Norfolk's best-case scenario: an $18.6 million shortfall

NORFOLK

The City Council was warned Tuesday that for the first time in recent years, rising gas prices and other costs coupled with the real estate decline threaten to blow a hole in next year's budget.

An $18.6 million hole - and that number will probably grow.

Based on economic forecasts, if the city does not give employees raises, start new programs or fund new projects, it will need to find another $18.6 million beginning July 1 to balance the budget, Assistant City Manager Marcus Jones said.

However, City Manager Regina V.K. Williams said that no raises and no new programs is unrealistic. By law, the city must approve a balanced budget in May.

"It's like starting a football game 18 points down," Vice Mayor Anthony L. Burfoot said.

Jones said tax revenues are not increasing as fast as anticipated and fixed costs are rising more quickly than in recent years. For instance, annual payments on long-term projects financed by debt will increase by $17 million, to $88.5 million, on July 1.

Mayor Paul Fraim said he is concerned the numbers will get worse if the economy continues to decline. "We're going to have to stay very flexible and very watchful," he said.

Burfoot said the council "created this situation" last year by reducing the real estate tax by 16 cents, to $1.11 of $100 of assessed value, while continuing to spend money on big projects.

The tax-rate reduction cost the city about $25 million in revenue. The city continued with projects such as a $49 million convention center, a $7.5 million makeover of Town Point Park and a courthouse complex expected to cost more than $100 million.

"I knew with the deep cut we made last year, we were going to be in some trouble," Burfoot said.

Norfolk Tea Party 2, a residents group that led the effort to reduce real estate taxes last year, is expected to call for another reduction this year.

The council was told that, beginning July 1, assessments for residents and businesses will increase about 3 percent, but those assessments will be based on sales figures ending last July 1.

Councilman Barclay C. Winn said housing prices are falling in Norfolk but won't be reflected in assessments for 18 months.

"I believe some people are going to be assessed for more than their homes are worth, and that's not right," he said.

Councilman W. Randy Wright, who helped form Tea Party 2, said the numbers he heard do not concern him yet. "I'm glad we're getting an early opportunity to absorb this," he said. "But about 10 years ago, we had to close a $22 million budget deficit and in real dollars. That was a lot more than we're dealing with now.

"We did it without raising revenues, gave raises and ran the city. We're just going to have the sharpen the pencils and tighten the belt."

Williams said she will present her budget to the council on April 8. The council will hold two public hearings and three work sessions before voting on the budget May 13.

Harry Minium, (757) 446-2371, harry.minium@pilotonline.com