Keep these 5 items in mind when developing budgets

Based on the budget adopted by the General Assembly on Sunday, here are five important items local governments should keep in mind as they go about developing their own budgets for next year.

1. Line of Duty Act: Unless you opt out of the program, VRS will bill you starting in FY12 at a rate of $233.89 for each full-time employee covered under the program.  The rate for volunteers is 25 percent of that amount.  The budget adopted this session extends the irrevocable deadline to opt out of the program to July 1, 2012. VRS will be surveying localities to determine the population eligible for the program. The first bill will go out in July or August and will be due sometime in the fall. Billing will be annually. VRS will send out more details in the days ahead.

2. HB 599: Budget for a 3.5 percent reduction from your FY11 allocation.

3. Education funding: The budget adds $87.7 million in FY12 to provide the state share of an additional $129.62 per pupil to school divisions in a “Supplemental Support for School Operating Costs” account. A local match is required. An additional $16.16 million is included for the Low Composite Index Hold Harmless program. The Superintendent of Public Instruction is required to issue the memorandum details on the public education budget by March 14 (but look for it as early as this Friday).

4. Five percent employee contribution rate: There are no changes to a local government’s authority regarding payment of the 5 percent member contribution. If your locality pays the 5 percent member contribution for Plan 1 employees (those hired before July 1, 2010), you have to keep doing that. The language allowing localities to revisit that decision was not adopted. Localities still have the authority to require Plan 2 employees (those hired after July 1, 2010) to pay all or any whole portion of the 5 percent member contribution.

5. Water Quality Improvement Fund: After July 1, there will be no state funding to reimburse local governments and wastewater authorities (under signed grant agreements) for sewage treatment plant upgrades except for hardship cases. contents

Property assessments sink in Hampton Roads

Real estate values in Norfolk declined by about 4.5 percent last year. The total assessed value of property dropped almost $1 billion from $18.5 billion to $17.6 billion. Residential real estate fell by 4.3 percent and commercial real estate, including shopping centers and office buildings, by nearly 11 percent. The decline means a $10.1 million reduction in the city’s real estate tax revenues for next fiscal year.

This marks the second year of assessment declines. In 2009, assessed values fell for the first time in decades, slipping 3.6 percent.

Part of the drop is directly related to foreclosure and short sales. Foreclosure sales jumped 33.2 percent from 717 in 2009 to 955 in 2010. There were also hundreds of short sales in which homeowners sold homes for less than they owed.

In nearby Virginia Beach, home values, weakened by a deluge of foreclosure sales, dipped 3.3 percent, marking the third straight year of decline and punching a hole in the city budget.

As is the case in so many Virginia localities, foreclosures are wreaking havoc in the housing market. Of the 5,700 Virginia Beach home sales last year, 1,112 were foreclosure sales -- about one in five.

Falling assessments mean the city could collect $12.3 million less in revenue compared with last year if the standard tax rate, currently 89 cents per $100 of assessed value, stays the same. That is about half the $24 million shortfall city officials say they face as they work on the budget for the fiscal year starting in July.

The overall decrease for Virginia Beach properties was 2.9 percent. Property values for the city were pegged at nearly $50.5 billion. That would generate $449.5 million in city real estate taxes if the tax rate is left unchanged. Last year, the city brought in $461.8 million in real estate taxes.

And for the third straight year, the average real estate assessment in Chesapeake fell, dropping 3.13 percent. That follows a 5.52 percent slide last year and a 1.79 percent drop in 2009. Foreclosures leaped by 379 units or 61.0 percent from 2009 to 2010. At the same time, the number of housing sales and sales prices for new homes declined.

Assessments on the Peninsula also took a dive with a 1.7 percent decrease in Hampton and 0.9 percent in James City County. In Newport News, the city is poised to experience two straight years of declining property values, the first time this has happened since at least 1970. Property values stumbled 4 percent.

