Charlottesville’s appointed officials sought fiscal clarity from Charlottesville’s elected officials during a budget work session on November 12 that sought to gauge Council’s willingness to seek additional revenues to pay for major projects. John Blair is the interim city manager.
“As you all know there are a number of large scale capital projects that have been talked about in various iterations through the past few years but what I’ve asked our budget team is to provide you with some numbers that are going to demonstrate using your debt capacity for various projects,” Blair said.
Blair said that the city is close to its debt capacity and more projects will likely require tax increases, but he said that topic was not directly before them. Blair’s budget for FY2022 will not be unveiled until March. It will also be the first to be prepared under this Council.
“Obviously I think a number of you have interest in various capital needs whether it be affordable housing, education, infrastructure,” Blair said. He also said this would send a message to would-be city managers about the kind of city this Council wants it to be.
For now, the budget is in the very early stages of formation because exact revenues aren’t yet known. Budget staff needed to know Council’s thoughts on whether to change a key policy to increase the amount of bonds that could be sold to pay for capital projects. Doing so will increase the amount the city needs to spend on debt service to pay back those who buy those bonds for a steady return.
We have been in fiscal year 2021 since July 1, and a decision was made by Council earlier this year to continue with $25.8 million of projects in the capital budget, and they signaled support for a total five-year plan of $124.1 million.
“We were going to fund $84 million of this five year plan with bonds, and if you recall, due to COVID, just about all of the cash that was originally intended to go to the CIP was held in a reserve with the general fund to offset any of the unknowns,” said Krissy Hammill, Senior Budget and Management Analyst for the city of Charlottesville.
Practice has been to use a mixture of cash and bonds to pay for capital projects and since 2010, the average has been 37 percent in cash. For this year’s capital budget, 93 percent will be paid for through bonds. Currently the city has about $90 million in government debt, $80 million of which is for bonds that have been approved for projects but not yet issued.
“That means that we typically issue bonds on a cash-needed basis so we don’t issue the bonds until the project is either imminent or underway because we do have spending requirements that once we issue the bonds we typically need to spend that money within 24 months,” Hammill said.
Hammill said the city has been building up a fund balance to help reduce the amount of cash that needs to go to debt service each year. But at some point, the city will need additional cash from property taxes to make up the difference. Hammill showed a hypothetical situation where $32 million in new bonds are floated each year through FY2027. That would increase the debt service steadily over time, from $11 million in FY2022 to $19.2 million by FY2026.
“You’ve basically built in the need for a penny of additional revenue, that’s equivalent to basically a penny a year,” Hammill said, adding that in further years, the need for additional revenues would continue to grow.
To put it colloquially, Hammill effectively stated that the city can float an additional $52 million in bonds without maxing out the credit card. Potential projects include additional spending at the future parking garage, reconfiguration of city schools and continued investments in affordable housing.
After a long discussion about debt financing and how much additional capacity can be found, Council then began discussing potential projects. The first was whether a $10 million project to build a new municipal parking garage could be altered to provide more building height.
In a ten-page white paper dated October 14, Economic Development Director Chris Engel lays out the current plans.
“The City has plans to construct a parking structure on a one-acre assemblage of property it owns at the intersection of Market Street and 7th Street,” Engel wrote. “A conceptual design study indicates that a four level structure of approximately 300 parking spaces and 12,000 square feet of street front commercial space is feasible on the site and such a structure is permissible by-right within the City’s current zoning ordinance.”
Engel also included a contingency of an estimated $5 million to build a stronger foundation and employ other measures to ensure the taller building would be structurally sound.
At the November 12 work session, Engel said the project will be built using a design-build contract, which means one firm will be asked to do both tasks. A request for qualifications is expected to go out this month, followed by a request for proposals early next year.
“When we go through the process of seeking a design-build contractor, their proposals will have those types of details that we can compare one to another and that’s when the city chooses the best respondent and gets into a contract with them to actually build it,” Engel said.
The city has never pursued a project through a design-build project before. Engel explained this project is not a public-private partnership in part because of a bad experience within the last decade when a project to develop a city-owned parking lot fell apart.
