I’ve just gone back from two days in Fredericksburg, where we gathered for the Senate Finance retreat.
The economic projections by the Senate Finance staff resembled a Mike Tysons fistic assault. First, they back you up to the ropes. Then they hammer you with body shots. Then they step back for an uppercut.
Let’s start with the basic national stats. Dow dipping below 8,000, the lowest level since 1997. Unemployment projected to exceed 7% by 2009. About 20% of U.S. homes “underwater,” i.e. the debt exceeds the value of the house. A staggering one-TRILLION dollar Federal budget deficit.
It’s enough to make Barack Obama a pack-a-day man.
Now let’s get regional. Slowdown in job growth and rapid decline in the real estate market. Over 20,000 pending foreclosures in NoVa in October 2008, due to the subprime meltdown. Widespread collapse of prices in the outer suburbs, although values inside the Beltway have stayed stable.
In Prince William, “ground zero” of the meltdown, about 70% of current real estate sales are from foreclosures. The average sales price in PWC has fallen from $389,000 in 2005 to $177,000 in 2008, as the subprime loans are cleared from the market. That’s not a misprint. It is a 120% decline in values.
How does that affect the state budget?
The Senate staff is now projecting a 2.7% decline in revenues for 2009, following flat growth in 2008. By contrast, our typical projected growth is 6%+ a year based upon inflation and population increase (that’s an average year). This would be a lot worse, but for the fact that the Federal government in northern Virginia and U.S. Navy in Hampton Roads remain two unshakeable economic anchors. Things could be a lot worse, and they are in other states.
Last year we projected $34 billion in state general funds for 2008-2010 based upon anticipated revenues. Now we are now looking at $30.5 billion. Roughly a $3.5 billion decrease (or 10% of the budget), which is now missing. A small part of that can be covered by the state’s reserve “rainy day” fund. The rest will have to be addressed by the Assembly in January.
Those are the facts. Feels like a punch in the face. Break out the smelling salts.