City looks to darker budget future

Second in a two-part series.

The small amount of funding that might be cut in Charlottesville’s proposed fiscal 2011 budget may seem relatively bloodless, but city officials warn that darker days are coming.
For the upcoming budget, proposed to be $140.8 million, officials are breathing a small sigh of relief. A state budget amendment that would have stripped the city schools of $2.8 million in education funding and given it to Albemarle County did not end up passing. While the city government is still working through implications of the budget passed by the General Assembly earlier this month, the first glimpses show that Charlottesville will likely see a cut in state funding of $942,000 next fiscal year. The schools could see a reduction of $800,000, but officials feared that the number could have been more than double that amount.

Officials say fiscal 2012 will be worse, and the city is doing its best to be prepared, such as by setting aside $2.8 million for an economic downturn fund.
“We always have to be mindful of what trends we’re seeing in sources of funding,” Mayor Dave Norris said. “We absolutely have to redouble our efforts to attract and retain business in the city and to bolster our tax base in the city. This is really where I want to focus a lot of my energies this year.”
But in looking at the picture ahead, others wonder whether the City Council should be cutting more today to have more for tomorrow. Real-estate tax revenue is on the decline and earlier forecasts expected, along with other taxes, for the decrease to continue through fiscal 2012. The city’s public schools have more than eight positions being funded with economic stimulus dollars from the federal government, and that money is expected to disappear after fiscal 2011.

State funding losses will likely go up regardless of what happens with the economy, City Manager Gary O’Connell said. The city’s budget director, Leslie Beauregard, said local nonprofits that lose aid also might come to the government to fill in the gaps.
In addition, revenue sharing funding from the county is expected to go down after next fiscal year for the first time since the local agreement was inked in 1982 to prevent the city from annexing county land. A complex formula determines how much funding will be exchanged between the two localities, but it has always resulted in the county paying the city.
Revenue sharing funding from the county hit an all-time high this year, with Albemarle writing Charlottesville a check for more than $18 million. In fiscal 2011, the city’s budget will get padded with another slight increase, for a total close to $18.5 million, but city government projections based on estimated county real estate assessments show declines beginning in fiscal 2012.
That year, funding is expected to go down to about $18.1 million, and in fiscal 2013 it is projected to be $17.2 million. The latter figure would be less than what the city received this year but still considerably more than the $13.6 million it got in fiscal 2009.
“We’ve been watching that for four years,” O’Connell said.
Revenue sharing is the second-largest source of revenue for the city’s budget, behind real-estate tax revenue. The city manager said much of that money goes into the city’s capital projects — for fiscal 2011, about $4.2 million from revenue sharing is proposed to be transferred to the Capital Improvement Program — and with the declines, the city is going to have to cut in fiscal 2012. But revenue sharing has also increasingly helped sustain the city government’s operations.
Since the agreement passed, revenue sharing money has trended to constitute an increasingly large percentage of the total city budget, going from 4.7 percent in fiscal 1983 to a proposed 13.1 percent in fiscal 2011.

Unwise spending

“Maybe this year’s budget is going to be fine, but next year will be hell to pay,” said Colette Hall, president of the North Downtown Residents Association, who was one of a handful to comment at a recent budget public hearing.
“We have to make hard choices,” she added. “The city does not spend money wisely.”
The percentage of revenue sharing money supporting the city’s operations has varied year to year. If the money is not spent on operational expenses, it is used on designated expenses, which includes a transfer of funding into the CIP.

In fiscal 2001, about $2.7 million was put aside for operations, 44 percent of the money given that year. That compared with $3.4 million, or about 56 percent, that went into designated expenses.
More than 59 percent of revenue sharing money is proposed to go toward operating expenses in fiscal 2011, equating to $10.9 million. Within the last 10 years, the percentage of funding being spent on operational costs peaked in fiscal 2007, when nearly 63 percent was put in, or roughly $6.4 million.
Councilor Satyendra Huja said he thinks there will be less money for the city’s capital projects spending in coming years, but of the revenue sharing money, “We would still like to put a minimum percentage of 50 percent [in the CIP]. We will still try to do that.”

The guessing game

City officials have said they have cut spending in the CIP to deal with the recession rather than cutting services or employees. But Councilor David Brown said he does not want to avoid making difficult decisions about the budget now and instead put off important capital projects, such as repairing water and sewer infrastructure, as a short-term fix.
Brown also said, “I think we should be very conscious to not expand, and tighten our belt wherever we can.”
Beauregard said the money is helping to supplement the city’s losses in state and local money. Beginning this year, the city implemented a policy in which councilors would set aside between 30 percent and 50 percent of the increase in revenue-sharing funds in a reserve in anticipation of an ongoing weak economy.

Norris, though, said it is hard to say whether things will get worse.
He said there are some signs that the housing market is beginning to turn around, which bodes well for city real estate assessments and, subsequently, tax revenue. According to the latest home sales report from the Charlottesville Area Association of Realtors, sales were at their lowest points between July 2008 and June 2009 but figures trended upward through the rest of the year.
Norris said his guess is that the worst-case scenario would be that the city puts less into capital projects and defers another salary increase for city government employees.
“I don’t think you’ll see us in a position this time next year where we’re having to talk about significant cuts to services or increasing the tax rate,” he said, “but obviously that remains to be seen.”