“[West 2nd] started as a design competition really and then lead to a development agreement,” Engel said. “The path that we are on now is not that. The path that we are on now is that this is a city-owned facility. We build it with our money and we own it and we control it. That’s in part to eliminate risk and that’s done in part to honor the agreement with [Albemarle] county and best control those parking spaces so that they have confidence. Entering into a third-party agreement complicates that a little further.”
In the case of West 2nd, the city asked private developers to submit proposals to redevelop the City Market lot with a mixed-use building and space for the market.
“We spent four years and we ultimately got to a point where the project did not proceed from there,” Engel said.
Engel said the parking garage is expected to be operational in three years.
Councilor Heather Hill said she remembered when these questions were asked two years ago.
“It just seemed like it wasn’t a feasible option to go that route and invite a partner given the significant cost between what we’re proposing here and how much additional it would cost to do more than what we’re proposing,” Hill said.
Councilor Lloyd Snook asked how much delay there would be if Council decided to go on a different path.
“If we said, okay, the courts aren’t actually going to be built until 2025 and we’ve got sort of a slow-down in parking needs at the moment because of COVID and working at home and all the rest of that stuff, and some of that is going to maybe happen for the next couple of years, maybe we don’t need desperately need to get things done by 2023, maybe we work something out with the county to say, okay 2024 is fine. These are all just hypothetical here.”
Engel said it would be hard to predict the delay but again repeated that negotiations would likely take six months to a year.
Councilor Michael Payne asked if the city could just provide the required spaces for the county at the Market Street parking garage.
“When we’re looking at our CIP budget we’re going to have to, there’s no way around trying to revisit past decisions and figure out what to prioritize and re-adjust,” Payne said.
Another question before Council was whether the city should invest in improvements to make the Dogwood Vietnam Memorial in McIntire Park more accessible. Staff had recommended working on a way to build a parking lot closer to the memorial to replace the one removed for the skate park. Council did not reach consensus on how to proceed.
Council needs more info to provide direction
Council was asked to come up with priorities to help the budget staff develop a preliminary CIP budget.
“Without cutting something out, we are anticipating the need for tax increases,” Hammill said. “Not this year necessarily, but soon in the future.”
The city’s property tax rate has been $0.95 per $100 of assessed value since 2008.
One of the big questions is this Council’s willingness to proceed with school reconfiguration.
Hammill said $3 million was allocated to the school reconfiguration in FY20 to help with design. According to that budget, the purpose is for “architecture and engineering services and [to] determine preliminary designs and costs.”
Councilor Lloyd Snook said he was not sure how much direction he could give at this time.
“As a general proposition it’s hard for me to think of anything that’s more important that we do than educate our kids and we ought to be allocating significant resources to educating our kids but whether significant resources means $60 million over six years or $3 million next year and we’ll see or anywhere in between, I don’t know how to answer that question,” Snook said.
The West Main Streetscape has $18.5 million in approved funding, but the bonds have not yet been issued. Hammill said staff would be asking for another $8 million to complete the financing for the West Main project.
A value engineering study to bring the cost of the West Main Streetscape down is not ready. That project currently has a total cost estimate of $49 million though some of the four phases have been funded by the Virginia Department of Transportation. Council had a work session on this topic on September 30 and are expecting a report from RK&K about how adjustments can be made to save money.
Mayor Nikuyah Walker said she couldn’t make a decision until that information was ready.
As the budget work session came to a close, Councilors said they needed more time before making decisions on specific items. But let’s hear from three of them.
“There is no way that we’re getting out of this without cutting things that we all care about tremendously,” said Vice Mayor Sena Magill.
“This has to be put out to the community and they’re going to have lead that conversation with us given the scale of this investment and what it could mean to taxpayers,” said Councilor Heather Hill.
“I echo Councilor Magill’s point that I think that as well as in the context of COVID which is creating greater uncertainty for us in terms of our revenues could be worse than what we’re thinking, the composition of the Senate at the federal level should make us contemplate the reality that there will not be additional support coming from the federal government to bolster state and local governments,” Payne said. “Even if we assume tax increases, if we’re just taking an honest look at it, I think our only path forward is to look at some of our previously committed expenditures and evaluate what the trade-offs are and make cuts.”
Council will have another work session on the budget this Friday beginning at 1 p.m. Before that, they will have provided direction on whether to proceed with additional local spending for traffic calming efforts on 5th Street at their meeting on November 16.