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HomeMy WebLinkAbout113007 BLUE RIBBON TASK FORCE "I .. ,. .. ,. ;; , ... 1'. ,-;' I. ..,...' ,- '. r { :;: ! I \ 1,.,- , (~~ , ! :J.~"' ~ ~:.. -:"- .............. -1 ,'~ :~ ";.1- 'r ;~ :; i. ,. I. .' 'l01I ;... 4 ; , " ,. IS v I- I. I. , . /rl n n. n Un\ , ~ '" I. ~ v 1:t'<l I. ;- I. ,.. i. ,. I. ,. ,'. ". Blue Ribbon Tax, Fee and Spending Task Force Report to City Council I i. ,- ,. ,. November 30, 2007 i. ,. I. ,.. I. Iii I I Blue Ribbon Tax, Fee and Spending Task Force Report to City Council November 30, 2007 .. .. . 4Ir,,~ t'lj JI".~ ... iIIJI .. II III ill .. . II II . " . .. , ' i . I · . . I'. I. .'41 ... III' I November 30, 2007 BD nnu -...~lrL~'. The Honorable Mayor Meyera E. Oberndorf and Members of City Council 2401 Courthouse Drive Virginia Beach, Virginia 23456-9001 Subject: Blue Ribbon Task Force for Revenues and Expenditures Dear Madam Mayor, Members of Council: Unwood O. Branch, Chairman I am pleased to present to you the ftnal report of the Blue Ribbon Task Force for Revenues and Expenditures created by the Council resolution on April 3, 2007. As directed, the Task Force was separated into two committees, one dealing with revenue, chaired by Robert Goodman, and the other dealing with expenditures, chaired by Doctor Maggie Sizer. I have viewed my role as Task Force chairman to be a resource for both committees in obtaining information, ensuring that the reports were completed in the time frame requested in your resolution, and to assist staff in passing along pertinent public commentary received via our web site to the committee members. BLUE RIBBON TAX. FEE AND SPENDING TASK FORCE Rosemary Wilson City Council Bob Dyer City Council Let me state at the outset that the committee members were dedicated and truly committed to providing their best advice to the Council regarding their respective tasks. Each committee met on an almost weekly basis for four months, and examined reams of material, in order to produce their report. The two state elected officials provided their unique, informed perspective on issues related to the revenue committee. Similarly, the Council liaisons were invaluable in providing information pertinent to local government issues. Finally, the City staff assigned to assist the Task Force was extremely professional, informative, and responsive to every request and need of the Task Force and its members. I commend each of these individuals for their hard work and dedication to this effort. " The Honorable Terri L. Suit House of Delegates The Honorable Frank Wagner Senate .. Robert C. GoocIman, Jr. Revenues Subcommittee Dr. Maggie Sizer Expenditures Subcommittee Dan Baxter Nancy Parker I would like to convey to you now some of the observations that stood out to me as I attended most of each subcommittee's meetings over the past four months. There appeared to be general consensuses from all that Virginia Beach is a well run city and a very desirable place to live. The City has received numerous awards recognizing these facts, and this was reflected in the comments from various committee members. At the same time, each committee was charged with specific tasks directed by the Council resolution. The revenue committee was to "identify alternative tax and fee funding sources designed speciftcally to reduce the City's dependency on real estate revenues". The expenditure committee "shall develop spending policies and strategies supported and deftned by spending ratios and measures that guide and/or control spending within sustainable levels". Both committees adhered to these speciftc instructions throughout the process, so that even though there was acknowledgement that many good things have occurred in the past, the recommendations needed to deal with the future. EdwardF. Fissinger, Sr. Thomas F. Keeley Frederick J. Napolitano, II Chandler Scarborough Dr. Douglas O. Walker i I Uue Ribbon Tax, Fee and Spending Task Force ~ovember 30, 2007 )age 2 A guiding principle established at the outset was that everything would be on the table, and that public nput would be sought. An advertisement was placed in the City Page to solicit input and a website was ~stablished for this purpose. All of these comments are included in this report. There are four things that stand Jut in my mind as common themes among both committees. · The ftrst shared sentiment dealt with change. Many of the recommendations in both reports would require a change in the way things have been done in the past. There were many discussions about how difftcult it is to divert from the way things have been done in the past. The fact that there are various groups created by both the City Council and the City Manager dealing with some of the issues in the report (Employee Beneftts Task Force, Real Estate Assessment Committee, Committee on Retirement Beneftts) indicate that the City is already looking at many of these important issues in an attempt to get ahead of the curve. · Second, the importance of the General Assembly in effecting many of the proposed changes cannot be understated. Many of the recommendations of both committees would require General Assembly action in order for them to happen. The General Assembly is, in effect, a partner in local government. There were spirited discussions about issues such as underfunded mandates, limitations on localities ability to raise revenue resulting in the reliance on the real estate tax, and, in particular, the huge issue localities will most likely soon be dealing with, the Homestead Exemption. Once again the concept of change becomes paramount, particularly in the relationship' between the General Assembly and localities and the options that are available for the operation of local governments. · Third, there was much discussion about a Strategic Plan which would tie in the Comprehensive Plan, Land Use Plan, Budget, and all other planning documents. The Strategic Plan should become a guiding document as to how the City allocates resources in the future. The Strategic Plan was a recurring theme throughout this process. · Finally, both committee reports discuss the need for economic development. Efforts to substitute other revenues for real estate taxes and suggestions to control spending are not the sole answers to reducing the dependence on the real estate tax. Building the tax base with a well conceived plan to bring in new revenues will playa big part in helping to deal with future budgets and the myriad of issues they present. The City should continue to move forward with efforts related to economic development, for growing the revenue pie will help to lessen the dependence on the real estate tax. Both committee reports reflect this opinion. The job of City Councilperson is not an easy one, and I would personally like to thank you for the time and commitment you give in service to our City. On behalf of all the members of the Blue Ribbon Task Force, thank you for the opportunity for each of us to serve the City as well. (iJa ffi~L · Linwood O. Branch, Chairman · Blue Ribbon Tax, Fee and Spending Task Force .. I, I II VIRGINIA BEACH BLUE RIBBON TASK FORCE REPORT OF THE REVENUE SUBCOMMITTEE Members Robert C. Goodman, Jr. - Chairman Rosemary Wilson - City Council Liaison Terrie Suit - General Assembly Delegate Frank Wagner - General Assembly Senator Chandler Scarborough - CCO President Frederick J. Napolitano II - Citizen Supportin2 Staff David Hansen - Chief of Finance and Technology Catheryn Whitesell- Management Services David Bradley - Management Services Paul Harris - Management Services Ronald Berkebile - Management Services Joann Moore - City Manager's Office Sandra Blake - City Manager's Office 1. Purpose of the Subcommittee 1.1 To determine whether the City Council should continue to rely on the current level of residential real estate tax revenues to finance city and school services. 1.2 To provide revenue neutral alternatives this would permit a reduction In residential real estate tax revenue. 1.3 To examine other sources of revenue in light of the "Guiding Principles." 2. Guidin2 Principles in Connection with the Mission 2.1 Recognize the need for fairness in the distribution of taxes and fees among vanous payers. 2.2 2.3 .. 2.4 '~l 2.5 '''''' ''0 Recognize the economic impact of current and proposed taxing alternatives. Identify the consequences of various taxing alternatives on non-economic issues such as neighborhood stability and the impact on various groups of taxpayers. Identify taxing revenues that have the potential for growth over time In connection with the changes in the economy. Identify taxing revenues that minimize administrative cost to collect. , I 2.6 Propose tax neutral solutions with the understanding that our recommendations about revenues should not determine spending decisions. Recommendations that regard to spending will come from the other subcommittee. 3. Existin2 Facts/Constraintsl 3.1 The current rate of taxation on residential and commercial real estate is $.89 per $100. The table below illustrates the history of assessment changes for both residential and commercial properties. Residential and Commercial Assessed Value Changes FY Residential Commercial 1997 2.1% 1.9% 1998 3.1% 3.1% 1999 3.1% 2.7% 2000 3.4% 4.8% 2001 3.1% 4.4% 2002 4.1% 4.5% 2003 7.0% 2.7% 2004 7.2% 3.7% 2005 11.2% 9.9% 2006 21. 7% 11.6% 2007 22.2% 9.8% 2008 20.7% 11. 0% 3.2 Each $.01 of tax on real estate generates $5.4 million. . Each 1 ~ on residential properties generates $4.7 million.2 · Each 1 ~ on commercial properties generates $ 0.7 million.3 · To reduce the residential tax rate by a significant amount, say 29~ per $100, would require identifying $136.3 million in alternative sources of revenue. · To lower the residential real estate tax assessments by 20% would mean we would need to identify $60 million In new revenue. 3.3 Revenue sources for the City of Virginia Beach come from fees and various forms of taxes to be discussed below. il. I Sources for various tax rates are the Virginia Beach Resource Management Plan, the State Code of Virginia, and the City Code. 2 This represents all residential properties, not simply owner-occupied. Currently the City does not collect the data required to segregate owner-occupied from nonowner-occupied. If either a Homestead Provision is enacted or the committee's recommendation followed, this data will need to be collected. .., " ;~. 