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City Manager's Office

TO: Mayor and City Council

DATE: March 21, 2003

SUBJECT: City Manager's Budget Message - Fiscal Year 2004

INTRODUCTION

Budgets have been called "detailed work plans with dollar signs attached." The city's budget presentation contains a wealth of information on the operations of Williamsburg city government beyond estimates of revenues and expenditures for the twelve months beginning this July. That information includes:

• Goals and Initiatives for the 2003 and 2004 Biennium adopted by City Council.
• Guide to understanding the budget including the budget calendar, budget responsibilities, revenue sources and trends and expenditure classifications.
• Summaries of the proposed operating and capital budget by funds, "sliced" different ways.
• Line item detail.
• Staffing levels and history.
• Five Year Capital Improvement Program for the general fund and utility fund, including a five year vehicle replacement plan.
• Outside Agency requests for funding and results of Social Service Board and Arts Commission recommendations.
• Water and Sewer Rate Analysis looking out five years.

All this information, however, is more than many want to know. So the purpose of this message is to highlight what I believe to be the most significant features and changes in this year's budget.

To begin, for FY2004, the Proposed General Fund Operating Budget can be characterized by:

• Projected Revenues of $25,494,075, up by 5.1%.
• Planned Spending of $25,622,508, up by 5.3%..
• Calendar Year 2002 CPI up by 2.4%
• No Change in Tax Rates.
• New tax on cigarette sales of $.25 per pack.
• Total net personnel positions increase from 180 to 184
  (Building Inspection and Parking Garage).
• Allowance for merit pay increases of 4.0%.
• Additional allowance for public safety market adjustment of 2.3%.

In the Utility Budget, recommended is a 2.0% Water and Sewer rate increase, from $2.50 to $2.55 per one thousand gallons, beginning July 2003, per the five year Water and Sewer Rate Analysis.

In the General Fund Capital Improvement Program, a total of $3,660,496 is projected in new capital spending, plus debt service and debt retirement of $5,938,008, for a total of $9,598,504. Several important capital projects are now under construction and continuing into the coming year, including VDOT's Richmond Road reconstruction and the Prince George Parking Facility. Start up next year includes Treyburn Drive extension and the Prince George Street, Boundary Street and Monticello Avenue streetscape projects.

With the above as an overview, here are a number of issues that are particularly relevant in understanding and reviewing the proposed budget, beginning with General Fund revenue projections.

REVENUE PROJECTIONS

Next year (FY 2004) we forecast General Fund revenues of $25,494,075, a 5.07% increase over the current year (FY 2003) budget amount. Behind the Budget Guide tab is a detailed explanation of revenues, revealing the legal basis and ten year trends of all revenue sources. The following is a summary of significant revenue changes in next year's budget:

1. Property Taxes. Property tax projections are based on a total anticipated value of real estate of $1,088,379,811. Assuming no change in the tax rate of $.54 per hundred dollars of assessed value, we estimate real property tax collections of $5,830,000 next year, a 13.9% increase from current year budget estimates. Property taxes continue to be among our fastest growing revenues due to reassessment and new construction.
   
   Other property taxes include personal property and business property. These categories are showing growth, but not as much as real estate taxes, over last year's forecast. All property taxes (real and tangible) taken together are expected to generate $8,415,000, a 9.5% increase, but property taxes only account for 33% of general fund revenue compared to an average of about twice that in most jurisdictions in Virginia.
   
   
2. Other Local Taxes. Other local sources of taxation include various consumer utility taxes and franchise fees, business licenses and prepared food and lodging or "room and meal" taxes. The estimate for room and meal tax collections is projected to total $9,675,000; a 0.8% increase, over last year's estimates. These estimates assume a stable but not growing tourism economy, reflecting neither our better hopes nor our worst fears.
   
   This year I am recommending a 25¢ per pack tax on cigarettes expected to generate $212,000. As discussed with Council in February 2003, Williamsburg is the only city in Hampton Roads without such a tax, with amounts ranging from 10¢ to 50¢ per pack.
   
   Additionally, recommended is a tax on wireless telephones designed to equal the playing field for city taxation on landlines and wireless. This tax is expected to generate $30,000 annually. It would be 10% of the bill capped at $3.00.
   
   Taken together, all local sources of taxation are expected to generate $20,996,100, a 6.0% increase over the current year budget.
   
