City Manager's Budget Message

Office of the City Manager

P.O. Box 911 * Charlottesville, Virginia * 22902

Telephone: (434) 970-3101

www.charlottesville.gov

March 6, 2023

Mayor and Members of City Council

City Hall

Charlottesville, VA 22902

Dear Mayor and Council:

Honorable Lloyd Snook, Esq., Mayor

Honorable Juandiego Wade, Vice Mayor

Honorable Michael Payne, Council Member

Honorable Brian Pinkston, Council Member

Honorable Leah Puryear, Council Member

Dear Mayor Snook and Members of City Council:

In accordance with Section 19 of the City Charter, I am pleased to present to the Charlottesville City Council a proposed budget for the fiscal year beginning July 1, 2023. The adopted General Fund revenue and expenditure estimates both total $226,239,155, which represents a 6.27% increase from the FY 2023 Budget and is balanced.

I am pleased to continue my work with the City staff on the development of a budget that continues to align with recognized City Council priorities and community expectations. There are many positive economic factors that point to continued growth for Charlottesville. As of December 2022, the City’s unemployment rate was 2.4% as compared to 3.0% in Virginia and 3.5% in the nation. The citywide retail vacancy rate is at 4.68% while the downtown area is at 4.21% as of January 2023. The 2023 real estate assessments saw an increase of 12.33% and revenues from sales, meals and lodging tax collections continue to perform strongly. Sales tax is up 3.6%; meals and lodging tax are up 6.57% and 5.71% respectively.

As you may know, the Budget is a financial spending plan for the City government, within a one-year span of time (“fiscal year”). The City’s Charter requires a balanced budget (i.e., the total proposed General Fund expenditures—including capital expenditures—cannot exceed the total estimated general fund income for the ensuing fiscal year). Council must not only approve a budget for each fiscal year, Council must formally “appropriate” City revenues to be expended in accordance with the Budget. Also specified in Section 19 of the City Charter, City Council must act by approving an Annual Appropriation Ordinance. Local taxes must be levied in an amount necessary to meet the appropriation.

The City Manager’s Proposed Budget for Fiscal Year 2024 Budget is balanced and maintains the current real estate tax rate of $0.96/$100. Additionally, there are no other tax increases being recommended.

News of a balanced budget using existing tax revenues and positive economic indicators are all good news for our City. However, management and City Council will continue to be faced with budgetary challenges and our needs and priorities will always exceed the revenue to support everything that we wish to accomplish. However, since the pandemic, the City, like many other local governments has been fortunate to have received a significant amount of one-time funds that it has been able to use to provide substantial investment in the key services for our community. Since July 1, 2022, City Council has appropriated $37.7M of one-time funds from the American Rescue Plan (ARP) and FY 22 year end surplus. The $37.7M has been invested in several categories:

Capital Improvements.........................$10.1M

Prior Year Financial Commitments.......$ 6.7M

Community Needs/Resources.............$ 6.6M

Organizational Needs/Resources........$ 6.1M

Transit...............................................$ 3.0M

Economic Development......................$ 1.8M

Unprogrammed..................................$ 3.4M

Some examples of specific investments in each category include:

• Capital Improvements $10.1M – Meadowcreek Trail, additional funds for Safe Routes to Schools, Downtown Mall improvements, emergency generator for City shelter, Equipment Replacement Fund, Facilities Repair Fund, transfer to Capital Improvement Contingency Fund
• Prior Year Financial Commitments $6.7M – SAFER grant match for 15 additional firefighters, funds for additional debt service for Buford reconfiguration project.
• Community Needs/Resources $6.6M – Pathways Funds, language access pilot program, land for affordable housing, emergency shelter operations at Premier Circle, Human Rights Commission staffing, affordable housing and homeless services, community health initiatives.
• Organizational Needs/Resources $6.1M – Software upgrades/replacement, class and compensation study one time uses, fuel price volatility, City Hall Ambassadors, support for Human Resources Department, public safety retention bonuses.
• Transit $3.0M – Additional buses for Route 6 equity initiative, additional funding for 30 minute headway on routes.
• Economic Development $1.8M – CACVB funding, BEACON kitchen, community arts and festivals fund.

The $37.7M of investments is the equivalent of 16.7% of the proposed FY 24 General Fund budget. The use of these funds and this proposed budget continue to represent significant investiment in the priorities that Council has set while also ensuring that key services continue to meet the expectations of the community.

Balancing the Budget

City departments submitted a total of $105.3 million in base budget requests for FY 24, which was 6.7% greater than FY 23 adopted departmental budgets. Departments were not given any restrictions on their submissions this year. $6.1 million in new requests were submitted by departments. $2.5 million of the new requests were added to the budget for FY 24 including funds for 10 new full-time positions that will help fill critical needs in key areas throughout the organization including Fire, Equity and Inclusion, and Human Resources.