2 , I 3.4 Nearly 30% of the City's revenues come from the State in support of various state programs and mandates. 3.5 There are several local taxes where the state sets the rate. These include: Business Professional Occupational License (BPOL); general sales; utility taxes; and Virginia Telecommunications. The rates for these taxes are variable based on the various categories assigned by the General Assembly. Regionally, most cities are also at the state caps. Tax and License Comparison Business Tvpe Va. Beach Portsmouth Norfolk Chesapeake Suffolk Hampton N.News GENERAL SALES 1% 1% 1% 1% 1% 1% 1% BUSINESS LICENSES' Automotive Garage 0.36% 0.36% 0.36% 0.36% 0.58% 0.36% 0.36% Contractors 0.16 0.16 0.16 0.16 0.15 0.16 0.15 Medical 0.36 0.36 0.58 0.36 0.58 0.58 0.58 Retail 0.20 0.20 0.20 0.20 0.20 0.20 0.20 Real Estate 0.58 0.20 0.58 0.58 0.58 0.58 0.58 UTILITIES Electric Residential 2 $ 3.00 $ 3.40 $ 3.75 $ 3.75 $ 3.00 $ 3.00 $ 3.08 Commercial 2 162.50 400.00 No Max 112.50 1,300.00 80.00 80.00 Commercial 3 96.19 133.72 72.40 112.50 78.71 64.24 63.77 Gas Residential 2 $ 3.00 $ 3.00 $ 1.50 $ 1.88 $ 3.00 $ 2.40 $ 1.51 Commercial 2 162.50 400.00 500.00 112.50 1,300.00 65.00 55.00 Commercia/4 97.02 104.65 160.70 112.50 90.71 48.79 38.38 TELECOMMUNICA TlONS Residential/Com mercial E-911 $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.75 $ 0.75 Sales and Use 5% 5% 5% 5% 5% 5% 5% Cable/Satellite TV/Radio 5% 5% 5% 5% 5% 5% 5% 1, Per $100 of gross receipts 2, Maximum fee amount 3, 10,000 kwh bill 4. 1,000 CCF bill 3.6 In 2006, state and federal mandates cost Virginia Beach $464,603,499. Of this amount, $341,726,508, or 73.5%, of these requirements are unfunded. The Commission on Virginia's State and Local Tax Structure for the 2151 Century (also referred to as the Morris Commission after its Chairman) made the following recommendations to the General Assembly concerning mandates: ~ .' "...the voting members of the Commission unanimously endorse and submit the following proposals to the Governor and General Assembly for consideration. We recommend that: "I ;... 3 1) the state increase substantially its support for both the operational and capital costs of the local school divisions; 2) the state government assume the full operational cost for the provision of all mandated services provided through the Comprehensive Services Act, the public health departments, the Community Services Boards, the local and regional jails, and the local social service/welfare d ,,4 epartments; For Virginia Beach, just the implementation of the ftrst provision would allow the City to substantially reduce the Real Estate tax rate. The unfunded portion of School mandates represented $161.4 million (this is the portion beyond the Standard of Quality funding requirement). Having the State provide this support would allow for a 29~ reduction in the real estate tax rate. 3.7 The following local taxes are completely within the purview of the City Council to adjust the rates based on economics and need: FY 2008 Tax Rate Comparison Virginia Newport Taxes Beach Chesapeake Norfolk Portsmouth Suffolk Hampton News J $ 0.89 $ 1.06 $ 1.11 $ 1.26 $ 0.94 $ 1.06 $ 1.10 Real Estate Personal Property - Vehicles I $ 3.70 $ 4.08 $ 4.25 $ 5.00 $ 4.25 $ 4 ')" $ 4 ')" ._) ...) Personal Property - Pleasure Boats J $ 0.000001 $ 0.001 $ 0.50 $ 0.50 $ 1.50 $ 0.000001 $ 1.00 Machinery and Tools I.2 $ 0.33 $ 0.64 $ 1.70 $ 1.50 $ 0.63 $ 1.22 $ 1.17 C 3 $ 0.50 $ 0.50 $ 0.65 $ 0.50 $ 0.50 $ 0.65 $ 0.65 zgarette Meal 5.5% 5.5% 6.5% 6.5% 6.5% 6.5% 6.5% Hotel 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 7.5% Amusement 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 7.5% I. Per $100 of assessed value 2. For Suffol~ after 5 years, the rate changes to $0.32/$100. 3. Per pack of cigarettes. 3.8 Amusement tax (current rate is 10%) and Participatory Sport taxes (current rate is 5%) are set by the Commonwealth and are currently at the state limit. Adjustment will require action by the legislature. ""\ '11' 4 Commission on Virginia's State and Local Tax Structure for the 21 st Century (House Joint Resolution No. 578/1999); Commonwealth of Virginia; December 2000. Report to the Virginia General Assembly. '~lt 4 '" I 3.9 All service-related fees are discretionary with City Council. FY 2008 Fee Comparison Virginia Newport Taxes Beach Chesapeake Norfolk Portsmouth Suffolk Hampton News Vehicle License $ 25 $ 23 $ 26 $ 25 $ 20 $ 28 $ 26 Permit and Inspection Fees Additions 290 218 246 179 396 234 399 New 2,800 sf Home 699 364 550 4?- 809 492 811 -) New 5,000 sf Bank 591 875 979 610 1,073 779 1,271 New 120,000 sf Retail 11)40 13,146 17,787 3,882 12,156 13,435 26,395 Zoning Fees R5D 4 Acres Disturbed 10 Lots 947 3,990 50 575 300 900 800 R20 22 Acres Disturbed 50 Lots 3,173 10,990 250 975 1,500 2,900 2,200 39 of 71 Acres Disturbed 150 Lots 7,537 28,490 750 1,975 4,500 7,900 5,100 Site Plan Fees Convenience Store wlGas 2 Acres 1,458 1,320 200 400 560 375 635 Shopping Center 7 Acres 1,968 1,820 200 800 710 1,100 1,285 Retail 55 Acres 6,864 6,620 200 800 2,150 7,225 7.525 3.10 Residential real estate taxes are deductible for state and federal income tax purposes and such deduction is taken by approximately 70% of the taxpayers in the City of Virginia Beach. Other than personal property taxes (car tax), all other forms of taxation would not result in deductions for individual taxpayers. Local income taxes can be deducted from federal and state tax returns. Fees such as garbage fees and the like are not deductible. 3.11 There are four court-collected fees remitted to the city. They are the Courthouse Maintenance Fee, Law Library Fee, Courthouse Security Fee, and the Technology Trust Fund. At present, the city receives the maximum allowable for each. The combination of the Courthouse Maintenance and Law Library Fee may not exceed $4/case. The Courthouse Security Fee is designed to assist with Sheriff security costs. The Technology Trust Fund is a state remittance to the Clerk of the Circuit Court and is to be used for the upgrade of Circuit Court technology. .. 5 " I City Court Fees Type Fee Technology Trust Fund $ 5 Law Library 2 Court Security 10 Courthouse Maintenance 2 4. Committee Approach 4.1 The Committee has examined a number of alternatives. There are two separate approaches that the Committee has used: a) To look at the major sources of revenue that, on a revenue neutral basis, could be used to support a significant reduction in residential real estate; and b) To look at all of the other fees and taxes which cumulatively would not support a major reduction in real estate, but where questions of fairness and equity and appropriateness have been raised by Committee members and/or members of the public. 4.2 The Committee has also examined economic development as a partial solution. By increasing the community's commercial and industrial base the City can grow the overall economy and use revenues generated from sales, hotels, personal property and commercial real estate to reduce its reliance on residential real estate, 4.3 The Committee has recognized and will identify where changes to state law are needed. However, the Committee has not viewed the need for the General Assembly action as a constraint. The Committee feels that where good policy reasons indicate a need for a change to State law, the City Council should pursue such a request. 5. OPtions Reyiewed bv the Committee 5.1 Do nothing - leave the residential real estate tax and the City's reliance on it as major revenue source as is. This alternative would recognize that the phenomenal run up of home values may have ended, at least in the short run, and that the problem has "self-corrected." However, the Committee remains concerned that while home values are no longer increasing at double-digit rates, home values remain high and consequently residential real estate taxes remain high. 5.2 Lower the real estate tax rate on owner-occupied residential properties (properties owned and occupied by the mortgagee and/or deed holder or immediate famill) and adopt one or more of the following substitutes on a revenue neutral basis: 5 Currently the City does not have access to this type ofinformation.lfthe Homestead Provision or the Committee's recommendations are adopted, a process to collect and track this data will have to be developed. .. 6 " I a) Request the Legislature provide the City and each other locality the option to tax income at I % with the requirement that the tax dollars so raised on a consistent basis replace a like amount of owner-occupied residential real estate tax. The estimate is that a 1% income tax on the citizens who reside in Virginia Beach would lower the rate on residential owner-occupied real estate by approximately 15~ per $100. Salaries at Which a 15~ Owner Occupied Real Estate Tax Rate Reduction Fully Offsets a 1 % Increase in Income Tax Real Estate Assessed 89~ Tax 74~ Tax Tax Breakeven Values Rate Rate Reduction Salary $ 150,000 $ 1,335 $ 1,110 $ 225 $ 39,500 350,000 3,115 2,590 525 69,500 550,000 4,895 4,070 825 99,500 750,000 6,675 5,550 1,125 129,500 950,000 8,455 7,030 1,425 159,500 1,150,000 10,235 8,510 1,725 189,500 1,350,000 12,015 9,990 2,025 219,500 1,600,000 14,240 11,840 2,400 257,000 For each home value, the breakeven salary is based upon a 1% increase in the maximum income tax rate of 5.75%. Homeowners who make less than the break-even salary would benefit from the conversion from real estate to income tax; conversely homeowners who make more would be negatively impacted. The Commission on Virginia's State and Local Tax Structure for the 21st Century (also referred to as the Morris Commission after its Chairman) made the following recommendations to the General Assembly concerning sharing income taxes for the purpose of reducing real estate taxes: ". . .3) at least six (6) percent of the state's annual individual income tax collections be dedicated for return to Virginia's localities for the purpose of broadening their revenue base and reducing their dependence on real property taxation;,,6 6 Commission on Virginia's State and Local Tax Structure for the 21st Century (House Joint Resolution No. 578/1999); Commonwealth of Virginia; December 2000. Report to the Virginia General Assembly. " 7 " I b) Request the Legislature provide the City and each other locality the option of a local sales tax. This alternative for significant reduction would be a 1 % sales tax to be paid entirely to the locality and used to replace in like dollars the comparable amount of owner-occupied residential real estate tax. The 1 % sales tax would, it is estimated, reduce the residential owner- occupied7 real estate tax by approximately 11~ per $100. 