The question for local elected officials in Hampton Roads is whether or not the dismal assessments have flattened out. Recent activity is not encouraging. In January nearly two of every five homes sold in Hampton Roads were in foreclosure or sold for less than what the homeowner owed the lender. Foreclosures and distressed properties accounted for some 39 percent of all January sales in Hampton Roads. At the same time, the number of homes for sale in Hampton Roads is increasing, reaching a level equal to 10 months of market inventory. (Six months of inventory is considered normal.) In fact, inventory levels are higher than they have been in at least 15 years. And, housing prices are falling. All these factors discourage banks from lending, which helps maintain the overcrowded real estate market. An ODU economics professor who worked on the university’s Economic Forecasting Project Report predicts that housing prices could fall another 3 to 5 percent in 2011. This would be on top of the 15.6 percent decline since the housing market peaked in 2007.

The dismal news on assessments is not confined just to Hampton Roads. The value of the average home in Staunton fell during the past two years, as did the city’s real estate tax base. The average price of a home fell 8.2 percent. The city’s taxable real estate dropped 6.9 percent. The “good news” is that city officials had projected an even steeper decline of 8 percent. Because the worst fears were not realized, city council should not be under as much pressure to raise real estate tax rates.

But, if recent housing doldrums carry forward, the cities in Hampton Roads and elsewhere in Virginia could face even tougher budget development challenges in the years ahead. contents

School budget belts pulled tighter

Even as the details of the new state budget become known, the business of developing next year’s budget for school divisions continues to press forward. Here is a snapshot of what is going on across the Commonwealth.

Hampton Roads

The City of Franklin is looking at a $450,000 deficit for next fiscal year, but the amount could change depending on the outcome of the state budget deliberations. According to the school board president, the deficit projection is based on the state budget bill as introduced. All three versions of the budget (i.e., governor, House, and Senate) would result in reductions in state aid for the school division.

In Norfolk, the school board is reviewing a proposal to close a $21 million budget gap for next fiscal year. The options include eliminating between 131 and 206 positions, including 44 classroom jobs. The school division cut 387 positions to balance this year’s budget. School administrators blame the budget shortfall on likely cuts in state school aid and higher operating costs, including fuel.

Newport News school officials are planning to use federal stimulus funds and federal education jobs funds to close an estimated $6.2 million budget gap. They are also considering additional savings by cutting 33 instructional and support positions. School spending is expected to increase by almost 2 percent in FY12.

The Virginia Beach schools superintendent is proposing a budget that is $8.8 million less than the current budget, and is anticipating reductions in both city and state funding. There is, however, a 3 percent raise for eligible employees – 0.5 percent base salary increase and a 2.5 percent one-time compensation award. Staff has not had any pay raises in the past two years.

To help make ends meet, the school division proposed eliminating 209 teaching positions by doing away with some classes that do not draw many students. This could mean that some courses that typically have smaller enrollments, such as fourth- and fifth-year language courses, could be eliminated.

The proposed budget marks the third consecutive year of budget reductions.

Elsewhere

The Richmond City School Board is facing a $1.1 million hole in next year’s budget as a result of new restrictions on the use of state funds for mandated special-education services. Some 75 students could be affected by the policy change. The schools superintendent’s budget proposal assumes no increase in the city’s contribution, calls for two furlough days for employees, and eliminated 13 positions. The school board will take action next week on the proposal.

Chesterfield County’s school superintendent told the Board of Supervisors that he did not expect student-teacher ratios to improve before the 2014-15 school year. His proposed budget includes $12 million in federal funding that will not be available after 2012. The superintendent also said that his first priority was getting teacher salaries back to where they were two years, before budget constraints necessitated across-the-board cuts.

Colonial Beach schools expect state and federal funding to drop by about $907,000 in FY12. Even with staffing and transportation savings of over $500,000, the school division faces a budget shortfall of over $300,000 if teacher layoffs are to be avoided. Like other school divisions, budget estimates could change with the actions taken by the General Assembly on the state budget.

In Stafford County, the school division is confronting at least a $9 million budget shortfall next year because of the expiration of federal stimulus dollars; a projected VRS rate increase of about 3 percent; and a projected 10 percent increase in health care costs among other factors.

To save $3 million, the schools could eliminate some 60 positions. Like almost all other school divisions, Stafford has more employees in certain state-mandated positions than the state requires, e.g., math specialists and English as a second language. These positions could be cut without running afoul of the state’s Standards of Quality.

