Council holds first work session on FY23 budget

There are a lot of numbers involved in this next story so grab a pencil or open up a spreadsheet to follow along. 

There’s less than a month left before the Charlottesville City Council will adopt a budget for FY2023 and four days away before the first public hearing. The five elected officials began their detailed review of the budget. 

“We’re presenting a balanced  budget of $216,171,432,” said interim City Manager Michael C. Rogers. “This represents a 12.46 percent increase over 2022.”

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Technically, Rogers’ budget does include the ten cent increase in the property tax rate that Council agreed to advertise, but does not indicate how it should be spent. 

“In this budget we have presented unallocated those revenues so there is flexibility for you to decide how much of an increase will be required based upon your programmatic decisions,” Rogers said. 

That means the expenditures in the budget as introduced by Rogers are built on the current rate of 95 cents per $100 of assessed value. But Council’s review was built on the assumption that the rate will be increased to $1.05 per $100. 

The budget includes $9.2 million in unallocated funds derived from the 10 cent increase in the property tax rate. See page 34 of the PDF for the budget.

Budget staff estimate that would bring in $97,770,160, an increase of $17,492,718 over the revised budget for the current fiscal year. That would be due to both the proposed tax increase as well as an increase of over ten percent in property assessments. 

Krisy Hamilll, the senior budget management analyst, told Council that staff already believes tax collections in the current year will be $3 million over what was expected. The surplus for FY22 would be as much as $5 million higher because the tax increase is for the calendar year, not the fiscal year. And that’s not the only potential for revenues to come in higher than budgeted. 

“We continue to see increases and improvements in sales taxes and meals and lodging along those same lines,” Hammill said. “And it’s very likely as we continue through the month of March, we will have another month of those projects and we probably will be coming back to you with some amendments for the FY23 budget as well.”

Hammill said the additional money that would come from the tax increase have been left unallocated because there are still many scenarios for funding the construction costs to renovate Buford Middle School as part of an overall school reconfiguration. 

“There is still question about the construction and the funding options for that project,” Hammill said. “Additionally we know that the construction dollars themselves are not needed until [fiscal year] 2024.”

As you heard in the last segment, Councilor Michael Payne has called on the city to require the University of Virginia to pay a Payment in Lieu of Taxes, or PILOT. 

Currently Charlottesville utilities pay such a charge, budgeted at $6.27 million in FY23. These are included in city utility bills.

“It’s a payment as if the utilities were a private utility provider within the city,” said finance director Chris Cullinan. “It emulates the tax burden that they if they were a private corporation what they would owe the city. It’s an expense of the utilities, included in the utility rates, and it’s remitted to the city each year from the water, sewer, and natural gas utilities.” 

Now, onto expenditures. There is an across the board eight percent increase in salaries for city employees, building off of a two percent cost of living increase that went into effect on July 1, 2021 as well as an additional six percent increase granted to Council in late December that was paid for the surplus from fiscal year 2021. There’s another 3 percent cost of living adjustment scheduled for July 1, 2022. That’s a total of $5.2 million for salary increases for city employees. 

There are also seven new proposed employees, including a Freedom of Information Act coordinator for the city attorney’s officer, a new transportation planner, and a new building inspector. 

A slide from Hammill’s March 10, 2022 presentation

The budget also reflects changes to tax relief programs. 

“We’ve added nearly a million dollars in new funding for the tax, rent, and grant relief,” Hammill said. “We will be merging all the tax relief programs into one program. We will also be increasing the income threshold from $55,000 to $60,000.”

If the tax rate increase goes forward at the full rate of ten cents, Hammill said there will need to be an additional $500,000 spend on the program to cover the costs. 

How to pay for a $75 million renovation of Buford Middle School?

The biggest question about that tax increase relates to the funding of $75 million for school reconfiguration. The current draft budget recommends $2.5 million toward the project in FY23 and $72.5 million in FY24. Hammill said there are funding sources the School Board are suggesting.

“They also have additional [American Rescue Plan Act] federal dollars that they have offered up as a potential use to buy down some of the school-related projects in the [Capital Improvement Program] and that totals to about $7.5 million.”

That would leave Council needing to identify $65 million in revenue. A bill to allow Charlottesville to hold a referendum on a school-related one percent increase in the sales failed to make it out of a divided General Assembly. 

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“We’re sort of at a crossroads about next steps,” Hammill said. “I know that we started with a $50 million project, we got up to a $75 million project. I know there have been multiple construction options that have been presented with varying dollar amounts and additional questions. And so we need to figure out what next steps are so we can get to a decision factor for that amount.”

Charlottesville currently pays about $11.6 million in debt service on existing bonds for existing projects, according to Rogers. 