5.3 Other potential significant sources of funds which could result in some reduction of the overall real estate tax and do not require General Assembly action: a) Personal Property on Vehicles - The city's rate of$3.70 per $100 of value is the lowest in the Hampton Roads region. If the City was to increase it to the regional average of $4.25 it would generate additional personal property revenues of $18.2 million or approximately a 4~ reduction in the residential owner-occupied real estate tax rates. The State's attempt to eliminate this tax has been capped at a flat amount of $54 million and will remain to help offset a portion of the taxpayer's bills. b) Garbage Fees - Every Hampton Roads community with the exception of Virginia Beach and Chesapeake charge for the collection and disposal of trash. Garbage fees could result in approximately $30 million or approximately a 6~ reduction in residential real estate tax. While this change would be favored by condominium owners who pay the residential real estate tax and also pay for collection of garbage fees, all taxpayers who now have garbage service without charge would essentially convert a tax deductible expense into a taxable expense. To fully recoup the city's cost of collecting and disposing of trash, including recycling and white goods, would require a monthly charge of approximately $18 per household or $216 per year. The break-even assessment on this, assuming a 6~ reduction in real estate tax rate, would be homes of $400,000. Anything greater would see more tax relief than cost; anything less would see more cost from the garbage fee. In addition to the concern about the reduction in a tax deduction, there is a strong concern in the Committee about the reduction in the cleanliness of the City where fees are in any way based on volumes of garbage disposed of or the like. Another strategy would be to privatize the collection of trash. Some communities have undertaken a process to have city services "compete" " 7 Currently the City does not have access to this type of information. If the Homestead Provision or the Committee's recommendations are adopted, a process to collect and track this data will have to be developed. 8 Currently the City does not have access to this type of information. If the Homestead Provision or the Committee's recommendations are adopted, a process to collect and track this data will have to be developed. ~. 8 '" I with private sector companies for the delivery of services. In some cases, this has resulted in the government getting out of the service, and in others, the government was the most cost-effective. And in others, the government was able to become more competitive. There is a cost to develop the RFP and develop a response. In order to be fair, there is a need for an independent third party to develop the RFP rather than have city staff do it. Also there is a need to have an independency in the review of the bids. Other communities have simply decided to get out of the business and let the private sector deliver the service. Depending upon whether the city was the contractor or the individual homeowner would determine the impact on the budget. In the case of trash collection, the Committee is concerned about increased illegal dumping and that there would still have to be significant city involvement to prevent a myriad of private pickup vehicles traveling neighborhood streets. c) Economic development option of growing the economy. In the long run, economic development has the potential to provide more high-paying jobs which, in turn, will increase the overall tax base. Commercial properties also require less government service than residential properties. Currently the Virginia Beach economy is strong. Civilian employment is offsetting declines in military employment (military employment comprises 9% of the employment base). Efforts by the City to expand civilian employment opportunities need to be focused on diversifying the economy and strengthening per capita income. As the graph below illustrates, retail and food services comprise large segments of the employment base. 9 , I Virginia Beach Employment by Industry GovernmentTotal I Other Services (exc. Public Admin) I Accommodation and Food Services f Arts, Entertainment and Recreation CJ 1,901 Healthcare and Social Assistance I I 28,095 I 5,877 I 20,534 16,778 Educational Services I Administrative and Waste Services I ManagementofCompanies c=J 2,856 I 3,055 I 14,060 Professional and Technical Services I Real Estate, Rental and Leasing I Finance and Insurance I Information I I 13,645 I 5,360 I 8,897 I 4,022 Transportation and Warehousing c=J 2,665 Retail Trade I I 26,696 Wholesale Trade I I 5,243 Manufacturing I 6,147 Construction I 13,253 5,000 10,000 15,000 20,000 25,000 30,000 Commercial and industrial properties comprise 13% of the real estate tax base with a value of $7.1 billion. Commercial properties as a percentage of the tax base have declined over the last ten years from roughly 18% of the total base to the current 13%. At one point the city had a goal of achieving commercial as 30% of the overall tax base. As residential properties have increased dramatically in value over the last four years the likelihood of achieving this goal has declined, however it should be noted that for 2006, 22% of new construction value was due to commercial properties. As the graph below shows the commercial base in Virginia Beach nearly exceeds the combined base of Norfolk and Chesapeake. The City needs to continue to focus on encouraging new commercial properties as a way to grow the economy. '. 10 Commercial Assessments IN BILLIONS 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 . FY 2005/06 ~ FY 2006/07 o Virginia Beach Chesapeake Norfolk Source: Real Estate Assessor's Office for each city The committee would recommend several strategies to assist the City in expanding economic development: 1) Seek expert advice from independent parties in negotIatmg public private partnerships and major land acquisitions. 2) Include, as a requirement of public participation, that information on taxes paid by the company or companies within the project be made available to the city for evaluation of the public's return on investment. Given the State Code requirements for privacy, the agreement between the City and the private party should include this language. 3) The City should carefully evaluate the anticipated return on investment for any public/private partnership and ensure that each project meets specific goals for job creation, value of jobs, and the level of private investment. These goals should be made public and regularly evaluated. il .. 4) Identify land opportunities for future commercial developments and business parks. Take steps to preserve these opportunities. " 5) Seek an expanded Economic Development Toolbox by encouraging the General Assembly to provide greater '11I; 11 flexibility in the way TIFs are implemented. Under the current system, general fund tax revenue within the TIF is capped at the base year for the life of the TIP and is subject to decrease if the tax rate declines. An alternative would be provide Council with the ability to index the base year to CPI increases or to the overall rate of appreciation of city real estate so that general fund revenue will keep pace with inflation. A second option would be to provide Council with the flexibility to dedicate a portion of revenue growth within the TIP to the purpose of the TIF and retain the remaining portion of revenue growth for the general fund. 6) Recognizing that residential neighborhoods make up 87% of the city's tax base, identify ways to support and strengthen the city's existing neighborhoods as they continue to age and mature. 5.4 A California Proposition 13 type freeze would require General Assembly legislation. In an effort to cap real estate taxes, Proposition 13 was authorized by California voters. Upon enactment, the maximum property tax rate was set at one percent of the property's 1975-1976 value. The assessed value was allowed to increase at the rate of inflation with a two percent cap each year. Only upon a change of ownership could property be revalued. Proponents of Proposition 13 cite an initial 57% average rate reduction and the ability to forecast their future property taxes. Ten years after its passage, Proposition 13 was credited with raising residents' personal income, creating job growth at twice the national average,9 and generating additional disposable Income. Opponents of Proposition 13 would cite the usurping of local authority by the state. For the first time, the state was able to exercise legislative revenue control over local towns and cities. To offset revenue shortfalls, cities have increased fees.10 Specifically, high fees have been levied on developers building new houses and industrial outlets. These fees ultimately filter down to the buyers. The reduced real estate funding has resulted in decreased funding for public schools, libraries, police and fire departments. I I While Proposition 13 contributes to neighborhood stability, it also contributes to an inefficient housing market, Sources 9 Moore, Stephen, July 30, 1998, Proposition 13 Then, Now and Forever, CA TO Institute, www.cato.org/pub_display.php?pub_id=5682 10 Wikipedia, California Proposition 13 (1978), en. wikipedia.org/wiki/California ]roposition _13_( 1978) " II Chapman, Jeffrey L, Proposition 13: Some Unintended Consequences, Public Policy Institute of California, Occasional Papers, Tenth Annual Envisioning California Conference 12 Calendar Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 because it provides disincentives for selling property in favor of remaining at the current property. This results in a smaller housing supply and potentially less affordable housing for the less affluent. In the hypothetical scenario below, had Virginia adopted a similar law, a Virginia Beach taxpayer would have saved $6,207 over the time horizon. This assumes no shift to other fees and taxes. Virginia Beach Assessed Assessed Real Estate Value A Value (AV) Tax2 Base S 112,000 S 1,366 3.1% 115,427 1,408 3.4% 119,329 1,456 3,1% 123,016 1,501 4.1% 128,096 1,563 7,0% 137,1 ]4 1,673 7.2% 146,946 1,793 ] 1.2% 163,330 1,960 21.7% 198,838 2,028 22.2% 242,881 2,405 20,7% 293,108 2,609 Proposition 13 Urban Maximum Assessed Real Estate Inflation Rate AI Value (A V) Tax 2.2% Base $ 112,000 $ 1,120 1.7% 1.7% 113,904 1,139 2,1% 2.0% 116,182 ],162 3.7% 2.0% 118,506 ],]85 2.7% 2.0% 120,876 1,209 1.5% 1.5% 122,689 1,227 2.1% 2.0% 125,143 1,251 3.0% 2.0% 127,646 1,276 3.2% 2.0% 130,199 1,302 4.1% 2.0% 132,802 1,328 2.4% 2.0% 135,459 1,355 Annual R.E. Tax Reduction3 S 246 269 294 316 354 446 541 684 726 1,076 1,254 1 Based upon inflation and the cap E' intlation is <2IYc" this becomes the maximum allowable. If it's >2~~>, {he maximum allowable is 2'% 2 ] 997,2003, the ,ate was $] 22'$ I 00, :004, $ I 20/$/00: 2005. $] 02/S] 00: 2006, .99~SI 00: 2007, 89c!$] 00 " I~I '.1 .. The California alternative of freezing the tax resulted in signiftcant fiscal chaos in California until other sources of revenue were ultimately substituted. If Virginia were to look at this approach, we see several problems: a) To a large extent, the "horse has left the barn" because of the enormous run-up in residential real estate values in recent years. Accordingly, a freeze based on value at time of purchase would not necessarily help many homeowners in the intermediate term, and b) While Prop 13 encourages neighborhood stability, it also can greatly discourage a vibrant real estate market. 5.5 Homestead Provision - Similar to a Proposition 13 approach to lowering residential real estate taxes is a "homestead provision." The Virginia General Assembly is currently considering such a provision for the state. This provision, which requires a change to the State Constitution, would allow localities to design a program which could exempt up to the first 20% of owner-occupied primary residential property and farm land property from taxation. If Virginia Beach provided the full exemption to all qualifying properties with no other restrictions (length of residency; phase-in; disqualifying participation in other tax relief programs, etc.), a preliminary estimate is that a 20% homestead would represent a 560 million reduction in real estate tax revenue. The following table illustrates 13 '" I the difference in taxes paid by a hypothetical homeowner, if a 20% Homestead Provision had been enacted in 1997 on a home valued at $112,000, the cumulative real estate tax reduction would be $3,952 over the time horizon from 1997 to 2007. Virginia Beach Assessed Assessed Real Estate Value A Value (A V) TaxI Base $ 112,000 $ 1,366 3.1% 115,427 1,408 3.4% 119,329 1,456 3.1% 123,016 1,501 4.1% 128,096 1,563 7.0% 137,114 1,673 7.2% 146,946 1,793 11.2% 163,330 1,960 21. 7% 198,838 2,028 22.2% 242,881 2,405 20.7% 293,108 2,609 Calendar Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1. 1997-2003, the rate was S1.22/S100; 2004, S 1.20/S 100; 2005, S 1.02/S 100; 2006, .99~/$100; 2007, .89~/SlOO, 2, Comparison between the VB tax and maximum Homestead exemption Homestead 20% A V Real Estate Adjustment Tax $ 89,600 $ 1,093 $ 92,342 $ 1,127 $ 95,463 $ 1,165 $ 98,413 $ 1,201 $ 102,477 $ 1,250 $ 109,692 $ 1,338 $ 117,556 $ 1,434 $ 130,664 $ 1,568 $ 159,070 $ 1,623 $ 194,304 $ 1,924 $ 234,487 $ 2,087 Annual R.E. Tax Reduction2 $ 273 282 291 300 313 335 359 392 406 481 522 5.6 There is currently an elderly tax exemption on residential real estate for parties below the income level of $62,000. This provides modest relief for certain families but does not appear to the Committee to provide the broad base relief to promote neighborhood stability to lessen the pressure on families whose income does not rise as quickly as housing values. Overall, the Committee feels that a better approach would be to lower the rate with a substitution of other revenues. 6. Other Revenue Sources 6,1 Local Gas Tax -- There is the potential for a local gas tax. However, in connection with the Hampton Roads Transportation Authority, this tax appears more likely to be dedicated for transportation than for reduction of residential real estate tax. " tfl 6.2 Better Commercial Assessments -- The question was raised as to whether there could be a better job of assessing commercial real estate property. At the recommendation of the Tax Assessment Task Force a study was completed and presented to City Council on the commercial assessment process. However, there are still a number of examples in the City where property sold for significantly above the commercial assessment. The Virginia Beach Real Estate Assessor's Office furnished the Committee with raw data comparing the 2007-2008 assessments with the commercial sales that 14 occurred between July 1, 2005 and June 30, 2006. Data states that the overall average was, at assessment, 94.36% of sales and the median was 92.06%. The Committee suggests that there is another way to look at the data, based on the dollars involved. A number of small properties assessed at precisely the right value and several large properties assessed at the wrong value would lead to different tax collection and equity results even though the average might look very good. The Committee examined the data based on the dollar amount. The gross assessed value for commercial properties for the 2007-2008 period was $253,319,006.92 while gross sales for the 2005-2006 fiscal year were $287,294,390. Thus gross assessments for fiscal year 2007-2008 were 88% of the sales for the period from July 1, 2005 through June 30, 2006. With multi-family properties the number would be 87.5% (vs. the reported 95%), general commercial properties would be approximately 83% (vs. the reported 92%) and shopping center ratios would be approximately 105% as compared to 120% as shown on the report. All of this analysis still does not result in a tremendous increase in revenue. lfthe sales ratio on gross dollars had been at 100% it would have resulted in approximately $300,000 more revenue to the City. It does go to equity and to perception of fairness. 7. Other Taxes and Fees Whert~ the Issue Is Primarily Fairness and Good Business Jud2ment The Committee discussed the following fees and taxes in light of fairness to the payer and whether, from a business perspective, charging a fee to recoup costs made sense and if it did, what percentage of costs should be recouped in the fee. The Committee discussed the regulatory nature of some fees (re impact of fee to change behavior) and the need to be more businesslike in the way the City offers services. These discussion lead the Committee to highlight the following fees and in some cases to make recommendations for adjustment in the rate. In all cases, whether the fee or tax adjustment was recommended for fairness reasons, to enhance regulation of certain behaviors, or to recoup more of the cost of the services, all of the revenues generated are recommended to be used to reduce the overall real estate tax rate. 7.1 Litter and Dumping -- The Committee suggested considering stricter enforcement of the prohibition on illegal dumping and littering and potentially changing the fines and penalties for the same. There's no public benefit and there needs to be a significant disincentive for individuals to "cheat" by conducting illegal dumping or to litter. Current fines are: Littering and Illegal Dumping (Chapter 31 of City Code) - this is a class 1 misdemeanor punishable by up to 12 months injail and/or a fine of up to $2,500. Junk (Section 23.48 of State Code) is a class 1 misdemeanor with the same punishment. Trash (Section 23.50 of State Code) is a class 2 misdemeanor punishable by up to 6 months in jail and/or a ftne ,tol n'l 15 of up to $1,000. At the same time from a revenue point of view, the costs of enforcement and collection are extremely high. 7.2 Tax on Pleasure Boats -- Several years ago all cItIes in Hampton Roads essentially eliminated the tax on pleasure boats in the hopes of retaining boaters in their communities. In the most recent budget cycle, Portsmouth and Norfolk reinstated their taxes (although at a lower rate than the original rate) citing the failure of the elimination to attract boaters and additional spending. Virginia Beach staff recommended the reinstatement of the tax at $1 per $100 of value, which also was lower than the original rate; however the City Council did not approve the recommendation. The Committee feels that while this tax would generate over $1.3 million in revenue (0.28~ on the residential real estate rate) it is costly to administer and difftcult to collect. In the alternative, the Committee recommends that fuel sold at marinas be taxed at the same rate as that sold at service stations and provided to localities as a revenue stream. This would require General Assembly legislation. There are public costs (such as dredging, police patrols and water clean up) associated with pleasure boats just as vehicles have costs supported by gas taxes. 7.3 Boat Tax on Commercial Fishing Boats -- At the time Virginia Beach staff recommended reinstating the tax on pleasure boats, they also recommended lowering the tax on commercial fishing boats from the current rate of $1.50 to $1.00 per $100 (similar recommendation was made for recreational vehicles and airplanes). City Council did not approve the recommendation at that time. The Committee feels that the competitive impact of this tax should be further examined. 