We have accomplished a lot over the past six years and still have the lowest tax rate of any city in Virginia at 53 cents. While the tax rate has fallen revenue to the city have increased in part to cover the cost of construction of schools, recreational facilities and the new police station. However, in comparison to our neighbors the City comes in last in the percentage of that increase over the past six years.
With the falling real estate market and retail sales the City is now faced, as are most localities, with a revenue shortfall. In addition, there is no indication of new revenue coming on line over the next two years to cover increased cost for the regional jail, coverage of a larger percentage of the school budget, and new costs such as a court facility and water/sewer upgrades. In light of these realities how will we face the coming budget year?
A few observations on the city budget are in order before getting into this discussion. Unlike state and federal budgets local budgets do not have a lot of programmed spending. Most of the budget is for salaries—firemen, policemen, trash men, etc., and benefits. This accounts for about 35% of our budget. The next big expenditure is the transfer to schools that accounts for another 30% of the budget. Debt service is currently about 8.5%. These three areas account for almost 75% of the budget.
If there is an area that could be considered funds for programs it is our Outside Agency budget that accounts for about 7% of our budget. The larger parts of this budget are based on formulas as is the case with the regional jail, and library. The remainder of the budget is for capital transfers, paper clips, pens, supplies, travel, education etc.
A comment on the City’s reserves—City policy is to maintain a reserve of 12% and no less than 7%. This translates to roughly 10M. We have held reserves higher than this over the past years to allow us to pay cash down for projects such as the schools, pool, Rec. facilities and the police station. This fund is maintained for emergency/ unexpected expenditures. If we reduce them below 12% we are expected to bring the reserve back up within five years. If we draw down below 7% we must bring it up in two years. For reserves above the 12% figure it is expected that these funds to be used on one time capital expenses and not operating costs as has been suggested.
To use reserve funds for operating is a last resort to cover critical services. To do otherwise is to increase expenses without having the revenue to cover them the following year. It would be comparable to you using you savings account to cover your monthly bills. Before we consider using reserves for operating expenses we should first consider reducing non-essential expenditures.
Factors facing the current budget:
--Increase of about 1.3M for additional employees and debt service on the Regional Jail expansion.
--Reductions in State and Federal funding. At least 5% from the state.
--Another increase in the percentage of the School Budget the City must absorb.
--2nd phase of salary increases to teachers to make them competitive, not in line with, area localities.
--The planning and construction of a new court facility.
Another issue to be considered is the fact that we have held our own employees to cost of living raises and the possibility of a 2% merit pay while we have provided funds and benefits to other agencies which included higher salary increases and benefits. This was a major consideration in Councilman Dixon’s and my effort to reduce payments to Outside Agencies last year. While we had the Mayor’s support the majority of Council would not support the level of cuts suggested.
At our November Budget Retreat Council was apprised of some of the issues we would face in the coming budget year and it was agreed that we would consider no new expenditures beyond the land acquisition on the river. This investment would increase property values in the downtown and spur further investment.
There was not total agreement on the court facility beyond the location. I continue to maintain that this is a cost we cannot take on under the current fiscal situation. To maintain the 2010 timeline for the facility would mean placing the initial costs squarely on the shoulders of city taxpayers.
In reviewing the coming budget my philosophy will be:
1. To protect city core services first. This includes education. The School Board has worked well with the Council and has recognized the budget issues we face. They have not increased programs and have kept a handle on expenses. We did cover an increase in salaries last year and I would hope that under the current situation we at least do not loose any ground to our neighbors. We also need to look after our own employees.
2. I cannot support any expenditures related to the new court facility on the current timeline of 2010. We need time to get projects such as Wegmans, and possibly Kalahari, on line before taking on the courts. This project can be dropped back two years without incurring major increases in cost.
3. Outside Agencies should be judged on outcomes and need. I wouldn’t support an across the board cut because some agencies do provided needed services. Others such as GWRC/FAMPO generate funds. We use our contributions for matching state and federal dollars from $7 to $9 for every dollar we put in. However, we cannot support new program, positions, or raises if it means adversely affecting core services. And we cannot be expected to make up for state and federal cuts.
4. While we do not want to reduce services to city residents we must ensure we have made every reduction in the budget possible before we consider any tax increase.
What philosophy would you bring to the budget? No new taxes? Are services or programs more important that holding the line on taxes? The following year will not be much different than this year suggestions to you have on dealing with that situation?