   
3. User Fees. User fees include various license and permit fees, and various charges for service. Licenses and Permits are projected to increase by 6.5%, including commercial and residential building permits. Charges for service and miscellaneous (which includes Park and Recreation fees, cemetery fees, and royalties) are projected to decrease by 7.6%. This reflects a decision not to budget an anticipated insurance dividend refund as shown in prior years.
   
   
4. Fines and Forfeitures. This category covers court fines - mostly for traffic violations, parking fines, and code violation fines. It is expected to remain level at $256,000.
   
   
5. Revenue From Use of Money and Property. The interest earnings estimate, in the General Fund of $500,000, and in the Utility Fund of $80,000, is down 27% based on assumed earnings of 2% on daily accounts, and 4% on longer-term accounts. Additionally, the property rental estimate is $361,360, a 110% increase, covering the Community Building, Transportation Center, City Square, and especially $150,000 in new money from Prince George Parking Garage to be open mid-way through the fiscal year.
   
   
6. Revenue From the Commonwealth. Revenue from the state government, which includes support for constitutional officers and both categorical and non-categorical aid, are estimated to decrease by 0.7%. This continues the trend over the last several years of declining state support at only 8.5% of the city budget. The estimate of Sales Tax for Education of $529,000 shows an 8.0% increase. The increase is due to the 2002 Triennial Census effective January 2003 which corrected the under count of the previous census.

EXPENDITURE ISSUES

Next year we have proposed General Fund operating expenditures of $25,622,508, an increase of 5.3% over the current year adopted budget. Broken down in four large categories:

	FY 2003 Adopted Budget	FY 2004 Proposed Budget	Percent Increase/(Decrease)
City Departments	$12,839,038	$13,523,906	5.3%
Constitutional Officers and Judicial	$ 1,267,714	$ 1,582,506	24.8%
Education and Library	$ 7,247,375	$ 7,472,730	3.1%
Outside Agencies and Health	$ 2,973,033	$ 3,023,366	1.7%

The Proposed Budget recommends a net increase of four personnel positions. Total full time equivalent city positions will stand at 184. Changes in expenditures worthy of note are:

1. Salary Ranges and Pay. The city's Merit Pay Plan gives management the flexibility to target increases where most needed. I believe we can remain reasonably competitive on compensation within the limits of modest revenue growth. Therefore, I am recommending the following:
   • Increase in Pay Ranges of 4.0%, in order to account for the rise in wages and the rise in the Consumer Price Index in calendar year 2002 of 2.4%. (The range increase does not in itself change anyone's salary and therefore has no direct impact on the budget.)
   • Average Merit Increase allowance of 4.0%, costing $265,000 in salary increases, to be applied per the city's Merit Pay Plan as detailed in the Personnel Manual.
   • An additional market adjustment for public safety personnel of 2.3% on average, costing $75,000 in salary increases. This will be used to bring entry level salaries from $28,000 to $30,550 for firefighters and police officers, and from $22,200 to $24,300 for emergency communicators
   • The merit increase will hold our employees on average to 96.3% of the middle of their salary ranges.
   • The budget includes funding ($2,000) to make the half-day Christmas Eve holiday a full day for a total of eleven holidays per year over the current 10.5 holidays. A survey of Hampton Road communities reveals 10.5 holidays the least number. The Commonwealth grants twelve holidays.
   
   
   
2. Health Insurance. The city's health plan is largely self-insured. Anthem is paid a set amount to administer the plan, but the city keeps savings when actual costs fall below the "premium," and pays more when costs exceed the premium. That liability, however, is capped at 125% of premiums through excess insurance. Savings to date have created a reserve, $286,106 as of the end of FY 2002, to fund losses should losses exceed the amount budgeted in any given year. Therefore, we budget for the expected loss only. Based on experience so far this year, we have included a 10.0% increase in funds budgeted for health insurance over the current year budget in the total amount of $698,000.
   
   
3. Virginia Retirement System. VRS sets the contribution rate for the city based on annual actuarial studies. Our rate beginning July 1, 2003 will remain at 10.0% of covered payroll, costing the city $725,000 in FY04.
   
