Public services at risk around Va., survey says

Take $60 million out of Chesterfield County's $1.2 billion budget, and these are some of the things that could disappear:

• jobs for 225 teachers and 32 school resource officers, 30 firefighters and 30 police officers;

• four libraries and a couple of fire stations; and

• 10 government and public school departments, including health, planning, finance and budget.

And then take away 2 percent of the pay for school employees who still have jobs.

Chesterfield is painting a grim picture to prepare the public for an anticipated $60 million shortfall in next year's budget for general government and schools. And that's before other potential cuts in state aid to localities when the General Assembly and a new governor adopt a two-year budget next spring.

"There have to be changes in what and how services will be delivered to the community," said Allan M. Carmody, director of budget and management.

But Chesterfield is far from alone. More than 100 Virginia localities say they will be less able to provide public services in the budget year that begins July 1 than they can now, according to a survey released recently by the Virginia Municipal League and Virginia Association of Counties.

The localities will have less federal stimulus money to fill the gaps created by declining local and state revenues, but demand for services is increasing in a recession that has eliminated thousands of jobs in the region.

"You can see what the tsunami is for local governments," said Neal Menkes, director of fiscal policy at the municipal league. "We're crashing, the state's crashing. . . . It's all going to fall on local governments as to how we're going to provide these services."

The survey of 136 localities before Labor Day documents declining real estate and personal property values, and predicts a decline in local general fund revenue of 2.9 percent next year. More than 75 percent of the localities surveyed said they will not be able to deliver the same level of service to the public because they've already taken the less painful options, such as freezing salaries or delaying construction projects, to balance their budgets this year.

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While the worst recession since the Depression is easing nationally, local officials believe the worst is yet to come for them.

"Next year's budget is going to be extremely lean," Richmond Mayor Dwight C. Jones told a Town Hall audience last week in response to a question about increased benefits for retired city employees. "We have cut the flesh. Next year's budget may cut down in the bone."

Local governments rely heavily on real estate taxes, which are slower to recover than other forms of revenue, such as sales and income taxes. They also depend on money from the state, especially to pay for public education, and Virginia's general revenues fell 7.4 percent in the first quarter of this budget year. Henrico County relies on real estate taxes and state aid for 70 percent of its revenue, for example.

Local governments also are bracing for potentially big increases in their costs, from the soaring demand for human services to higher rates for teacher and other employee retirement plans.

Henrico and Amelia counties, for instance, are handling a fast-rising demand for food stamps -- up 45 percent since July 2008 in Henrico and 50 percent in Amelia. The food-stamp relief is federal, but it's administered for the state by local social-services departments.

"There are people using our services that had never ever set foot in a social-services agency," said George T. Drumwright Jr., deputy county manager for community services in Henrico.

Localities are concerned about rate increases recommended by the Virginia Retirement System for local employees and teachers, since the county currently pays both the employee and employer shares of the bill. Chesterfield estimates that the higher rates for 3,433 employees could cost the county an additional $6 million to $8 million next year. The bill could be even bigger for the county's 6,100 teachers and other school professionals with a potential increase of $10 million to $12 million for teacher retirement plans. The school system also funds retirement plans for about 1,100 support staff.

In Henrico, Finance Director John A. Vithoulkas estimates the price tag for recommended retirement plan rate increases at $10 million for teachers alone, and he's not happy about it.

"It is an issue I think that will have a significant impact on local budgets throughout the commonwealth," he said.

Michael L. Edwards, deputy director of the Virginia Association of Counties, said he agrees that the retirement rate increase will hurt localities, which generally pay more than half the cost of teacher pensions. "It's going to be brutal," he said.

The view isn't so dire at VRS, where Executive Director Robert P. Schultze predicts that a big rate increase for state employee and teacher pensions will never make it through the General Assembly.

"I just don't think the General Assembly is going to increase the rates," he said last week. "Where are they going to get the money?"

On the other hand, the rates that the VRS board recommends Nov. 19 for local employee retirement plans will be binding. Those plans are better funded than the plans for teachers and state employees, so the increase is likely to be small, Schultze said. "But I do expect a rate increase."

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The biggest concern among local officials is how much money they will receive from the state to pay for public education in kindergarten through 12th grade.

Gov. Timothy M. Kaine will propose his final two-year budget Dec. 19, with recommendations for the biennial process of revising the benchmarks for those education costs and the state's share of paying for them.

The legislature approved a proposal by the governor this year that could cost localities more than $750 million in additional funds for public education. Instead of nearly $900 million, the change in methodology for reimbursing localities would fall to $138.6 million.

"We haven't seen what methodology is going to be accepted by the governor and the General Assembly," said David Myers, assistant superintendent for business and finance in Chesterfield schools.

Also, localities won't have as much federal stimulus money to fill the holes and avoid massive layoffs, as Chesterfield did this year. The county used about $20 million in this year's budget to avoid laying off hundreds of school employees. It had counted on about the same amount for next year's budget, but nearly $3.9 million of those funds would be used instead to help fill the state's budget shortfall in this fiscal year under a plan proposed by Kaine in September.

Henrico would lose about $2.8 million in stimulus money for next year's budget under that proposal, though the county isn't using any stimulus money on operating expenses. Richmond and Hanover County would receive about $1.1 million less in stimulus money for next year's budget.

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None of the other big localities in the region has gone as far as Chesterfield in predicting what next year's budget will look like.

Hanover is preparing a budget presentation to its Board of Supervisors on Nov. 10, said Deputy County Administrator Joseph P. Casey, and county agencies have been told to produce plans to cut costs 5 percent. Richmond officials have yet to discuss the effect of state cuts in this year's budget, let alone next year's.

However, real estate assessments are down throughout the region, especially for commercial properties in former hot spots such as Innsbrook, where Henrico officials predict vacancy rates of more than 30 percent. Vithoulkas estimates that the county will lose more than $20 million in real estate tax revenue next year because of a 6.5 percent drop in assessed values.

Richmond is predicting an overall reduction of about six percent in taxable real estate values next year, or about $12 million in revenue, according to Assessor James D. Hester.

In Chesterfield, the county is predicting a reduction of about $20 million in all revenues, including personal property, which has dropped in value by 8 percent. Like other localities, the county depends heavily on state money, which accounts for about 20 percent of the government budget and half of the school district's general fund.

Meanwhile, local government fiscal consultant James J. Regimbal Jr. calls the next two-year state budget "a train wreck about to happen." The state is running out of stimulus money and other one-time fixes to fill the budget gaps, and the growing demand on the Medicaid program for the poor is expected to gobble up whatever new money is available.

"There are no promising signs for local government in terms of state revenues," Carmody said in Chesterfield.

Contact Michael Martz at (804) 649-6964 or .