7.4 Fees --The Committee reviewed the major fees collected by the city for various programs ranging from courthouse maintenance to human services programs. Overall the City collects a wide variety of fees related to use of particular programs. Certain of these programs offer unique services to select groups. In some cases it may be appropriate that the city increase the user fee concept. Consideration should be given to indexing fees biennially to the Consumer Price Index (CPI). The following is the Committee's analysis: a) Courthouse Maintenance Fees -- This fee is charged on every criminal and civil case and is set at $2 for criminal and traffic cases and $4 for civil cases. The rate set by the state code appears to be very low against the cost of maintaining the needs of a courthouse that has the highest caseload in the State. Hypothetically, if the fee were allowed to increase biennially by the rate of inflation, the cumulative additional revenues over the six- year time horizon (below) would have been $90,918. '~I!o 16 " oil " ~" 11'1 Courthouse Maintenance Fee Biennially Ad.iusted for Inflation Fee Adjusted Additional FY Collected Inflation 1 Collection Revenue 2002 $ 217,175 3.4% 224,559 $ 7,384 2003 210,069 3.4% 217,211 7,142 2004 208,648 4.2% 224,505 15,857 2005 199,621 4.2% 214,792 15,171 2006 202,021 5.3% 228,082 26,061 2007 149,636 5.3% 168,939 19,303 1. Biennial adjustment based upon the skipped year inflation plus the present. Off adjustment year reflects previous year adjustment. b) Excess Fees - Clerk --The Committee discussed this office in light of state cutbacks in staffing. Currently the State provides $1.7 million to support of this office. In addition, State Code requires that all fees collected by the office be split one-third to the State and two-thirds to the City. This results in additional revenue to the City of $2.5 million which can be used to support other general government needs. Between the two revenues the City is at 200% recovery of direct program costs. The Committee considered whether the City should take over the responsibility for the office to address staffing shortages and low employee pay, however, the City would lose the $1.7 million in state support. Accordingly no change is recommended. c) Overweight Vehicles - The Virginia and City codes authorize the City to establish weight limits and penalties for violation of vehicles traveling on city. DMV (mainly) and the Courts collect the ftnes and remit to the City its portion to include: revenues from civil penalty at $25 per violation, weighing fees, if any are incurred, and liquidated damages. The 2007 General Assembly increased liquidated damages 2 cents per pound for excess weights over the gross weights of 2,001 or greater, added $20 to liquidated damages fee and $20 for civil penalty related to abusive driver fees. The Planning Department/Civil Inspections Unit issues and collects fees for special hauling permits. City Code authorizes the City Manager to impose temporary weight limit reductions for up to 90 days, substantiated by an engineering study showing that the roadway requires protection from serious damage. Penalties for violation include a fine of not less than ten dollars ($10.00) or more than five hundred dollars ($500.00), sentencing to jail for not less than one day or more than six (6) months, or both. City Code authorizes the City to issue special permits for oversize and overweight vehicles: Annual (blanket) permit $300.00, 17 11 " 1'. IIII restricted equipment $75.00, and single trip permit $75.00. A change in the penalty fees would require General Assembly action. A change in the hauling permit fees could be made by City Council. These fees appear to be low. Even without an increase for regulatory purposes, if the fee were allowed to increase biennially by the rate of inflation, the cumulative additional revenues over the six year time horizon (below) would have been $80,897. Overweight Vehicle Fee Biennially Ad.iusted for Inflation Fee Adjusted Additional FY Collected Inflation 1 Collection Revenue 2002 $222,160 3.4% $229,713 $7,553 2003 128,242 3.4% 132,602 4,360 2004 150,210 4.2% 161,626 11,416 2005 144,904 4.2% 155,917 11,013 2006 215,056 5.3% 242,798 27,742 2007 145,839 5.3% 164,652 18,813 1. Biennial adjustment based upon the skipped year inflation plus the present Off adjustment year reflects previous year adjustment d) Yard Debris Trailers -- This program is highly popular with residents but is costly for the city to provide. It would be appropriate to increase the fee to recover the full cost of providing the service. e) Human Services Fees -- Human services fees (programs related to social services and mental health) are defined predominately by Federal and State Medicaid and other programs since these programs pay the majority of the programs cost. Sliding fee scales are prescribed in the various programs based on income of the participant. Also, most of these programs prohibit denial of services based on the participant's ability to pay or payment history. Because of these restrictions the average collection rate for fees in this area is only 35%. This rate is comparable to other Virginia communities. f) Permits and Inspections -- Fees in this area are designed to defray the cost of enforcing the Uniform Statewide Building Code. Fees include building, plumbing, and electrical permits and inspections. Rates are regularly reviewed increased as a part of each year's budget process and appear to reflect a fair and reasonable fee. It was noted that some localities have been more aggressive than Virginia Beach. There exists the potential for increases especially with small commercial properties. 18 Ii! I The City recovers 115% of the direct program costs (but indirect costs of payroll processing and accounting are not included in this calculation). The Committee suggests combining Permits and Inspection Code Enforcement, increasing these fees to generate additional support to expand code enforcement. g) Development Review Fees -- These fees include preliminary and ftnal subdivision plat review, storm water design review, and construction plan review. It appears that fees for this review in Virginia Beach are behind Chesapeake but somewhat in line with the other Hampton Roads communities. However the revenue generated from development review fees only covers 33% of the direct costs associated with this program. Where possible Council should raise the fees to cover the actual costs and in turn continue to strive for an expedited review process. h) Virginia Beach Convention Center Revenues from All Sources -- Fees charged at the convention center are designed to offset the cost of rental of the facility, provision of staff services, rental of individual rooms, provision of audio/visual and other equipment and use of utilities. Current fees cover 61 % of the direct costs of operating this facility and appear to be in line with the cost recovery at other similar facilities throughout the country. When hotel room rentals associated with conventions and trade shows is factored in close to 100% of the direct costs are recovered through hotel and restaurant meals taxes. The Convention Center is doing very well and would do even better with the addition of a Convention Center Hotel. j) " 111 ., ~~ ~. i) City Treasurer Charges -- The need for online credit card payments was discussed. Information on how the new Revenue, Assessment and Collections System will hopefully address this concern was shared with the Committee. Court Fines and Forfeitures -- The City is allowed by State law to charge penalties for violations of local ordinances. These violations are misdemeanors and non-misdemeanors that are settled by judgment. The City is recovering 102% of the direct cost of the various courts in which these fees are prosecuted. The Committee feels that these costs should include more than just the operating costs of the courts and recommends that State authority be sought to increase the fees sufficiently to cover the costs of police officers appearing in these cases and other non-court operation costs. k) Parking Ticket Penalties -- Fees in this classification are penalties for failure to pay parking tickets. The State Code dictates the penalties that can be levied and the City is currently at the maximum. The City is recovering 263% of the direct cost of collecting these penalties. The City 19 II I charges residents $1 to park in the evenings at the oceanfront (garages are $lIparking lots are $1 from May to September and free the rest of the year). This was less a revenue generation issue than a way to encourage locals to visit the oceanfront. The parking lots and garages operate without any taxpayer support and costs are fully offset by fees, including overhead. 1) Recreation Center Fees - Presently the recreation membership fee for adults, excluding sliding scale qualifiers and seniors, is $55/person. In FY 2005, the rate went from $37 to $50 (a 35% increase). When this occurred, adult membership declined 13.6%; however, approximately an additional $153,000 was gained. By raising the present rate to $100, there will be an anticipated membership decline and a revenue gain of$787,000. 8. Recommendations With regard to the residential real estate tax, in the end there is no perfect answer. There are strong arguments as to why it should be lower. These include the potential for greater neighborhood stability so that older citizens, or citizens with slower rising income, are not pressured into selling because of escalating housing prices, which result in higher real estate taxes. The residential real estate tax is a tax that the individual cannot control by their personal consumption patterns, nor can homeowners necessarily be assured that their income will increase at the same rate that the property values increase. Accordingly, it is a threatening tax. One's home is one's castle. One does not like to have uncontrolled expenses with respect to one's home. This is the key argument for taking action with respect to residential real estate. 