Virginian Pilot Editorial on Chesapeake's Budget

The following editorial is provided with permission from The Virginian Pilot.

Budgeting for Now and for the Future

The Virginian-Pilot
© March 27, 2011

Five years ago, when the real estate market was roaring, hundreds of people crammed into Chesapeake City Hall and demanded the tax rate on their homes be slashed to 99 cents or less.

The City Council instead cut the rate for 2007 to $1.11 from $1.23.

The next year, residents again gathered at City Hall, insisting that the real estate tax rate be dropped to 89 cents for $100 worth of assessed property. The majority on the council voted for a smaller cut, to $1.06.

A year later, the recession took hold, home values began to fall, and council members knocked a penny off the embedded mosquito tax, bringing the real estate rate to $1.05.

That caution in dropping the tax rate by 18 cents rather than the requested 34, along with lean city services and some layoffs (some 300 full- and part-time jobs were eliminated), has allowed Chesapeake to keep its tax rate steady for two years.

Make it three.

While other South Hampton Roads cities are grappling again with significant shortfalls, Chesapeake City Manager William Harrell has proposed an $829.7 million budget, an increase of 1.1 percent compared to the current year's budget. It doesn't add or cut services, but it factors in a 1.5 percent pay raise for employees.

Chesapeake's budget provides the strongest evidence in the region that preparing in good times for bad is wiser than taking the short view.

The short view is exactly what Virginia Beach's leaders took.

The resort city is struggling to keep its services - extensive parks, recreation centers, libraries and free garbage pickup - at current levels. That is made all the more difficult because during the boom, the City Council slashed its tax rate by a total of 33 cents - from $1.22 in 2004 to the current 89 cents in 2008.

For the past two years, Virginia Beach has avoided both a tax increase and layoffs. It has cut programs, eliminated raises and hundreds of jobs, and delayed some projects. To pay for city and school services, the council used contingency funds, school reserves, farm preservation and beach renourishment savings.

Those funds are mostly depleted, and now the city is facing a $24 million gap between spending and revenues. Tourism and personal property tax revenues are increasing, but property values continue to fall, as they do everywhere. The city manager has told the council that his budget recommendation, to be delivered Tuesday, will include a 2-cent tax increase to 91 cents, a $10 monthly garbage fee, and a hike in stormwater rates.

After two years with its rate at 91 cents - down from $1.08 in 2003 - Suffolk's budget gap for the next fiscal year has grown to $11.4 million. Suffolk's budget director recently issued a warning: Raise taxes by 6.5 percent to 13 percent or face cuts in city services.

Like Virginia Beach, Suffolk has run out of tricks to balance its budget during the downturn.

"We've pulled a lot of rabbits out of the hat for the past few years," budget director Anne Seward said. "Unfortunately, there just aren't any more."

The outlook isn't much better in Norfolk or Portsmouth. For the current year, Norfolk balanced its budget by reducing services, eliminating 230 jobs, and increasing fees and the personal property tax rate. In the coming year, the city faces a $32 million shortfall. City Manager Marcus Jones said he hopes to close that by offering more than 500 employees retirement incentives worth $10,000.

Norfolk's tax rate, which hit a high of $1.40 in 2005, had dropped 29 cents- to its current $1.11 - by 2008.

Portsmouth cut its tax rate by 10 cents in 2007 and by 5 more cents in 2008, even as city leaders increased school funding, among other things. The moves left the city scrambling when the economy tanked, prompting the layoff of 31 workers and elimination of 28 jobs in late 2008. The following year, council members cut department budgets by 11 percent and raised the real estate tax rate by 3 cents. It now stands at $1.24.

This year, city officials are looking at a $21.4 million shortfall. A draft budget will be presented to the council Tuesday.

It's hard to recall the economic boom of the last decade. If the economy continues its abysmally slow climb, and property values continue to fall, next year is likely to be worse than this one.

That makes the need for prudent, long-term financial planning all the more critical.

Historically, the property tax has been a stable source of revenue. That's why it was used to fund municipalities. Relying on it, cities have been able to plan for the future with some accuracy.

But for the past decade, the housing market has been anything but stable. Cities have reacted to that volatility by spending big when the money was available - and then cutting tax rates precipitously.

In other words, politics as much as priorities have guided too many of the budget decisions as good times turned lean in the housing market. As councils tweak their budgets in the coming month, they must set priorities and reap the consequences of some of those shortsighted decisions, not just for next year but for years to come.