   
4. General Administration. The City Council, Clerk of Council and City Manager budgets for next year reflect little change from the prior year. The City Attorney's budget has been increased 3.6% to fund expected legal services in FY2004. The Operating Contingency is recommended at $150,000. The Contingency contains adequate funding should Council decide to continue a major contribution to "Festival Williamsburg" in May 2004. In 2003, the city contribution to the first year of "Festival Williamsburg" is $50,000.
   
   
5. Constitutional Officers. The Commissioner of Revenue, Treasurer and Registrar budgets show little net change from the prior year, but the level of State support for these State mandated offices continues to be a problem. The Electoral Board increase of 57% assumes four elections in the budget year.
   
   
6. Joint Courthouse and Judicial Functions. The Joint Courthouse Agreement, dated December 1996, between the city and James City County, governs cost sharing not only for taking care of the new courthouse, but for judicial functions related to the Courthouse, including: Circuit Court, General District Court, Juvenile and Domestic Relations Court, Clerk of the Circuit Court, Commonwealth Attorney, and City/County Sheriff. The Courthouse Agreement provides that the city and county will determine population based on the annually updated Hampton Roads Data Book published by the Hampton Roads Planning District Commission. The estimate of city cost is $325,000.
   
   
7. Public Safety. Police and Fire Department budgets are up from the current year with a 5.7% increase in the Police budget totaling $3,150,425, and a 6.7% increase in the Fire budget totaling $2,415,065. These increases are due primarily to the pay adjustments discussed above under Salary Ranges and Pay.
   
   
8. Parking Garage. Expenses of $113,000 for seven months of operation of the new Prince George Parking Garage are offset by $150,000 of projected revenue through June 2004.



9. Regional Jail. Funding for the city's share of the regional jail is expected to be $766,014, a large increase of 54.6% from the current budget. This is based on an assumed average daily population of 75 inmates (56 estimated last year), at a local cost of $28.23 per day ($24.25 last year). Inmates are charged to the city based on the location where the offense occurred and when the city police are the arresting authority. Local costs have climbed as State contributions have been stagnant. Other detention related expenditures are the Middle Peninsula Juvenile Detention Commission and Colonial Group Home Commission are also increasing for the same reasons.
   
   
10. Building Inspection. The Building Inspection budget of $344,445 is up 22.0%, continuing to be driven by a high level of building activity and, especially, increased staffing for property maintenance and rental inspection programs. Fees to offset these program costs are compared to market and increases recommended when appropriate.
    
    
11. Public Works. Public Works divisional budgets (Streets, Landscape, Utilities, Cemetery, Facilities Maintenance) average close to the current year amounts. They reflect the 4.0% average merit increase and the 10% health increase, but no increases in staffing. The street resurfacing commitment is held level at $430,000.
    
    
12. Planning Department. Planning Department next year will lead the city through the five-year update of the Comprehensive Plan. We are recommending this work be done mostly in-house at a considerable cost savings. A 9.7% increase in the Planning Department budget should be sufficient to hire temporary staff for that purpose.
    
    
13. Human Services. Salaries in the Human Services Department are funded in part by the Commonwealth, but the department is a city operation. Local funding supplements State funding to allow the department to provide a full array of human services. The local budget for next year is estimated at $499,279, up 12.3%.
    
    
14. Parks and Recreation. A total budget of $1,176,850 represents a 6.5% increase. The increase is primarily due to added costs associated with expanded facilities, energy costs, and programming at Quarterpath Recreation Center and Waller Mill Park.

OUTSIDE AGENCY ISSUES

Nearly one-half of the city's General Fund budget goes to agencies and activities not under City Council's direct operational control. Funding relationships are often complex, and vary in degrees of funding discretion possible from year to year. The "Notes on Funding Relationship," contained under the Budget Guide tab, help explain the city's role in providing financial support to these agencies and activities.

Background documentation from outside agencies is contained in the Appendix, or provided under separate cover, as in the case of the School and the Library budgets.

A numberof issues concerning outside agency funding requests for the coming year need to be highlighted:

1. Health Services. The Peninsula Health District budget request to the city is $114,010, nearly level with current funding.
   
   Olde Towne Medical Center (Williamsburg Area Medical Assistance Corporation or WAMAC) has requested $82,000 for next year, and a separate request to support the Child Health Investment Program (CHIP) for $11,605. The Human Services Advisory Board has recommended funding Olde Towne at $82,000, and CHIP at $10,000, which is reflected in the proposed budget. For CHIP, $5,000 is budgeted under Public Health (5101), and the balance is under Public Assistance (5302) to allow monitoring of CHIP usage by the Human Services Department.
   
