shopping centers are losing tenants -- many times these decisions aren't made in Richmond, Henrico, or Chesterfield, if it's a chain it may be made in a suburb of Chicago.

Stegmaier: Or western Henrico. (LAUGHTER)

Times-Dispatch: As your worries grow, in local chambers of commerce, what can your localities do when it becomes a macro decision rather than a micro decision? What's available to you when rather than talking to a hometown company -- it may not do you any good -- you are talking to a national or international chain where the decision is made a long way away. The local branch could be doing well, and they just say, we've decided to leave the Mid-Atlantic region or we've decided to get out of shopping centers. Is there anything you can do?

Hazelett: When we catch wind of that -- which is not very often on corporate decisions made outside of the area -- but when we do, we try to call or convince them, do whatever we can do. This is all part of an economic development effort and we'll do whatever we can do. Visit them, whatever. We say: "This is central Virginia -- it is impacted -- but not as great as the rest of the country. We've got a viable entity here. Take a look at your numbers."

The ultimate decision is theirs, but we try to point out that it may be doing a lot better here and don't use the elephant to sit on the fly. I think for the most part, we've been successful. But corporate decisions are corporate decisions and some of them quite frankly are made with blinders on. If it's a policy decision and they say, "This is what we're going to do," you can't do much about that.

Stegmaier: I think the good news on that is that if you look around -- next week we're opening up another Target in Chesterfield. I think national retailers are still looking in this area for sites. Some of them will tell you they can count on their fingers how many stores they're going to open in the country this year -- and they're looking in the Richmond area. So they do see this as being a viable area.

The other thing is on the industrial side -- which I think is very different from retail -- the good news for Virginia is Virginia is well-positioned. And Richmond in particular is well-positioned to take advantage of the trend in manufacturing -- which is to avoid the hassles of volatile exchange rate changes and start manufacturing in the markets where you're selling your goods.

So a lot of manufacturers who 10 years ago were looking for the cheapest exchange rates and the cheapest labor have gotten burned in many cases and have realized, "We might be better keeping our manufacturing where our goods are being sold." And Virginia is a great location for manufacturers.

Jones: I think in years gone by -- when bank presidents were here -- we would sit around the table with them. We used to go to Richmond regional meetings and all the CEOs would sit around the table and talk about what was important to Richmond. And then when these companies began to move away and these management centers moved to other places, we found we had less of an impact on the decisions that were being made. And so, from where I sit, I think that we have a difficult road in front of us and I think that Virgil's exactly right about 2011.

But also, there's a silver lining in this cloud that, if I may speak metaphorically, is going to allow us to become leaner and meaner. It's going to force us to make decisions about how organizations are going to look in the future. I think it really forces us to kind of think regionally to make sure that we try to bring more corporate headquarters here so that there's sensitivity here. I know we've done that, I know we're continuing to do that. I know we have programs to do that.

THE JOB MARKET

Hazelett: It was a newspaper reporter's call that pointed out the huge job losses in Henrico County and I had to point out that it's jobs in Henrico County, but it's people in other jurisdictions. People work in Henrico, but they live in other areas. This is a huge impact on this region and we've all got to learn from that.

The [work force center we are setting up in Innsbrook] is a regional effort. It has to be a regional effort -- because these people come from each of these jurisdictions. This is something that we've never seen before. This is something that we have to react to. This is something that we have to do for these people . . . .

Obviously right now, the greatest concern is these jobs. I think we're all fortunate right now to have the ability to respond on this regional basis -- but that's what we have to keep in mind: It is regional. I can't do anything in Henrico County that doesn't affect these other jurisdictions -- no one can . . . .

I think we're far better off -- and I keep reminding everyone of that -- than a lot places, a lot of regions in Virginia and the entire country. But it's still here, it still hurts, and we have to fix it here. We have to respond and we can't just sit still.

Stegmaier: The point is very well taken. In Chesterfield County, on a net basis, 30 percent of the work force living in Chesterfield goes outside of the county to go to work. There's an enormous amount of cross circulation within the regional work force.

Times-Dispatch: What about local government job losses?

Stegmaier: Chesterfield probably has been harder hit than the other localities in the area -- and Hanover similarly -- because of the way the governor structured his budget. There were huge cuts to education, which means the localities with all the kids are going to take huge cuts and that was certainly the case with Chesterfield. Now, some of that is going to be undone with the stimulus money.

For the most part, in our general government functions, we stopped hiring a year ago. So, we've generated a lot of reduction in our work force without having to lay people off, just through the normal process of retirements, relocations, and whatever. We are getting very close to where we need to be without actually laying people off. Now, it's not a perfect situation because we have vacancies where we don't want them and we need people over there. Our school system has a much tougher problem, primarily because of the huge reductions in state funding.

Jones: In Richmond, the school system is probably hit the hardest. We are not in the position of having to do staff reductions in government or in schools at this point and our intention is to do everything to avoid that, even to the point of looking at some policies that might affect some across-the-table efficiency . . . .

Hazelett: There are no layoffs in Henrico County. There will be no layoffs. I will be adding positions as a recommendation to the Board of Supervisors. But they're not in general government, they are in schools -- and that is to keep up with the school projects that we're bringing on line and the increase in population.

LOCAL TAXES

Times-Dispatch: Where are local real-estate tax rates headed?

Hazelett: Henrico will remain the same with the tax rate.

Harris: I expect our board to keep the same rate.

Stegmaier: Chesterfield is in the same position.

Times-Dispatch: How about the city?

Jones: Flat.