Revenue Projections

• Real Estate Taxes- this budget keeps the City’s Real Estate Tax rate at 96 cents per 100 dollars of assessed value. The revenue increase for real estate, based on the current rate of 96 cents per 100 dollars assessed value, is $9.9 million in new revenue over FY 23.
• Meals Tax – This budget keeps the meals tax rate at 6.5%. The Meals Tax revenue collections have continue to show growth and is projected to produce $17.7 million representing $1.1 million in new revenue for FY 24.
• Lodging Tax – This budget keeps the lodging tax rate at 8%. This revenue continues its growth trend as it recovers from the pandemic. For FY 24, projections indicate that this revenue source will grow by $400,000 to a total of $7.4 million.
• Sales and Use Tax continues to rebound and is projected to exceed the FY 2023 adopted budget by $500,000 or 3.6%

Other Revenues

• Personal Property Tax revenue is budgeted to increase by $500,000 or 4.17% as the unusually high valuations for motor vehicles continue.
• Business Licenses Taxes revenue is projected to remain level in FY 24. In FY 23, this tax revenue saw a large spike as business were recovering from the pandemic but that type of growth is not anticipated for this budget year.
• City/County Revenue Sharing is increasing by $170,513 from FY 2023. The formula is based in part on the total real estate assessments of both localities.

Major Operational and Capital Expenditure Priorities

The FY 2024 Proposed Budget takes steps that preserves high quality City services, adds to or enhances the services the City is already providing, all the while considering long term sustainability and efficiencies. There is also strong alignment with the City’s Strategic Plan as evidenced by the Goal icons seen throughout the budget document.

Strategic Plan Priority Areas

Affordable Housing

• This budget includes $8.4M in FY 2024, and over $34 million in the five year capital program for several affordable housing initiatives, including redevelopment of public housing sites, housing rehabilitation, supplemental rental assistance, Friendship Court redevelopment, and the MACAA and Park Street apartment projects.
• $1.4 million is budgeted for the Charlottesville Housing Assistance Program (CHAP) and an additional $1.3 million is budgeted for the elderly and disabled tax and rent relief programs.
• Funding for a new Homelessness Coordinator position is provided. This position will help track and advance efforts to address homelessness.

Race and Equity

• Provides additional funding to add a new position to the Office of Equity and Inclusion. The new REDI Coordinator will help advance citywide REDI initiatives.

Workforce Development and Economic Development

• The FY 2024 Proposed Budget continues to invest in the various programs that support both of these priorities, including the Downtown Job Center, Growing Opportunities (GO) workforce development programs, and work done by staff to encourage entrepreneurship, maintain healthy businesses and assist with pandemic recovery.

Safety, Security and Preparedness

• $514,074 in new funding is provided to create 6 new firefighter positions within the Charlottesville Fire Department. The analysis from the Master Plan Study indicated the need for a relief factor of 3.4 to ensure adequate staffing service delivery. Currently, the department does not meet the recommended staffing levels. Having sufficient personnel reduces the need for overtime to maintain minimum staffing to support our emergency response plan. For the last five years, the department has used nearly a million dollars annually to maintain the necessary staffing to keep fire and EMS units in service. Having sufficient personnel reduces the need for overtime to maintain minimum staffing.
• $499,143 is budgeted to create the City’s first Office of Emergency Management. The budget includes 2 FTEs – an Emergency Coordinator and the Physical Security Specialist which was previously housed in the City Police Department.
• This budget continues funding for the Police Civilian Oversight Board to provide an objective and independent civilian-led oversight of the Charlottesville Police Department.

Other Budget Priorities

Compensation and Benefits

• This budget maintains the City’s commitment to the living wage which will remain at $15.00 an hour.
• The budget includes a 6% cost of living (COLA) increase for employees.
• A 3% COLA is also funded for retirees
• The Health Care Fund continues strong performance and no changes or premium increases to employee health care are included. However, the City is contributing an additional $437,000 to offset the increased plan costs for FY 24.
• The gyms subsidy program and all other benefit programs remain funded for FY 2024.

Collective Bargaining

As you know Council passed our first Collective Bargaining Ordinance last fall that authorized the designation of three employee unions upon the effective date of January 1, 2023. The ordinance authorized the selection of a Labor Relations administrator to establish and administer the administrative framework of the ordinance. The Labor Relations administrator has been selected and will issue the procedures for employee organization recognition. It is expected that the first round of bargaining will begin in May and will continue for the first contract past the July1 beginning of FY 24. Once collective bargaining agreement is reached the cost associated will either be funded with FY 23 surplus in December or in FY 25 beginning July 1,2024 .

City Schools

Per Va. Code §§ 22.1-94 and 22.1-115 the amount appropriated for public schools may be a specified total [bottom line] amount, or Council may elect to segregate its school appropriation into the following major classifications: (i) instruction, (ii) administration, (iii) pupil transportation, (iv) operation and maintenance, (v) school food services and other noninstructional operations, (vi) facilities, (vii) debt and fund transfers, (viii) technology, and (ix) contingency reserves. Over the years, Council has always elected to appropriate a specified total [bottom line] amount to the schools during the annual budget process.