   Finally, the Colonial Services Board, as the third agency through which the city provides health services to its residents, requests a 2.0% increase in city contribution to $186,321, based on an equitable multi-jurisdictional funding formula. This will support CSB's "maintenance budget." They would like to have assistance with replacing positions lost due to State cuts for a total city contribution of $198,824. This is not recommended due to Council's policy on replacing State cuts.
   
   
2. Schools. Based on the development of the School Board's budget at this point in time, and James City County's position on available revenue, we can expect a city contribution to the operational budget in the amount of $6,726,814, a 3.3% increase from the current year. The final amount will be determined by formula as set forth in the current five-year city/county Joint School Agreement effective July 1, 2002, and the final amount of State support. As a result of school agreements, the city's proportional share of funding for the schools over the past decade has declined, and that trend will continue next year. City children numbering 726 now account for 8.43% of the children enrolled in the system, level with last year. Under the Agreement, in FY04 the city will pay a share equal to its enrollment times a factor of 1.33. So, the city still pays a premium to participate in the joint system. Based on the current enrollment split, the city's contribution will be 11.35%, and the county's 88.65%, of local funding for the schools. The expected local cost per pupil next year will be $9,265.
   
   
3. Library. The Williamsburg Regional Library is funded under the revised library agreement with James City County, effective July 1, 1999. That agreement calls for funding of operational costs based on the proportion of circulation by residency. Based on the library's figures, the city/county circulation ratio for calendar year 2002 was 16.87% city, and 83.13% county. The library's total requested budget is $5,127,268, a 1.05% increase. City funding would be $738,273 based on the requested budget, 3.44% more than last year.
   
   
4. Human Service Agencies. TThe city's Human Services Advisory Board, as requested by City Council, has evaluated Human Services Agency requests for funding, and made its recommendations to City Council. Their analysis and recommendations are in the Appendix to this document. The proposed budget is a 3.2% increase from the current year in the amount of $76,516 (excluding WAMAC and CHIP). The proposed budget follows the Human Services Board's recommendations in all respects except one: a new agency, Big Brothers-Big Sisters, is on the Human Services Board's list for $1,000 (BB-BS requested $5,000). I do not believe the city should add any new agencies this year.
   
   
5. Community and Economic Development Agencies. The city continues to support tourism advertising and promotion through Colonial Williamsburg, and the Convention and Visitors Bureau/Chamber of Commerce. For the current year (FY2003), here is a comparison of the level of contribution by the three jurisdictions for tourism advertising and promotion as a percent of operating revenue, and room tax:
   
   

   	FY03 BUDGET	As a Percent of General Fund Operating Rev.	As a Percent of Room Tax
   City of Williamsburg
   CVB Promotion	$746,000
   Chamber Support	$100,000
   CWF Promotion	$1,269,000
   Total	$2,115,000	8.7%	51.9%
   James City County
   CVB Promotion	$570,000
   Chamber Support	$ 12,500
   Total	$582,500	0.5%	29.1%
   York County
   CVB Promotion	$303,400
   Chamber Support	$ 2,500
   Total	$305,900	0.4%	15.7%

   
   
   Colonial Williamsburg Foundation has requested that the city increase promotional funding by 10% to $1,395,000. The Williamsburg Area Chamber of Commerce together with the Williamsburg Area Convention and Visitors Bureau have requested a 5% increase to $888,000. Recognizing a projected increase in room and meal tax receipts of 0.8% and level funding last year, I am recommending a 2.0% increase in promotional funding to both agencies.
   
   In addition to tourism promotion, the city support is recommended for a number of other agencies that make important economic development and community development contributions to Williamsburg:
   
   

   Hampton Roads Planning District Commission		$ 6,239
   Hampton Roads Partnership		$ 5,000
   Peninsula Alliance for Economic Development		$14,750
   Crossroads Coordinating Committee		$10,000
   Thomas Nelson Community College
   	Hampton Campus	$10,576
   	Hampton Workforce Development Center	$10,500
   	Williamsburg Campus rental	$20,000
   	Technology grant	$ 5,504
   Jamestown/Yorktown Foundation		$ 8,000
   Colonial Soil and Water District		$ 2,100
   Williamsburg Land Conservancy		$ 5,000
   Heritage Humane Society		$22,500
   High Speed Rail Coalition		$ 4,000
   Williamsburg Farmers' Market		$ 5,000
   Total including CWF and CVB		$2,287,169

   
   
   With the exception of tourism promotion as noted above, all of these recommendations are for the requested amounts.
   
