City eyes potential for major deficit

By Rachana Dixit

Published: November 15, 2008

The $1.8 million shortfall that Charlottesville officials projected in August for this year’s budget could be tame compared with what could be in store down the road.

If the city’s spending and revenue situations do not change, preliminary city projections show that by fiscal 2014 the deficit could climb to nearly $9.3 million. The amount would be 5.7 percent of Charlottesville’s $162.8 million in projected spending.

“If we don’t do something now, that’s what could happen,” city spokesman Ric Barrick said.

Some remain optimistic that the city will be able to handle its bleak revenue picture, especially because deficits have been avoided in the past.

“Within five years we need to figure out how to get 6 percent smarter, and I don’t think that’s a very high bar,” Mayor Dave Norris said.

City Manager Gary O’Connell said that while fuel costs have recently decreased, energy costs are up nearly 18 percent since the current budget was approved, so they are likely to still be a factor for this year’s projected deficit.

“Most of the shortfall was created by revenue projections that did not anticipate the national downturn in the economy,” O’Connell said.

If the city does not raise its tax rate, declining real-estate revenue would be one of the major causes for the shortfall in city coffers — this fiscal year, the city is projecting to garner $572,908 less than expected when the budget was approved in April. Preliminary estimates show a 2.66 percent increase in assessments for 2009, with growths of 1 percent and 5 percent, respectively, for residential and commercial properties.

Norris said though assessments in both areas are not climbing as much as previously, the city should continue to invest in commercial developments because of their ongoing strength in the Charlottesville market.

“We never saw the same bubble effect in the commercial property market like in the residential property market,” Norris said.

After fiscal 2010, the real-estate financial returns are expected to go up by only 1.5 percent each year. Other sources of funding may also nearly level off at that time. The city is expecting roughly a 32 percent increase in funds for next year’s budget from its revenue sharing agreement with Albemarle County, totaling more than $18 million, but the amount is expected to climb a mere 1.5 percent per year beginning in fiscal 2011.

Though no staff cuts are expected, hiring has been frozen for 13 open positions. O’Connell said, “Any new position requests are being delayed until our budget allows.”

Former Councilor Rob Schilling, who voted against the city’s adopted budget every year he was in office, said freezing positions is the place to start cutting costs. City government gets expensive, he said, when unnecessary positions are created.

“That’s what’s happened over the years,” Schilling said. “Once you have those employees, it’s difficult to let them go.”

Officials have said that it is likely the city’s Capital Improvement Program will take a sizeable hit, with officials delaying or scaling back projects instead of raising the real-estate tax rate, currently 95 cents per $100 of assessed value.

“In these tight economic times impacting our residents, I think the city government needs to make reductions in our budgets, much as residents and local businesses are having to do with theirs,” O’Connell said. “This is not the time, in my opinion, to be recommending a tax rate increase.”

The City Council will discuss the fiscal 2009 budget update and projections at its Monday meeting, and a draft of CIP recommendations for fiscal 2010 through 2014 will be presented to the Planning Commission at a work session Nov. 25. Additionally, O’Connell said, the impact of state revenue shortfalls on Charlottesville’s budget will be better gauged in December.