“We’ve looked at including the $75 million and bonding that, and that would have the effect of increasing debt service to $22 million [annually] over the course of the project,” Rogers said. 

The Council last year agreed to reallocate $18.25 million that had been allocated to the first two phases of West Main Street to the school reconfiguration project as well as $5 million from the parking garage. 

“And those were already built into our projections so that’s how we got from $50 million to $75 million,” Hammill said. “We still have the issue of how we’re going to pay for $50 million.” 

Councilors weigh in 

Councilor Brian Pinkston said he would like to see scenarios based on rate increases lower than ten cents. 

“My initial sort of assessment of the city as I have been getting to know it is that it still feels like its underfunded operationally and in terms of capital projects, based off what people in the community have made clear what they want,” Pinkston said. “Now, obviously it’s one thing to say we need these things and it’s another to fund it.”

Pinkston said a reduced scope for the reconfiguration could be found, such as delaying construction of an auditorium at Buford. He thought the project should be reduced to at least $65 million, including the school system’s ARPA money. 

In his day job, Pinkston is a project manager for facilities at the University of Virginia. 

Vice Mayor Juandiego Wage said he wanted the City Council to be able to pay as much toward the project as possible, and that the School Board’s option should be the one that moves forward. Wade spent 16 years on the School Board before becoming a Councilor.

“Brian has a unique insight because its his day job but I think we leave it to the School Board to determine which alternative to use,” Wade said. 

City Councilor Sena Magill said she was personally lobbying for more funds at the federal level to avoid bonding the project which would mean local taxpayers would pay for most of the tab.

“I’ve actually got appointments with people in D.C. next week to talk about how to try to get Build Back Better money for this project,” Magill said. “I am using every single connection I can build, find, or not burn to find money for this project.”

The Build Back Better Act is an infrastructure spending bill that passed the U.S House of Representatives on a 220 to 213 vote, but is not likely to pass the Senate. 

Councilor Michael Payne said he was struggling with the numbers and the message from city budget staff that the debt service for the school would mean no new capital projects for several years. 

“Our draft budget, where it is, if you’re talking about a ten cent real estate tax increase and freezing our budget for several years, taking all politics aside, is that good public policy?” Payne asked. “To me it seems like it is just not.” 

Payne said the city needs to be able to have the flexibility to further increase wages, fund firefighter positions that are currently covered by a federal grant, funding for further subsidized housing to be built by the Piedmont Housing Alliance project, and more.

Payne also suggested continuing to pursue a PILOT with the University of Virginia, implementing a plastic bag tax, and lobbying the General Assembly again for the sales tax referendum  

Mayor Lloyd Snook suggested for this year leaving some tax rates the same. 

“Why don’t we simply leave personal property tax rates where they are,” Snook said. “Let’s leave real estate estate taxes where they are, leave personal property tax rates where they are. I as a general proposition am not a fan of trying to change the tax rate based on whether the underlying values have gone up or down by a commensurate amount.” 

Snook also suggested increasing the meals tax by an additional half of a percentage point. 

“Those two sources would give us $3 million,  roughly,” Snook said. 

Pinkston agreed with leaving the personal property tax rate the same, as well as the half-percent increase on the meals tax. 

Payne said he would be open to both. Wade said he would support keeping the personal property tax rate the same, but keeping the meals tax the same. 

Commissioner of Revenue Todd Divers said leaving the rate at $4.20 of assessed value would likely yield $2 million this year in additional revenue due to the sharp increase in the value of used vehicles. 

“I can tell you some of these bills are going to curl people’s hair and so you need to be ready for that,” Divers said. 

Council directed staff to advertise the half-percent increase in the meals tax. Snook said he wants to hear from the public about how to proceed. 

“Get that advertisement in and get the public hearing on it held and let’s hear from the public and let them weigh in,” Snook said. “If they’ve got thoughts that they would rather see their personal property tax go up rather than real estate taxes. Obviously some of these are issues that they’ve elected to deal with.” 

Councilor Magill made clear she wants property owners to pay more this year in order to build up the capacity to pay for debt service.  

“I am interested in raising our [real estate] property tax one or two cents this year,” Magill said. 

Pinkston was in agreement. 

“My sort of sense is two cents this year, two cents next and sort of spread it out,” Pinkston said. 

The next work session is tonight and will be on funding for outside agencies. There will be another work session on the Capital Improvement Program on March 31. There is a public hearing on the real property tax rate on March 21 followed by one on April 4 on the meals tax increase and the budget. 

Before you go: The time to write and research of this article is covered by paid subscribers to Charlottesville Community Engagement. In fact, this particular installment comes from the March 17, 2022 edition of the program. To ensure this research can be sustained, please consider becoming a paid subscriber or contributing monthly through Patreon.

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