Long Term Revenue & Expenditure Planning & Forecasts

At the beginning of each budget process, City staff develops a five-year projection of revenues and expenditures. This is a planning document to help Council make more informed decisions in more than a single year timeframe and to consider the long-term outlook when making budget and policy decisions. Five-year operational forecasts for the City of Charlottesville typically show a gap in which projected expenditures exceed projected revenues. This gap is a result of assumptions that revenue policies stay unchanged or are continued on a trajectory known at the time of the forecast, and that operational costs reflect ongoing and continuing programs and services. Through careful policy analysis of tax and fee rates, financial policies, departmental cost cutting measures, and program changes or reductions, this projected gap is closed during each budget cycle to arrive at a balanced budget.

FY 24 is showing a revenue increase over FY 23 which is largely attributed to a general property value reassessment increase of more than 12% which equates to a $9.9 million or 11.08% revenue increase for real estate tax revenue. Additionally, other major revenue drivers such as meals tax, lodging tax, sales tax and business and professional licenses continue to reflect increases. Overall, the FY 24 budget is increasing $13.3 million or 6.27% over FY 23.

In future years, City Council will need to carefully address revenue policies such as tax rates and debt limits, coupled with adjustments in capital spending as it continues to address its funding priorities related to its five-year spending plan. City departments will need to continue to look for efficiencies to find ways to reduce costs and/or find additional sources of revenue to mitigate the forecasted gap shown for each year.

The chart below illustrates projected revenues and expenditures from FY 24 to FY 28 in the General Fund.

FY 2024 - 2028 Revenue Projections

These revenue sources comprise approximately 78.9% of the General Fund budget in FY 24. Even though there has been consistent growth in these revenue sources in recent years, staff anticipates a slowdown in the rate of growth for several of these sources for future years:

Real Estate Tax: Real Estate assessments have increased in each of the last five assessment cycles, and the tax revenue is anticipated to increase by 11.08% for FY 24.

City/County Revenue Sharing: In FY 24 this will increase by $170,513 over FY 23, which is reflective of the difference in the growth rate of City real estate assessments and County real estate assessments. Future projections show moderate increases for FY 25 – FY 28, based on estimates of total value of assessments in the County as compared to those in the City. There are several other variables that impact the formula which do not guarantee the projected increases.

Meals Tax: Trends continue to project strong performance for this revenue. The FY 24 budget projections are showing a 10.8% increase from the FY 23 adopted budget projections.

Sales and Use Tax: Growth in this revenue has been positive the past few years. Continued growth is expected in FY 24 with an increase of 3.60% or $500,000 over the FY 23 revised budget. Growth in future years projects at 1% a year.

Personal Property Tax: FY 24 Personal Property Tax revenue is budgeted to increase $600,000 or 5.00% over FY 23. While the state provides some relief to individual taxpayers through a block grant, the relief percentage received by each taxpayer will not offset the expected valuation increases. Future years assume a return to normal and a modest annual growth of 2%.

Business License Tax: This tax can be volatile in nature and changes to gross receipts from a small number of taxpayers can significantly impact the amount of revenue collected. Projections for future years assume an 2% annual growth rate.

Transient Occupancy Tax: The lodging tax revenue continues to be stable. Changes relating to intermediate host payments is contributing to the increase projected for FY 24. Future years are projected at 2% a year.

Utility Tax: The revenue source, which includes utility taxes collected from City's gas and water operations and consumer utility tax for electric services, is trending to increase at 2.0% per year in FY25 – FY 28. This is driven most notably by weather and therefore, mild weather means the City collects less revenue.

FY 2024 - FY 2028 Expenditure Projections

These expenditure categories comprise approximately 86.1% of the General Fund budget in FY 24:

Local Contribution to Schools: The Budget Guidelines state that the schools receive a target amount that equates to 40% of new real estate and personal property tax revenue. The FY 24 Budget reflects a 6.62% increase over FY 23.

Employee Salaries and Benefits: This is the total budget for employee salaries and benefits (which includes retirement, FICA, and life insurance). The figure also includes any cost-of-living increase provided, which is determined each budget year. In future years, this figure is expected to be higher than general cost of living increases due to continuing adjustments being made for compression, position reclassifications, and the addition of new positions. In FY 23 the City is working on a comprehensive class and compensation study and City Council approved an ordinance to allow collective bargaining. The projections do not yet reflect any findings and changes that may come because of the study or collective bargaining contracts.

Health Care: This is the total budget for the General Fund contribution to the City’s Health Care Fund. Funding is budgeted based on projections that reflect the expected cost burden for claims and administrative costs using experience data.

Outside and Nonprofit Agency Funding: Includes all contributions to outside agencies in the categories of: Community events and festivals; Children, Youth and Family Oriented Programs; Education and the Arts; Public Safety Agencies; Transportation; Organizational Memberships and Workforce Development Agencies. While funding for Vibrant Communities Fund agencies is somewhat discretionary, the City has several contracts in place with agencies such as the Regional Jail, Juvenile Detention Center, Emergency Communications Center, and Jefferson Madison Regional Library. The funding costs for these contractual agencies generally increase over time, as costs of services increase and as we see shifts in the behavior and demographic of the area.

Transfer to Debt Service: These are funds required to pay off the City's long-term debt and is based on the 5-year Capital Improvement Program balanced with the City's debt service policy. The budget for FY 24 reflects the required transfer from the General Fund to fund the capital budget and corresponding debt that the City currently plans to issue. The projections for future years do not fully account for the increases that will be necessary if the School Reconfiguration project is fully funded by debt. Further discussions and decisions from Council on the reconfiguration project may impact the projections for future years.

Transfer to Capital Improvement Program: This represents the five-year CIP. These contributions should keep the City in compliance with the Budget Guideline to transfer at least 3% of general fund expenditures to the Capital Improvement Program Fund.

Fund Balance Target Adjustment: This pool of funds provides the City with a cushion at the end of a fiscal year to help us achieve the fund balance policy of 17%. The budgeted figure is needed to ensure the policy is met and is projected to increase in future years as the budget increases.