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WorldCom Behind on Taxes, Severance Pay

Troubled corporation owes Loudoun County $4.9 million in taxes.

August 7-13, 2002

Leesburg resident Kristen Stahl was not surprised that she and another 529 employees at WorldCom, Inc.’s Ashburn facility got the pink slip on June 28.

“Everything’s been quiet, a lot of closed doors,” said Stahl, 26, about the office environment the month before the company laid off 17,000 employees. “It was a lot of management behind closed doors. … Everybody knew Friday was the day.”

Stahl worked as a project manager in a position that took severe cuts along with several support positions, she said. “We had so many project managers there. My load was never heavy or crucial,” she said.

Since the layoffs, Stahl, whose husband still works for the same company, has been looking for a job “in anything that will pay me decently.”

“It’s not a good market out there,” Stahl said, adding that companies are cutting back on the number of staff positions and starting salary amounts.

Stahl expects to start receiving unemployment payments, but not the eight weeks of severance pay WorldCom promised employees. “I guess it was cut because of the whole debacle filing for Chapter 11,” she said. “As of yet, we haven’t received anything. Whether we’ll receive anything is anybody’s guess.”

LOUDOUN COUNTY is in the same predicament following the company’s bankruptcy filling last month, since WorldCom may end up not paying the entire $4.9 million in county taxes it owes. WorldCom’s taxes include $3.2 million in real property taxes on locally assessed land and improvements and another $1.7 million in real property and business personal property taxes on assets that have been assessed by the State Corporation Commission (SCC), such as wire lines, antennas, equipment and supplies.

WorldCom paid its taxes for the first half of tax year 2002 and likely will delay on payments for the second half of the tax year and for tax year 2003, Kirby Bowers, county administrator, said in a memo to county officials and staff. The county expects to collect all but $1-$1.5 million of these taxes, since the SCC assessment process does not allow liens to be placed on property, the memo stated.

“In the meantime, we’ll hold a destination in fiscal reserves for nonpayment,” Bowers said.

Each year, the county sets aside 10 percent of the government fund operating revenue into reserves, which is $51.5 million for this year. “We have never used the fiscal reserve. The fiscal reserve is there for emergencies,” Bowers said. “If the payments don’t come through, we have sufficient money to cover it. … It doesn’t have a budget impact because our cash position is good.”

Supervisor James Burton (I-Mercer) said the tax amount owed by WorldCom is “minor.”

“I don’t expect that situation to snowball into anything larger, but one never knows,” Burton said.

WORLDCOM’S BANKRUPTCY is reorganization, not liquidation, said Randy Collins, Chamber of Commerce president. “So Loudoun County would be in line as any other creditor to attempt collection on those taxes,” he said.

At the same time, Collins does not expect the company to leave Loudoun, allowing the county to continue tax collections in future years if the business continues operations.

“We sincerely believe, and we have no indication otherwise, that the company is not going anywhere,” Collins said. “They have too much invested in the community to do that. So we remain optimistic.”

The company houses the Network Operations Center in Ashburn, what Bowers describes as “North America’s switching station for Internet.”

“Somebody’s going to be in that facility. We’re all hopeful it’s WorldCom,” Collins said.

Even without WorldCom, which represents 4 percent of Loudoun’s work force of 98,000 employees and is one of 5,100 businesses in the county, Bowers expects Loudoun’s economy to remain “healthy.”

“We’re not a company town so to speak. We’re a diversified local economy. Most people aren’t losing their jobs,” Bowers said. “The telecom industry is going through some dramatic changes it has to play out.”

THE CHANGES are helping bring the economy to a more realistic picture, according to Larry Rosenstrauch, director of the Department of Economic Development.

"For three years, it was an economy on steroids. Now it's coming down off those drugs," Rosenstrauch said, adding that the economy is making a return to "just the facts ma'am with real numbers."

"Corporate terrorism .... is deflating a lot of opportunity and will create new opportunities on the other side," said Rosenstrauch. "There will be a much more real economy."

In Loudoun, the economy took a slight dip from the boom of 2000 that continued into this year. The county issued 22.5 percent fewer residential permits this year through June than last year during the same time period, according to the Economic Indicators report from the Department of Economic Development. Likewise, the number of permits issued for non-residential construction dropped 64.7 percent during the same time period, while housing sales increased 7.7 percent and taxable sales 9.6 percent, according to the report.

"We are probably doing better than other regions, but we are still hurting. It took awhile to realize we are there," said Robyn Bailey, marketing manager for the Department of Economic Development.

For Supervisor Chuck Harris, business growth will continue in the county but at a slower rate. “Loudoun County will continue to be a great place to work and live and the reasons it exists as a place to work and live will continue despite WorldCom’s bankruptcy,” said Harris (D-Broad Run). “It appears much of WorldCom’s problem is poor management and imprudent fiscal and accounting procedures, and those kinds of things can be fixed. So, I’m hopeful they’ll fix them."

Rosenstrauch talked to the owner of a cleaning service, who said she now is getting more business from landlords needing their residences cleaned out after residents move out. "I was disregarding the stories of pain and woe, because our data shows our economy was outperforming most metropolitan areas," he said "It gets your attention that the data is not going to be that good of a guide during these turning points. ... It's the street knowledge. It's the knowledge of the people in pain."