   
6. Cultural. The Williamsburg Arts Commission has again performed the task of receiving, evaluating, and recommending funding for the arts. Their report is copied in the Appendix. They recommend local arts funding of $ 128,350, almost identical to the current year. Of this amount, the city contribution would be $59,925. This assumes a state arts commission challenge grant of $8,500, and county funding of $59,925. The State grant last year was $10,000.
   
   As noted above, the city may wish to continue support for "Festival Williamsburg" in 2004 using funds from the contingency account.
   
   
7. Transportation. James City County has requested $144,000 to support our new, unified transit system, Williamsburg Area Transport. The unified system, as envisioned in the Long Range Public Transportation Plan, combines JCC Transit, Relax and Ride, and the William and Mary systems. The city played an essential role in bringing together the three elements into a successful transit system. The next step is to work on governance with an eye toward the possibility of creating a regional authority to own and operate the system.

CAPITAL IMPROVEMENT PROGRAM

CAPITAL IMPROVEMENT PROGRAM

Revenue to fund the CIP comes from 1% Sales Tax Receipts and funds reserved for capital improvements. Additionally, $4,500,000 in long-term borrowing will be used to extend the short-term loan for the Prince George Parking Garage.

Here are some of the highlights from this year's update of the Five Year Capital Improvement Program:

• Richmond Road Reconstruction from Brooks Street to New Hope is now nearing completion of underground wiring and right-of-way acquisition. Street reconstruction is now scheduled to be bid in January 2004. VDOT's current schedule calls for project completion in 2005.
• Treyburn Drive is scheduled to begin construction concurrent with High Street in mid 2004. City funds will be used to advance VDOT funds to keep Treyburn Drive and High Street in the same time frame.
• Streetscape improvements on Prince George and N. Boundary Streets including new, wider brick sidewalks, and new street lighting and street trees will begin construction in January 2004 to be completed before the summer months.
• Underground wiring on Monticello Avenue will begin in summer 2003.
• Sidewalk replacement is planned for Route 132 north of Lafayette Street and for North Boundary Street per the Sidewalk Master Plan.
• Construction of the Prince George Parking Garage now under construction should be completed by January 2004.
• The Burns Lane Area will receive stormwater outfall extensions for the Stormwater Master Plan.
• The Quarterpath Gym and the Fire Station will receive new roofs.
• The Braxton Court Community Development Block Grant Project will begin.

The Planning Commission's review of the draft CIP, which I used in developing the final recommendation, is provided under the Capital Improvements tab.

UTILITY FUND OVERVIEW

The Utility Fund projects a 7.1% increase in operating revenues and a 3.2% increase in operating expenditures. A 2% water rate increase, $2.50 to $2.55 per 1000 gallons, is recommended.

A Rate Analysis for the Utility Fund is provided under the Appendix tab. The analysis shows a future with modest rate increases, and a future with no rate increases. The Rate Analysis is updated annually as part of the budget process. Expensive "new water" from King William Reservoir or some alternate source, purchases of more watershed land, and renewal/replacement of infrastructure, are all in our future. Unlike nearly all other area jurisdictions, the city still does not charge separately for sewage collection and pumping, but rather bears this cost using water revenue. City rates for water and sewer combined continue to be exceptionally low in the region, as shown in Exhibit 3 of the Rate Analysis.

NEXT STEPS

The budget process now moves from the staff level "formation" phase, to the Council and public level "adoption" phase.

The Budget Work Sessions, principally to look at outside agencies, are scheduled for Tuesday, March 25 and Thursday, March 27. The school budget will be reviewed at the Monday, April 7, City Council work session. The formal budget hearing will be advertised for the April 10 City Council meeting. Adoption is scheduled for the May 8 Council meeting.

Jackson C. Tuttle
City Manager

401 Lafayette Street, Williamsburg, Virginia 23185-3617
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