Virginia Beach is working through one of the “most challenging” years for the budget in recent history: City staff are trying to close a $7 million deficit in the general fund and find room for $1.1 billion in additional funding requests in the capital improvement plan — without raising real estate taxes.
The budget proposal is due in March and the city council will consider it and make changes before voting in May. Last year’s budget was about $2.6 billion.
“Right now it’s a piece of clay and the city manager’s going to hand it to us and we’re going to do the final shaping on it,” Mayor Bobby Dyer said to council Tuesday.
“This is, in my 20 years here, probably the most challenging budget that we’ve had.”
Recent discussions at a council retreat and meetings reveal where the budget is headed.
The difficulty comes from a crossroads of factors, said Kevin Chatellier, director of budget and management services for the city.
Inflation caused construction bids for several projects, including work on roadways, to come in higher than estimated, often by several million dollars. At the same time, the growth rate in tax revenue has plateaued after bouncing back from the pandemic in 2020 and 2021.
“We have to have a balanced budget by state code,” Chatellier said. “So there are only a couple ways of doing that: either adjusting revenues to provide services or reducing services to live within the revenues.”
Budget staff are working to balance the $7 million deficit, which Chatellier brought up at a five-year economic forecast meeting in November.
City leaders don’t want to raise the real estate tax rate to bring in more money. Virginia Beach has the lowest in Hampton Roads at 97 cents per $100 of assessed value but council members have nevertheless noted that real estate tax has become burdensome for residents as assessment values have gone up. Residents make up 75% of that tax base with businesses making up the rest.
Real estate tax is far and away the city’s largest revenue source, predicted to generate $781 million in 2025.
There’s also the capital improvement plan. It’s a $5.4 billion plan for facilities and infrastructure improvements spread over six years. It plays a significant role in shaping the city’s annual budget as it pays for projects allocated to each year of the plan.
“There’s going to have to be a conversation on additional revenues needed if we’re keeping the CIP intact,” City Manager Patrick Duhaney said at last week’s council retreat, which was dedicated to discussing the plan.
At the retreat, Chatellier presented an additional $1.1 billion in funding requests not currently included in the $5.4 billion figure.
Many of those requests come from the rising costs of completing existing projects.
Other funding requests are from new ones. For example, Councilmember Michael Berlucchi got the phrase “We needa LETA” to catch on at the council retreat, referencing the need to replace the aging Law Enforcement Training Academy, which is based in a repurposed elementary school.
With council not wanting to raise the real estate tax rate, staff has a few other tools for balancing the budget.
At the retreat, the council explored delaying or deferring lower-priority projects. That would spread costs over more years. The council also talked about using funds for purposes other than what they were originally set aside for.
“We’re working on it,” Chatellier said. “Whenever the proposed budget comes out, it’ll be a balanced, sustainable approach for the city council to take and make theirs.”
The mayor was optimistic after last week’s retreat, saying the city has to “improvise, adapt and overcome.”
“I really think we have the capacity to confront this,” Dyer said.
