Va. Beach, schools face $90 million budget deficit

VIRGINIA BEACH

The city and its school division are facing an estimated combined $90 million budget deficit for the next fiscal year, a gap created largely by falling real estate tax revenue and increases in health care and retirement program costs.

The expected shortfall for the fiscal year that starts July 2012 was unveiled at Tuesday's annual financial forecast meeting between the City Council and the School Board, a gathering that kicks off the budget season.

The city's share of the deficit - $41 million - comes despite increases in stormwater, sewage and water fees and a new $10 monthly trash fee that starts in January and, so far, no planned raises for city employees.

A predicted 5.5 percent drop in property assessments is expected to punch a $22.6 million hole in the two budgets, said Catheryn Whitesell, the city's director of management services. If that prediction holds true, it will be the third year in a row that property values fall. Tuesday's forecast called for real estate values to decline through 2015.

Among other factors, Virginia Retirement System costs are expected to climb $26.3 million, and health costs $16.1 million. And increasing debt service is biting off $6.5 million more on the city side.

"We've got some challenges, but I'll say we've had these challenges before, and we'll figure it out," Mayor Will Sessoms said.

Last year, the combined potential budget deficits were $19 million, and the year before they were $84 million. State law requires cities to pass balanced budgets.

Next year's total spending for both budgets is pegged at $1.78 billion, higher than this year's $1.74 billion.

The city could dip into its fund balance, or savings account, a tactic the City Council has used the past several years. There is $112.6 million in that account, and budget officials said up to $30 million could be used to help balance next year's budget. Proposed department cuts could slice the deficit by an additional $9 million, Whitesell said.

The school division's budget deficit is $49 million, which includes $15 million for 3 percent raises for employees. The division needs to give at least a 2.5 percent bump to match this year's salaries, which included a one-time bonus paid for with stimulus money, or employees will actually be paid less.

School Board Chairman Dan Edwards said it's difficult to know where the division will cut without knowing if or how the city will adjust the school funding formula. The schools get 51.3 percent and the city gets 48.7 percent of seven city tax revenue streams.

The funding formula has been a source of friction between the two bodies as revenues tighten in the sputtering economy. City Manager Jim Spore and Superintendent Jim Merrill, who were tasked with coming up with the recommendation, said Tuesday they need more time to work it out.

Edwards said the division faces the prospect of having fewer teachers and larger class sizes.

"We can keep doing that year after year, but at some point it becomes irresponsible," he said.

Pilot writer Mike Hixenbaugh contributed to this report.

Aaron Applegate, (757) 222-5122, aaron.applegate@pilotonline.com