BASEBALL

Times-Dispatch: It feels like spring outside today, so I wonder if we can talk about baseball. We've got this very ambitious plan to put a stadium in Shockoe Bottom. Mayor Jones, I wonder if you could talk about that and how likely it is that actually might happen -- and the folks in the counties if you could talk about what you think about what is basically a city plan. Do you like the plan? Could you get involved? Mayor Jones, could you start off?

Jones: Yes. I'd be very happy for Virgil to pay for the stadium. (LAUGHTER). It's generating a lot of interest and concern. We all get requests from developers who see an opportunity to do some development and make some money. Because we've lost the Braves, obviously people are looking for a niche or a door-opener.

We've taken the position that we're going to vet the proposal and look at it very closely. We're going to bore down into the numbers to see if it's as good a deal for the city as it for the developers. That opens up the discussion about the Diamond, which is a more regional situation. I just see so many opportunities -- even if it's not baseball -- for the area and I hope my counterparts do as well.

Hazelett: I think you have to look back a little bit -- 1985 -- when the jurisdictions came together. It was a regional effort and it always has been. Even four or five years ago when looking at renovations of The Diamond, questions came about renovations versus replacement versus the issue of the Braves. We put all that through the process of the conversations that went on among the jurisdictions . . . .

When the city made the decision to evaluate Shockoe Bottom and if the city decides to move to Shockoe Bottom -- then so be it . . . .

The jurisdictions have not been asked to participate in that -- and rightly so at this time. That's a decision that the city has to determine: No. 1: Is it reasonable and feasible? No. 2: Do they want to do that? And No. 3: There's the financing aspect. They've got to go through all of their due diligence and there may be a point at which time they have to -- or decide to -- ask the jurisdictions to participate. That depends upon the financial aspects and at that point, we'll have to consider it.

If you want the real reaction -- Mayor Jones was not there -- we all have concerns about moving away from a location -- being the Diamond's location and its regional aspect . . . .

To me the Diamond is a better location ,but if the city makes the decision to put it in Shockoe Bottom, then that's a decision that we can't argue about -- that facility is in the City of Richmond. Then we have to determine whether we would participate regionally or not. At this point, that's not even on the table because that's not a part of the financing plan. If you talk to the developer, they want to build it.

Jones: They don't want to pay for it. (LAUGHTER).

Hazelett: When you look at the Diamond itself, the structure, there are a lot of difficulties there. What is the life of a baseball stadium? How do we surpass the life of a baseball stadium? Should it be renovated or should it be imploded and something different put up there? If you're trying to entice a baseball team, would they be excited about playing in The Diamond? Based upon all the conversations, I would tell you, no, they would not be. So, you're going to have to look at new facilities.

REGIONAL COOPERATION

Stegmaier: Since the mayor has been elected, all of us in Chesterfield county have sensed a sea change in the level of willingness to talk with the city. I think the mayor is doing a great job. He's really trying to put together a top notch staff and move the city forward. His decision to come out to Chesterfield County sent a very strong signal and there's a very high level of interest and anticipation in a number of these things -- like the [Richmond Metropolitan Authority] or baseball, or whatever -- that there's going to be a new level of discussion on regional issues. Clearly, Chesterfield has an interest in the RMA. Our citizens pay a disproportionate share of the revenue that RMA collects because they are heavy users of the bridge and the expressway, so they have an interest.

THE STIMULUS PACKAGE

Times-Dispatch: Congress just passed that large stimulus bill. What are your hopes for stimulus from the bill -- and too, some of your concerns.

Stegmaier: We're in a situation -- and the mayor mentioned this earlier -- where we need to think very smart about what is going to be our role as a government entity. What is going to be the most critical thing for us to do and how are we going to structure our organizations so that we're creating sustainable service delivery systems for the future? A two-year budget plugging measure isn't going to create an organization that is sustainable.

I think the General Assembly has a big challenge on its hands. Would we take -- if they go through and use the change to Medicaid formula to free up money and put it back into education -- would our school system take that money? Yes. The problem is: What happens in two years, when that money is gone? You've got to either make that up or start preparing now to restructure your organization for the long term to live within what's likely to be much more severely constrained resources -- again, over the longer term.

To me, that's the dilemma with the federal money. It's the same dilemma we have when we're trying to balance our budgets. There are things that school systems and local governments are doing along the lines of: "Well, we're not going to buy school buses or we're not going to buy fire engines". That's great for one or two years, but what are you going to do when the fire engines and the school buses just won't run anymore and you have to replace them?

I think the federal stimulus program just is adding emphasis to the fact that we've got to think very intelligently about how we're going to deal with the longer term -- more than just the next two years.

Hazelett: The stimulus money -- none of us are going to look the other way in reference to the money being placed on the table for use by the jurisdictions. But the point is: How do you use it? If you know there is an end to the stimulus money, we have to honestly ask the question: Do we put that into operations? Do we put that into things that we know are reoccurring expenditures? You have to be very, very careful.

On the other hand, I have the philosophical position that if you want to provide stimulus money, and we can put it into infrastructure improvement, if we can buy those buses, if we can buy those fire trucks, if we can build fire stations and schools and create jobs and do all of that, that's fine. But don't take money that you know is not going to be there in a year or two years and put it into your operating budget.

Jones: I'm not so sure that Congress knows everything that's in the stimulus package. And the governors -- some of are accepting the money and some are not. So, it's going to take a little while to digest and figure out what's for potholes and bridges and so forth. We just have to take a little while and bore down and figure out what it is. I don't think that we can really talk about it comprehensively at this point because we really don't have the benefit of all the details.

Stegmaier: It's only 1,100 pages, I surprised you don't know what's in it. (LAUGHTER).