Like most other Northern Virginia school divisions, Arlington is working to reconcile a tight budget with substantial projected enrollment increases. The school division projects an additional 1,000 students next school year. The schools superintendent’s proposed budget would increase average class size in grades 9 to 12 by one student, from 19.2 students to 20.2. School employees would receive either a step increase or, if ineligible for a step increase, a $1,000 pay increase. The salaries will not include a cost-of-living adjustment. Employees have not received such adjustment for two years.

The Bedford School Board is facing a potential $4.3 million shortfall, due mostly to state and federal funding cuts. Among cost-saving measures under consideration, the schools plan to cut about 22 jobs to generate $1.1 million in addition to 20 bus driver positions already set to be eliminated due to new school start times.

The Charlottesville School Board has approved a $68.5 million FY12 operating budget for City Council’s review. The plan includes an average 2.4 percent pay increase for teachers and staff. The spending plan is $1 million less than the current budget.

Albemarle County school officials are upset about the state’s commitment to public education. The school budget plan for FY12 is heavily dependant on one-time funds for recurring expenses, which officials believe could lead to a dire financial situation in FY13.

According to the Augusta County school superintendent, it might take teacher layoffs to close the school budget gap next fiscal year. The superintendent told the school board that 11 teaching positions might have to be cut to close a $3 million budget gap. This is higher than the number of expected retirements.

Based on the budget actions under discussion across Virginia, it is clear that the amount of state assistance for public education is critical to meet mandated standards and to close the various budget gaps confounding school superintendents, school boards, and councils. contents

Local budget development plows ahead of news on state budget

A number of county administrators and city managers have released their proposed budgets. Here is a sampling of what they and their governing boards face.

The York County administrator presented his proposed budget to the board of supervisors, including more than $2 million in spending reductions. The county’s operating budget needed to be trimmed by nearly 2 percent after losing some $2.9 million in machinery and tools tax revenue related to the closing of Western Refining Inc.’s Yorktown refinery operations. The proposed budget would meet the challenge by keeping 17 full-time positions unfilled. The proposed budget includes no recommendation for tax rate increases, but also contains no new initiatives or pay increase for county employees. County cost drivers include higher health insurance premiums, costs to house juvenile offenders at a regional detention center, payments to the regional library, and line of duty payments. The last item is a state-initiated program which the governor and General Assembly have decided should become a local funding responsibility.

In Prince George County, the proposed FY12 budget was presented to the Board of Supervisors last week. General fund revenues are 1.09 percent less than the current budget. Real estate assessment reductions have resulted in $1 million less in property taxes, and the proposed “financial cuts at the State level are unprecedented,” according to the county administrator. No new positions are proposed and no cost of living or merit raises are included, although a 1 percent employee bonus is possible at the end of the calendar year. Although not obligated under the memorandum of understanding with the school board, the county administrator proposes the county to level funding its support for the school system.

In Prince William County, the proposed budget raises taxes slightly to pay for the remaining road projects from the 2006 bond referendum and for two new libraries. Under the proposed budget there would be no layoffs for the first time in four years and a 2 percent merit-based salary increase for employees. The police department, however, will lose six vacant positions because of state budget cuts. Since FY08, the state has cut almost $3 million from the county’s police department. Under the proposed budget, the county would not add additional police until FY13. The county will not make whole those local agencies depending on state financial assistance.

According to an article in the Washington Post, Fairfax County appears headed toward another year with no extra money for schools, no cost-of-living increases for its employees and perhaps a modest increase for some homeowners’ property tax bills. This could mark the third straight year without a salary increase for county workers. The county expects a budget gap of around $50 million. A compensation package could double the shortfall. contents

IN THE COURTS

Va. Supreme Court sets rules for immunity at council meetings

The Virginia Supreme Court has crafted basic rules for determining whether people speaking at a meeting of a local governing body have immunity for what they say during the meeting and, if immunity exists, how much immunity the people have. The court decided Isle of Wight County v. Nogiec in January, a case that creates new law in Virginia.