8.1 The Committee recommends that if the homestead exemption does not pass, or does not provide the necessary level of relief for owner occupied residential real estate.12 that the following approach be considered as an alternative: " ., '~i:I .r b) J@ a) Enact a 1 % local personal income tax and use that revenue to provide a dollar-for-dollar reduction in the owner-occupied residential real estate tax rate. Using today's dollars, this reduction would amount to approximately at $0.16 reduction in the tax rate. This would require General Assembly approval. Enact a local 1% sales tax and use that revenue to provide a dollar-for- dollar reduction in the rate of the owner-occupied residential real estate.]3 Using today's projections this would result in a reduction of approximately $0.12. This would require General Assembly approval. '. 12 Currently the City does not have access to this type of information. If the Homestead Provision or the Committee's recommendations are adopted, a process to collect and track this data will have to be developed. 13 Currently the City does not have access to this type of information. If the Homestead Provision or the Committee's recommendations are adopted, a process to collect and track this data will have to be developed. 20 8.2 '., " .. ii .. 8.3 .. .. tit it. "'.. III' c) After the rates on owner-occupied residential real estate tax have been reduced by application of the personal income tax and/or sales tax, the rate on the owner-occupied residential real estate tax could not thereafter be increased or decreased except to the extent that the rate is increased or decreased with respect to all real estate. By way of example, if after the application of the personal income and sales tax revenues noted above, the owner-occupied residential real estate tax was decreased by $0.28 from $0.89 to $0.61, thereafter the $0.61 rate could not be increased or decreased unless the $0.89 rate changed by exactly the same amount. So a $0.01 increase in the $0.89 rate to $0.90 would change the $0.61 rate to $0.62. The only exception to this would be the current State-mandated tax imposed under the Hampton Roads Transportation Authority which, assuming that it is not modified between now and April 1, could already increase commercial real estate taxes by $0.10 per hundred. d) The important point to note with this approach is that there is not a free floating bifurcation between owner-occupied residential, residential generally, and commercial. All rates locked in the same relationship, with the exception of the one-time tax relief provided by the personal income and/or sales taxes and the HRTA surcharge. This is an important point because politically then, there cannot be a movement to raise the tax on commercial real estate that would not precisely affect residential real estate including owner-occupied residential real estate in the same manner. The Committee recommends that if the State law is changed to permit a homestead exemption, that the City not enact a homestead exemption without first identifying alternate sources of revenue so as to maintain revenue neutrality, except to the extent it is able to identify expenditures that may be cut to result in a balanced budget. The Committee recommends that the City carefully consider its surplus property as a potential source of funds for capital investments. However, the Committee does not recommend the City lessen open space by declaring such properties surplus. The Committee encourages the City to create more open space, particularly in the northern part of the City to the extent that surplus properties may be used for that purpose. Surplus properties should also be considered as potentially tradable for future development. The most obvious piece of surplus underutilized City property is the School Board property on Laskin Road, which has substantial value and is clearly underutilized by the administrative offices of the school system. In this case, clearly there is a higher use for the property. 8.4 The Committee recommends with regard to other taxes and fees, where the issue is principally one of equity, to make the changes discussed above. To the extent that there is an increase in revenue to the City or a decrease in expenditures by the City as a result of such changes, the Committee recommends that the savings be considered as part of reduction in the overall real estate tax rate - not just owner- 21 " 0' '.. ''1 .. dl II " ..1 ., .. ., .. n d ~, 11 ., ., occupied residential real estate. The reason for this position is consistent with the discussion above that residential real estate, commercial real estate and owner- occupied residential real estate tax rates should be linked with respect to the political and economic factors, with the exception of single-shot tax relief to be afforded by personal income tax and/or local sales tax. 8.5 The Committee further recommends with regard to fees there be biennial adjustments for changes in the consumer price index and periodic reviews (not less than every three years) for other factors such as cost recovery. 8.6 The Committee recommends that the city continue strong efforts to stimulate continued economic development in concert with our strategic partners in the state government and in the region of Hampton Roads. The locus of economic development is clearly the region, yet the city has a major role in ensuring that existing businesses have the access to the assets they need for expansion and that new firms find the resources they need if they are to decide to locate in Virginia Beach. A strong economy will mean a strong vibrant community. The Committee supports expansion of a diversified economic base in our City. Currently, our available assets do not meet the aggressive goals and objectives set by the city council. We lack both sites and modem buildings in areas served by necessary infrastructure including transportation. As we transition from a suburban enclave of separate and distinct neighborhoods to a more urban environment with strategic growth areas along defined transportation corridors, we must address the need for consistent redevelopment parameters that result in attractive product for new and expanding businesses. The Committee concurs that the focus should be on higher paying jobs with the exception that it recognizes that tourism is a net positive generator of economic activity for our community. Further the Committee recognizes that the drivers of economic development are constantly in a state of flux. Therefore, we should pursue the continued development of a diversified and highly educated workforce that will be conducive to attracting economic development to our region and to our city. Other regions have pursued multi jurisdictional business parks that can serve their expansion needs for decades, producing jobs and workers who live throughout a region and support local government with their abilities and their taxes. We should join together with our regional partners to create such a vehicle to prosperity. The City should use first-rate advisers to assist in analysis and negotiation of investment opportunities. And it should use the expertise of consultants and the business community to develop criteria for measuring the effectiveness of economic development efforts and to implement the foregoing. 22 Iii I VIRGINIA BEACH BLUE RIBBON TASK FORCE REPORT OF THE EXPENDITURE SUBCOMMITTEE Members Dr. Maggie Sizer - Chairman Robert Dyer - City Council Liaison Chandler Scarborough - CCO President Dan Baxter - CCO Member Nancy Parker - Citizen Thomas Keeley - Citizen Supportin2 Staff . David Hansen - Chief of Finance and Technology Catheryn Whitesell - Management Services Matthew Bosse - Management Services Joann Moore - City Manager's Office Mary Beth Kemper - Management Services 1. Introduction Good stewardship and governance of governmental spending requires elected officials to consider overall economic growth and the overall ability of their taxpayers' to sustain that growth. Virginia Beach's City Council must always take into account the burden they place upon present and future taxpayers and the taxpayer's ability to pay. "There is always a better way to do it - find it. " - Thomas Alva Edison 2. Framin2 of Recommendations The Spending Subcommittee believes it is imperative to frame the recommendations in this report by first stating some of the challenges that decision makers and stakeholders will be facing in the near future. '., Individually, these challenges may vary in severity and impact on the budgeting process. Combined, these forces, if not properly anticipated and prepared for, have the potential for creating the "perfect financial storm" for this city. The question for City Council and all residents will be what actions must be taken to prepare and equitably Balance the Burden. ., We recognize that Virginia Beach has a strong financial position, thriving downtown district, oceanfront improvements, expanding educational opportunities and a high quality of life. At the same time, a number of challenges present both threat and opportunity. Dealing with these challenges today with a well thought-out plan and different approach to the budget process, Virginia Beach has the opportunity not only to weather possible storms, but to come out of potentially difficult times stronger than ever. 2.1 Challenges Created By Other Levels of Government .., .~ i~' .. ~I!' Iii I a) The costs of the Global War on Terrorism are now causing the Department of Defense (DOD) to reassess spending in its present and future budgets. Changes in DOD's budgetary spending policies could adversely impact the Hampton Roads economy. State Revenue deftcit projections of $1.2 billion are expected for the 2008- 2010 Biennium State Budgets at current expenditure levels. 