• This budget continues a very strong commitment to the City Schools. This proposed budget fully funds the School Board’s operating request of $67.1 million.
• Through the City’s Capital Improvement Program (CIP), the FY 24 budget provides $76.8 million in funding to continue the $1.25 million a year in an unallocated fund that the schools can use for priority capital improvement initiatives of their choice, $541,060 for the CHS roof replacement, over $2.1 million for general capital improvement dollars and HVAC replacement and $72.8 million dollars is provided to fully fund the Buford Reconfiguration project. A total of $97.7 million is allocated in the 5-year CIP for school related projects.

General Fund Transfers to Debt Service and Capital Improvement Program (CIP)

• The General Fund contribution to the Debt Service Fund is increasing by $325,982. An amount equivalent to $0.01 of the total meals tax revenue is allocated to debt service to support the five year CIP and to keep the City within its debt limit policies.
• The City’s cash contribution from the General Fund to the CIP is $7.5 million in FY 2024 $6.9 million in cash held in the CIP contingency account which was previously funded by year-end surpluses is also programmed to be spent in FY 24. Per the City’s financial policy, 3% of total General Fund is used to fund the cash portion of the CIP.

Outside and Nonprofit Agencies

• For FY 24, the Vibrant Community Fund (VCF) process adopted 4 broad funding priority areas: Education and Youth, Health, Jobs and Wages, and Community Safety as well as an Arts and Culture category. This year also continued funding opportunities for startup and developing organizations. Additionally, in keeping with the new procedures for implementation of the recently adopted affordable housing plan, applications relating to funding requests for affordable housing initiatives were directed to apply through the CAHF process instead. For FY 24, $575,000 of the VCF funding pool was re-allocated to the Charlottesville Affordable Housing Fund (CAHF) in the CIP to help fund this change. For FY 24, $2,175,000 is allocated in the budget for VCF awards. This represents a $200,000 increase over the funding amount allocated through the Vibrant Community Fund process for all non-affordable housing related programs in FY 23.

• Of the agencies evaluated by the Office of Budget and Performance Management, major changes are summarized below:

1. Albemarle/Charlottesville Regional Jail (ACRJ) – decrease of $113,129 due a drop in the five year average population percentage.

2. Blue Ridge Juvenile Detention Center (BRJDC) – increase of $1,150,008 increase which is determined by a formula determined by utilization in the last 36 months.

3. Emergency Communications Center – increase of $1,985,491. The City’s share is showing an increase which is driven primarily by software contract pricing changes, new software annual maintenance costs and hardware maintenance costs for aging systems. Salary increases and market adjustments as recommended for existing staff is also included.

A synopsis of the proposed FY 24 Budget is planned to be published in the Daily Progress, and a public hearing will be conducted at the Community Budget Forum scheduled for March 22, 2023. After conclusion of the Budget Public Hearing, City Council may add new, or increase, decrease, or strike out items of expenditure. At the end of the Council’s review of the proposed Budget, and any Council modifications, the total anticipated expenditures for FY 24 may not exceed the total estimated revenues for the upcoming year.

Virginia Code 152-2504 requires the following documents/information to accompany the proposed Budget: (1) a statement of the contemplated revenue and disbursements, liabilities, reserves and surplus or deficit of the locality as of the date of the preparation of the budget; and (2) an itemized and complete financial balance sheet for the locality at the close of the last preceding fiscal year.

The work of building and running a City is never over, and we must face the challenges presented while simultaneously taking hold of the opportunities that exist. Those opportunities display the expression of the values of Council and the community as we continue to prioritize the principles of equity, safety and security, a focus on accessibility and affordability of housing, the prioritization of the quality of our public schools, and the need for city wide climate action. Further, we work on beginning to deeply invest in the human capital that can realize those visions through engaging in supporting our City departments and staff that provide key and needed services to all.

Historically, Charlottesville’s tradition of sound fiscal management has served and will continue to serve the community during Fiscal Year 2024 as an asset and opportunity. Our sound financial management will continue to move us smoothly through the waning days of the pandemic and allow the City to continue to work in concert with the community to support key priorities, deliver services optimally, and engage in efficient and effective business models.

The work done in FY 22 and 2023 lays a solid foundation to continue to build a service oriented infrastucture to meet the service expectation of the Council and the residents. The investments made in this budget will improve the functioning of government, meet the priorities identified by Council and improve the physical infrastructure of the City.

It is a privilege to serve as the Interim City Manager for Charlottesville at this time, and I appreciate the opportunity to present a balanced budget on behalf of the extremely talented team of employees with the City of Charlottesville, showing how we stand ready to address challenges, seize opportunities, and most importantly serve our community to the best of our abilities.