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Beach predicts $49M shortfall in 2010-2011

Posted: November 3, 2009

By Philip Newswanger

philip.newswanger@insidebiz.com

The city of Virginia Beach is projecting a $49 million shortfall in revenues next fiscal year, beginning July 1, 2010.

City officials have begun the budget process already in an effort to balance next year's budget. This fiscal year's budget totaled $1.8 billion.

City Manager Jim Spore has asked city departments, except for public safety departments, to cut their budgets by 15 percent.

Police, the fire department and emergency medical services have been told to cut their budgets by 5 percent.

Drastic cuts are in order. That could mean layoffs, furloughs or salary cuts for city employees.

That could mean delays in rezonings, the permitting process and other business-related activities delivered by city employees.

Or it could mean cuts in service and an increase in taxes, especially real estate taxes. Virginia Beach's are one of the lowest in the region at 89 cents per $100 of the assessed value of a home.

This is how the city described the situation in a press release issued Oct. 16: "Budgeting for next year will be tough. Revenues will be down. For now, we expect a $49 million shortfall in fiscal 2010-11. How can we close that gap? Cutting services? Raising revenues?"

Catheryn R. Whitesell, director of management services for the city, said, "We need to focus on reducing services."

City officials are conducting four town hall meetings before the end of the year to give residents a chance to weigh in on next year's budget.

The first meeting was held last Wednesday at Larkspur Middle School.

The others are scheduled for Thursday, Nov. 5, at Princess Anne High School; Wednesday, Nov. 18, at Green Run High School; and Thursday, Dec. 3, at Kellam High School. The meetings begin at 7 p.m.

Whitesell highlighted the projected shortfalls:

  • Real estate, down 5 percent or $21.6 million;
  • Personal property (vehicles), down 9 percent or $5.5 million.;
  • Interest income, down 45 percent or $4.4 million;
  • General sales, utility (including telecommunications), restaurant meals and hotel taxes, down $5.3 million.

    "The total projected loss in local revenues is $49.1 million against the FY 2010 budgeted level," Whitesell said. "Of this, $14.4 million would be assigned to schools through the City/School Revenue Sharing Policy and $34.7 million is assigned to the city."

    The budget for the school system for this year is $695 million.

    "Obviously other smaller revenues are underperforming as well, but the other larger revenue loss is the fact that the fund balance is probably not going to be as available next year," Whitesell said.

    Total shortfall: $51.2 million.

    But other revenue is expected to increase, leaving an unfunded balance of $49.1 million.

    Revenues projected to increase include business licenses, $214,000; Cox Cable franchise, $98,000; amusement taxes, $434,000; taxes on bank stock, $600,000; city deeds, $373,000; and a host of other smaller ones, Whitesell said.

    The city keeps a rainy-day fund of about $100 million. Whitesell said the city used $10.8 million of the fund to balance the operating budget in the current fiscal year.

    The projected shortfall doesn't address any unforeseen increases in costs, however, Whitesell said.

    Whitesell does see some improvement in revenues.

    "Things are starting to look up," she said. "General sales are still going down, but not as steeply."

    But she cautioned that there might not be enough money from the state next year to fund educational requirements. The state funds about 49 percent of the schools budget.

    "The council really wants to hear from the citizens," Whitesell said. "If we focus on today, we might miss the opportunity down the road."

    Spore, the city manager, also wants to hear from city employees.

    His office sent e-mails to all city employees entitled, "Budget challenges - What would you support?"

    The e-mail asks employees to rank suggested cost-cutting measures as their first-, second- or third-place choices.

    First scenario: employee layoffs/position cuts. Example: eliminating 60 positions would save $3.7 million.

    Second scenario: mandatory days off without pay (furlough). Example: 2.5 furlough days for entire workforce would save $3.7 million.

    Third scenario: 1 percent salary reduction for entire workforce would save $3.7 million.

    City employees can also specify other options in a box.

    Other cities, while they may be facing similar shortfalls, haven't yet voiced their budget woes. nib