1 Growth in Medicaid costs will have a substantial negative impact on the state budget now and in the future. Because Virginia's constitution requires a balanced budget, this shortfall will lead either to a reduction in funds to local government or a large state tax increase and greater competition for tax dollars, or both. b) c) The Homestead Act is expected to pass, creating a real estate exemption on the ftrst 20% of valuation on owner occupied residence with a negative impact of $60.5 million.2 The cost ofNAS Oceana land purchases will continue. d) e) $465 million dollars (28%) of the city's operating budget is used to support various State- and Federally-mandated programs. $121 million dollars in Federal and State funding is received toward these mandates. $344 million dollars is currently required in supplemental city funding to state-mandated programs. (Source: City Unfunded Mandates Report: April 20,2007.) i" 2.2 Challenges Resulting from Changing Economic Conditions a) Increasing oil prices will impact all levels of governmental services. l' .. c) ., !lI' d) .. .. .. b) The outlook for the national economy has become markedly less buoyant this year in response to a crisis in the housing market, higher interest rates, an unprecedented trade deficit, and inflationary pressures. The slowdown is expected to continue into 2008 with growth remaining below its recent trend for the next few years. Households in Virginia Beach with adjustable-rate mortgages may see large increases in their mortgage payments next year. Expenditures for city and school programs are expected to outpace estimated revenues due to rising costs for fuel, contracts, and compensation. Revenues, while growing, are not expected to be sufftcient to meet all needs. (Source: City's Annual Five Year Forecast.) .. 1 Source: The Commonwealth Institute for Fiscal Analysis. 2 Sources: City Budget; Real Estate Assessor's Office; Census. Note: This figure does not exclude residences where the owner does not reside in the property. Currently, the city does not collect this data. ~1It 2 Iii I f) Excluding the military, Virginia Beach's largest employers are City of Virginia Beach Schools and City of Virginia Beach. (Data from the American Community Survey on Virginia Beach 2000& 2005.) Baby Boomers' aging and retirement will create the biggest demographic shift in history. Increased life expectancy, health care costs, and daily living expenses will be the focus of this group. Cities must prepare for this major demographic change. Over the past ten years, new residents moving into Virginia Beach have earned less than the residents moving out.3 While Virginia Beach remains the leader in per-capita income, the lead continues to narrow. e) g) 2.3 Challenges Created By City Policies a) Salaries and benefits are the biggest cost drivers in the budget. Analysis of the Offtcial Bond Statement, dated June 13,2007, reveals that 86% of the Virginia Beach private sector average weekly wages are below the average weekly wage of local government for quarter ending December 30, 2006. The difference between the wages are $560.57 versus $767.00. b) A $3 billion backlog of inadequate and aging infrastructure is identifted in the city's Capital Improvement Program. The required debt service will create competition in the budget process for funds. (Capital Improvement Budget 2007-2008; Virginian Pilot, October 3,2007) These are just a few of the factors that require Virginia Beach to adopt a very studied and conservative approach to the upcoming budget process. In order for Virginia Beach to protect the city's strong financial position, City Council must undertake a very different approach to the budget process. Underlying socio and economic trends will force budgeting processes that more closely mirror changes, which have occurred in the private sector. By facing these challenges with a well thought-out long term Strategic Plan, Virginia Beach will seize an opportunity to produce budgets that weather the storm and balance the financial burden. '. "The public does not want less education, fewer roads, less police protection. Neither does the public want higher taxes. It wants better education, better roads, and better police protection for the same tax dollar. " - Reinventing Government by David Osbourne and Ted Graebler .. 3. Expense Sub-Committee Recommendations To properly deal with the changing financial conditions previously highlighted, city leadership should adopt managerial tools from the private sector that allow a disciplined approach toward any budgetary actions and decisions. One such tool or disciplined approach, which many of this country's best organizations routinely utilize, is a Strategic Plan. .. '.. '.. 3 Source: Staff reports, based on information from the Bureau of Labor Statistics and the Virginia Employment Commission. '. 3 II1I This Strategic Plan would help shape and guide the City of Virginia Beach, what the City does, why the City does it, with a focus on reasonable actions, toward the uncertain dynamics of a global economy, and our City's future. This subcommittee feels the need for a Strategic Plan is so important that this document contains an explanation, with examples, on how to formulate a simple Strategic Plan. Below is a list of recommendations that will also help achieve a strategic approach toward budgetary expenditures. See Appendix J: Strategic Plan. 3.1 Strategic Plan a) Shift to an outcome-driven budget process whereby Council, with input from all stakeholders, decides on speciftc, measurable, and attainable results that staff will be asked to deliver within a specified timeline. b) Link the city's Comprehensive Plan, Land Use Plan, Budget and all other planning documents to the Strategic Plan. c) Provide detailed guidance to city staff on specific changes or restraints to impose on program areas, in accordance with Strategic Plan. d) Apply Business Intelligence4 to objectively measure the success of programs and policies. e) Virginia Beach's government spending should always consider overall economic growth and the capacity of the taxpayers' ability to pay. f) Use the Strategic Plan to prioritize city services and programs. g) Examine city expenditures in the context of the Strategic Plan and determine whether such expenditures further a speciftc objective ofthe Strategic Plan. Avoid dealing with issues piece meal; tie all new initiatives back to specific objectives set in Strategic Plan. ., As part of Strategic Plan, understand the city's changing demographics, the reasons for these changes, and their impact. Cap on Spending h) 3.2 " The Expenditure Subcommittee considered a recommendation to cap the annual increase from certain revenue (such as real estate tax and personal property tax) at the city's annual rate of GDP growth, or a similar measure, such as Consumer Price Index. However, we believe that artificially locking such a measure may greatly restrict Council's ability to manage the budget. Instead, we recommend .. on .. .. · Business Intelligence is the collection and thorough analysis of all available data through dimensional cubes, reports, etc. See http://www.webopedia.comlTERM/B/Business_Intel!igence.htm] and htto://en. wikioedia.org/wiki/Business intell igence for additional information. 4 Ii I that Council regularly monitors the state of the local economy to ensure that the budget does grow faster than the citizens' ability to pay. 3.3 Revised Budget Process a) Revise the budget process to make it easier to comprehend for Council and stakeholders and to make the budget document more useful as a communications and decision-making tool. 1. Focus on the goals established in the Strategic Plan. 2. Group expenditures by desired outcomes, and the budget process should emphasize spending recommendations and choices that are intended to meet Council's policy-oriented goals, such as decreasing crime, strengthening neighborhoods, or attracting and retaining businesses. 3. Identify and examine formats and methods that other municipalities have used to make the budget documents more user- friendly and to provide for greater public involvement. b) Incorporate a fixed and variable expenditure analysis of all budget line items to enable Council and the City Manager to identify and quantify potential cost savings. c) Increase efforts to obtain citizen input and participation early in the budget process. Such efforts may include offering phased submissions of the budget as it is being developed, and having departments involve stakeholders in all stages of the budget process and Strategic Plan. d) Improve efforts to educate citizens about the budget and budget process and to create transparency in the budget process. e) Direct staff to provide quarterly reports to Council and stakeholders on budget and progress toward goals set forth in the city's Strategic Plan. '11 f) Review funding formulas annually to ensure they are consistent with need and goals set forth in the Strategic Plan. .. ..., g) Require that new ordinances that materially impact the budget include a benefit-cost analysis and identify funding sources. If an ordinance requires enforcement or oversight, the manpower or ftnancial commitment should be disclosed prior to a vote. ., .. h) Create an ongoing Budget Commission to assist Council in review of annual budgets. .. Ij\' 5 I, I i) Encourage the School System to conduct a similar review of their budgetary and business processes. j) Institute an integrated automated system for tracking expenditures. 3.4 Business Processes, Process Efficiency, Increased Labor Productivity 111 i." .. ~~ ~, a) In accordance with the city's Strategic Plan and modem business practices, adopt a Lean Six Sigma5 approach in all current operating processes to continually improve efficiency and effectiveness of all servIces. b) Set specific benchmarks for continual increases in process efficiency and productivity gains through greater use oftechnology and automation, workflow improvements, and effective utilization and management of volunteers, that are consistent with the private sector. Two decades of increased productivity and lower consumer prices have created a culture that expects such gains. Over the past ten years (January, 1997 to January, 2007), the price of durable goods dropped by 21.1 %. c) Where appropriate, consider consolidating cost centers while exercising care to avoid the potential to create larger, less efficient bureaucracies rather than fostering innovation. d) Increase the use of automation and technology to simplify operating processes and to improve employee efficiency. e) Engage public and staffto identify and resolve problems on an ongoing basis. f) Streamline the process for the implementation of new technology. The city has the ability to quickly realize substantial productivity gains by adopting technological innovations already in use the private sector to streamline processes and improve operating efficiency. Technology investment, done shrewdly and wisely, can improve efficiency and reduce labor costs. Consider the opportunity cost of our current process for implementing new technology. 