$1.8 million gap before City Council

By Rachana Dixit

Published: August 15, 2008

By the end of this budget cycle, Charlottesville may have to dig a little deeper to cover a projected $1.78 million deficit.

For the 2009 fiscal year, which began July 1, the city’s tight money forecast spurs from over-spending projections and less state and local revenue.

The city’s difficult outlook, which shows the worst-case scenario, comes on the heels of Virginia Gov. Timothy M. Kaine’s state revenue report to the General Assembly, scheduled for Monday.

Lawmakers are predicting that the statewide shortfall could reach or surpass $1 billion for the two-year, $77 billion budget. Kaine announced Friday that state agency spending reductions for fiscal years 2008, 2009 and 2010 will total $49 million.

City staff was informed in late July that Charlottesville will have a $509,541 shortfall in state aid, roughly three months after the City Council had unanimously approved a $141 million fiscal 2009 budget.

“When we adopted the budget back in April, there were very clear signs that the state was going to reduce aid to localities,” said Mayor Dave Norris. But, he said, “We didn’t know what the exact amount was going to be.”

Councilor David Brown agreed.

“This is no surprise,” Brown said. Councilors will discuss the city budget and reductions in state aid at their meeting Monday night.

The distressing local prospects are largely a result of rising fuel and energy costs — the city projects it will spend about $634,000 more than this year’s budget allows — and grim revenue projections from some of the city’s biggest money makers, including real estate and food, lodging and sales taxes. The city does expect to have a revenue surplus from other taxes, such as personal property, bank stock, and wills and deeds.

Revenue projections show that real estate taxes will bring in nearly $573,000 less than expected. Food and lodging taxes and the sales tax are expected to generate $169,000 and $160,000 less, respectively.

City Manager Gary O’Connell said if the General Assembly had known exactly how much each locality was going to be losing before the budget was approved, then that funding difference would have been incorporated.

“But that’s not what they did,” O’Connell said. He added that state funding has been steadily declining over the past five years, but the last time the city’s budget had to take cuts after City Council approval was about seven years ago.

Former City Councilor Rob Schilling, who voted against the city’s budget every year while in office, said he believes the projected deficit will teach officials some fiscal responsibility.

“It’s called prudent budgeting. And it’s not done,” Schilling said.

He added, “I think it’s time for Charlottesville to live within its means.”

With real estate taxes taking the hardest hit, city residents have also begun to notice the residential value slowdown. Resident Colette Hall said the city assessed her house to be worth about one-third more than her insurance company’s assessment — or about $125,000.

“That’s a huge chunk of change,” said Hall, who lives in the North Downtown neighborhood. “I expect to see my assessments for ’09 significantly lowered.”

For the 2008 fiscal year, which ended June 30, real estate tax revenue amounted to $47.35 million. A report from Leslie Beauregard, the city’s budget director, said residential real estate assessments — which were expected to grow 4 percent this year — are now only showing a growth of 1 percent.

Roosevelt W. Barbour Jr., the city assessor, said that until recently city assessment values had been doing reasonably well.

“Double digits until last year,” he said.

City figures show that combined residential and commercial real estate assessment growth began to slow in fiscal 2008, when it was about 6.7 percent. In 2007 it was 15.03 percent; in 2006, 17.78 percent.

Barbour said 2010’s outlook does not look much better than current figures.

“We’re going to have to weather the storm,” Barbour said.

O’Connell provided the same picture for the next budget cycle.

“With the changing economy, with next year’s budget we’re going to see significant slowdowns,” he said.

The Virginia Department of Planning and Budget has provided the city with proposed reductions in local funding, several of which would come out of the State Board of Elections, the state Compensation Board, the Library of Virginia and the Department of Social Services, among other agencies.

Staff is required to notify the state planning and budget department by Aug. 30 as to how the city will cope with the cuts. City staff suggests taking the cuts recommended by the state budget department.

The city does not plan to cut spending and O’Connell said taxes will not be raised. O’Connell said various measures are being put in place to reduce city-wide consumption, and the deficit could be reduced by taking money from the city’s $1.4 million capital contingency fund.

“Our hope is that these changes we’re going to make will help take care of [the deficit],” O’Connell said.