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City says budget process proceeding normally

Despite fervor about an expected budget gap and a potential real estate tax increase, Charlottesville officials say the budget process is proceeding normally.

During a flurry of announcements about the city’s annual reassessment, a budget gap, requests from the school division and a surplus from last year’s budget, many community members have questioned why the city can’t fund all the initiatives wanted this year.

“People forget that we have several meetings to lead up to get to this point,” Councilor Heather Hill said, emphasizing that City Manager Tarron Richardson hasn’t yet presented his proposed budget.

Richardson’s proposal is expected to be released later this month.

“These are just preliminary conversations to get a gauge of council to see what we’re in favor of,” Hill said.

City officials presented preliminary revenue and expenditure details earlier this month and are considering spending $202.7 million for fiscal year 2021, which starts July 1.

The city advertised a two-cent increase in the real estate tax — the first since 1981 — to give more flexibility for crafting the spending plan.

The advertisement also came with a public notice in The Daily Progress about an effective real estate tax increase due to the annual reassessment.

The city announced last month that Charlottesville’s 15,138 taxable properties saw a 7.2% average increase in assessed value. Nearly three-quarters of residential properties saw their tax value increase.

Because values increased by more than 1%, the reassessment resulted in an effective tax increase, which means bills would rise even if the real estate rate remained steady at its current 95 cents per $100 of assessed value.

According to Progress archives, the 2014 reassessment was the first to result in an effective tax increase since 2009.

To avoid an effective increase this year, the tax rate would need to be lowered to 89 cents per $100 of assessed value.

The rate hasn’t been lowered since the Great Recession began.

Rising assessments are expected to contribute an extra $5 million to the city’s coffers this year, but despite a rise in revenues, officials were not able to meet departmental budget requests for fiscal year 2021.

Fulfilling some of the many requests would create a budget gap of $7.5 million, officials said, and the city is required to present a balanced budget under state law.

The city has stressed that no department will receive less funding than it is in the current fiscal year, and after revisions to revenue estimates, the gap was closer to $6.1 million, which is largely in line with budget development from the past six budgets.

“There’s always going to be some kind of gap,” Hill said. “I think this is a pretty natural progression that we go through.”

Some have suggested that the annual budget surplus could be used to cover the gap in expenditures, but that isn’t best practice. Richardson has emphasized that while a surplus may be likely for the upcoming year, the amount can never be guaranteed and therefore cannot be a reliable spending measure for operating expenses.

For example, since fiscal year 2010, the annual surplus has varied from $2.9 million to $8.9 million.

The surplus from fiscal year 2019, which ended June 30, was $5.8 million. That’s the third-largest surplus the city has seen in the past 10 budgets, according to city documents.

The surplus is typically used for one-time expenditures or to prepare for upcoming increases in contributions to the retirement fund. This year’s surplus went toward affordable housing efforts, the police Civilian Review Board, retirement funds, a salary study and rescue squad equipment.

Also, each year since 1998, a portion of the surplus has gone to the school division through a gainsharing agreement.

According to city documents, the agreement mandates that $100,000 goes to school capital improvement project, $100,000 is retained in the school division general fund and then a formula determines how much extra money goes to the division as a lump sum.

The school division itself has a large impact on the proposed budget; under an agreement with the city, the division automatically gets 40% of new real estate and personal property tax revenues, which it uses to craft a budget in addition to state and federal funding.

This year, the school division started out planning to ask for $61.5 million from the city — a $4.5 million increase from the previous year. The number has since been cut to a $3.8 million increase.

Last year’s initial request for a $3.8 million increase was the most in a decade.

The city has consistently paid more than the formula requires since at least fiscal year 2012, with the only exception being fiscal 2018, when the real estate reassessment led to a larger-than-expected increase in revenues.

Since fiscal 2012, the city has provided schools an average increase in funding of $644,000 above the amount required under the agreement.

The city and school division budgets will be presented to the City Council on March 2. Public hearings are planned for March 16 and April 6, with final approval planned for April 14.

Hill reassured city residents that, “I overall think this is a pretty normal process.”


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