The Isle of Wight Board of Supervisors, during a regular meeting, was investigating a flood at a county museum. An assistant county administrator told the board that the parks director, Alan Nogiec, was negligent in correcting the conditions that contributed to the museum suffering flood damage. Nogiec sued the assistant and the county for defamation and claimed the defamation harmed him in finding a new job. The court dismissed the defamation claim against the county on the basis of sovereign immunity. (This points out the importance of sovereign immunity to VML’s members – an immunity that was unsuccessfully attacked during the 2011 session of the General Assembly.)

The Supreme Court crafted a new rule for deciding a defamation claim based on statements made at a locality’s governing body meeting. If the statements are made during the part of the meeting dealing with legislative matters, speakers enjoy absolute immunity. During the part of a meeting dealing with supervisory or administrative matters, speakers enjoy qualified immunity, but not absolute immunity. The court ruled that during the parts of a meeting when qualified immunity applies, so long as the statements are made with an absence of malice, qualified immunity will bar a defamation claim.

The case involved statements made by a county employee – the assistant administrator. The court’s decision would apply to statements made by the members of a city or town council or county board of supervisors, as well.

The court did not define what constitutes the legislative and administrative portions of a meeting. In the specific case, the court did rule the board meeting to deal with the flooding of the county museum was not a legislative part of the meeting. For local governing bodies, their managers and attorneys, this will likely prove a problem in the future. One attorney was quoted in a newspaper that the board of supervisors would need to turn on a beacon light during legislative portions of a meeting, and off during the administrative portions. Enacting a zoning ordinance or city/town code provision should provide speakers absolute immunity for statements made during that part of the meeting. The point is that it will be a challenge to decide whether absolute or qualified immunity will apply to discussions at local governing body meetings. contents

AT THE LEAGUE

Town Section meeting dates set for April, May across state

VML will conduct four Town Section meetings across the state this spring. Please note the relevant date in your calendar and plan to attend one of these informative meetings.

The gatherings will be held Thursday, April 28, in Pulaski; Thursday, May 5, in Purcellville; Friday, May 6, in Appomattox; and on Thursday, May 26, in Smithfield. Each meeting will begin at 10:30 a.m. and run until about 3 p.m. A registration form – including specific locations and costs – will be attached to a future Update and distributed to town members.

Town officials will receive useful information on important issues and have time to interact with other elected and appointed leaders to share ideas and information. Specific topics to be discussed will include a summary of 2011 General Assembly actions affecting towns and the effects of state budget cuts on towns. A longer list of topics to be covered will be distributed soon.

Contact Sherall Dementi at VML: 804/649-8471 or sdementi@vml.org. contents

ETECTERA

Fleet workshop will focus on fuel economy and clean-fuel vehicles

Virginia Clean Cities, the Clean Transportation Project, and U.S. Department of Energy Hydrogen Education Program are the sponsors of a fleet innovation workshop on March 23 in Fairfax. Topics include:

• establishing a green fleet program;
• accountability and fuel tracking;
• fuel economy – with hands-on driving demonstration;
• electric vehicle basics: including current and future vehicle models, safety & first responder information; and
• hydrogen vehicle innovation
• Opportunities to test drive new technology

The workshop will be held from 8:30 a.m. to 3:15 p.m. at the Fairfax County Government Center (12000 Government Center Parkway). There is no charge for the workshop, but registration is required.  For more information and to register, visit http://bit.ly/eYqQpW. contents

DOE offers online solar installation guide

As part of the Department of Energy’s SunShot initiative to significantly reduce the cost of installed solar energy by the end of the decade, DOE has introduced the second edition of Solar Powering Your Community: A Guide for Local Governments.

The guide is a comprehensive resource intended to help local governments better understand the steps necessary to permit and license solar energy installations and how to streamline those processes. The second edition of the guide includes new policy and market developments that have emerged since the first edition was published in July 2009.

New topics covered in this updated edition include third-party residential financing, community solar financing, solar-ready building guidelines, and hosting of wholesale photovoltaic (PV) systems on local government property.

The guide is available online at http://bit.ly/e57AFu. contents

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