1) Adopt commonly-used business technology to improve employee productivity and reduce indirect expenses, such as fuel, vehicle wear and tear, and reduce insurance liability by reducing number of vehicle miles driven by employees. For example, many large 5 Lean Six Sigma is a process improvement methodology which combines (as the name implies) tools from both Lean Manufacturing and Six Sigma. Lean is about speed and efficiency, Six Sigma is about precision and accuracy - leading to data-driven decisions, By combining the two, the result is better quality faster, (Source: Wikipedia: http://enwikipedia,org/wiki/Lean Six Sigma and United States Army: http://www.amc.army.mil/lean/page.aspx?id=O. 6 III' and small delivery businesses, including Haynes Furniture, UPS, FedEx use GPS devices to track employees' use of vehicles. 2) The use of pilot programs would enable to city to test new technology on a small scale and lower cost, thereby enabling faster implementation by those employees who could beneftt the most from such technology. 3) Increased use of technology can also improve customer service and convenience. Examples include direct debit for bill paying, online services, and online scheduling library meeting space in place of the current labor-intensive process. g) Apply a sunset clause to all programs, thereby forcing review of each program's effectiveness at pre-deftned intervals and eliminating obsolete or redundant programs. Council may wish to create a panel of citizens and staff to independently review and make recommendations. h) Ensure that all budget policies are in writing and reviewed regularly. i) Develop a comprehensive policy to promote and reward efftcient practices and suggestions, including a mechanism for departments and divisions to retain part of the saved funds to pay for one-time purchases. j) Promote a culture that encourages entrepreneurial innovation rather than traditional bureaucracy. Set clearly-defined, measurable results for programs (KRAs) and then hold staff accountable for meeting these objectives by tying their pay increases to those objectives. k) Create a hotline whereby the public and city employees, either with recognition or anonymously, can suggest speciftc ideas for cost savings or report waste, abuse, and fraud. ~I. '. 1) Identify and remove factors or policies that do not motivate employees to do their best or that encourage counter-productive behavior. The City should also reward efficiency and streamlining of processes. " .. "In government, all incentives are in the direction of not making mistakes. You can have 99 successes and nobody notices, and one mistake and you're dead. Standard business methods don't work in this kind of government. " - "Reinventing Government" by David Osbourne and Ted Gaebler .~ 3.5 "Green" Processes, Energy Efficiency a) Pending results of the current pilot program, retain an independent entity to conduct a comprehensive energy audit of all city/school resources. The .. tll'lll 7 Iii I audit should include buildings, vehicles, and equipment. A two percent reduction in the total dollars spent on electrical and gas services equals $ 282,000. b) Develop a policy based on this audit that promotes energy efficiency and provides rewards and incentives for departments and staff to meet energy efficiency goals. c) Promote energy efficient lighting policies, including requiring sensor switches for all new construction that turn out or dim lights when there is no activity in a room, installing devices for lights at sports venues at schools that turn off lights at a programmed time, and encouraging the public and staff to report non- functioning street lights as the city is charged regardless of whether the light is lit. d) Strongly encourage the staff and public to identify potential drains on energy efficiency and to suggest cost-saving solutions. e) Adopt "Green Roof' technology where possible in renovations and new construction of government buildings to reduce energy costs and increase the useful life of roofs. f) Evaluate the potential benefits of moving from fixed-rate electricity pricing to variable-rate pricing with peak-load management. Many electricity-intensive businesses have used this strategy to reduce their overall electricity bill. 3.6 Economic Development a) Develop an economic plan that engages the public and private sector in evaluating workforce needs and business growth incentives. b) Link funding of economic development to defined outcomes. c) Where economic development is expected to benefit identifiable private- sector entities, the city should encourage those entities to invest in economic development efforts. This private-sector investment will increase the overall funds available for economic development and allow the city to spread its limited resources over more projects. '. d) For years, businesses seeking to relocate or expand have encouraged governments to compete for the opportunity. Virginia Beach could adapt this strategy to encourage businesses within each region of the city (e.g. Town Center, Oceanfront) to compete for the city's limited resources. "'"It 8 II! I 3. 7 Decision-Making Processes a) Proffers that involve the conveyance of public right of ways, parks or open space to the city, should identify any increased maintenance or other resulting costs and include a source of funding. b) Require that the application review for all new major construction/redevelopment projects include an analysis for the ftnancial impacts on public safety and infrastructure, using realistic, real world assumptions about such things as household size and expected vehicle- miles driven. c) Evaluate best practices nationally from both the public and private sectors to identify ways to cost-effectively save money. Conduct costlbeneftt analysis on such practices to determine opportunity cost when evaluating funding choices - which options will provide the greatest return to the city and its residents? 3.8 Underfunded Mandates For "underfunded mandates," make a request-for-funding part of every year's legislative package. 3.9 Capital Expenditures a) Integrate CIP projects with schools to determine where shared purposes can lead to combined facilities. For example, combined recreation centers and libraries more conveniently located within neighborhoods create public beneftt with cost savings. Perform a costlbenefit analysis for any new program or capital expenditure in excess of $500,000, including (a) an analysis of direct as well as indirect, non-cash costs and (b) a cost-benefit analysis to identify the opportunity cost for those funds. 3.10 Miscellaneous ., '" -n ". "!'1 b) Pro actively plan future capital expenditures to prioritize spending and investing early in capital items, such as land, to lock in prices. Use a portion of fund balances to fund components of capital projects or consolidate higher priority projects into a single funding pool as was done with Princess Anne RoadlNimmo Parkway. c) a) Freeze salary supplements for the City Treasurer and Commissioner of Revenue and evaluate combining these functions under the City Finance Department. Initial cost savings from a consolidation: $350,000. Additional long-term savings are possible. 9 II I b) Evaluate combining the administrative functions of Fire and EMS. Immediate cost savings: $230,000 by eliminating salaries for one director and one secretary. Additional savings from efficiency gains over time are difficult to estimate. c) Introduce a cost recovery program for lost or damaged equipment caused by negligence including a mechanism for tracking the extent to which this occurs. d) Appoint a Comptroller to provide accounting review and to assist in Council's review of the budget and government expenditures. 3.11 Next Steps Due to time constraints and the scope of the endeavor, the Expenditure Subcommittee was not able to fully explore all aspects of the city's budget. Therefore, we recommend that Council takes steps to continue this process: a) We recommend further study of ideas that have been presented here but that the Expenditure Committee has not had sufficient time or expertise to fully explore. In some cases, it may be necessary to use consultants to obtain an independent, objective analysis. b) Council should begin to identify expenditure cuts to offset the anticipated revenue shortfall that will be created by adopting a Homestead Exemption. By phasing in the Homestead Exemption over several years, Council and staff will have be able to make gradual, more deliberative changes to the budget that will minimize any harmful impact on the citizens of Virginia Beach that can be caused by sudden shifts in programs. The revenue subcommittee has proposed another alternative. c) Develop policies to address the consequences of the aging of Virginia Beach's population and the fiscal impact that it will have on future budgets. " d) Identify examples of what other communities have done to improve their budget process, improve efficiency, and reduce expenditures. " e) Study the financial impact of addressing the city's aging infrastructure. ,iI A closer working relationship with the School Board and General Assembly delegation will be required to implement many of these recommendations. '.. .. >. 10 III! 4. Emplovee Compensation Issues Employee Compensation, including salaries, health care, benefits and retirement, is the single largest controllable driver influencing the city's budget6, and it provides the greatest opportunity to reduce city spending. "Insanity is doing the same thing over and over again - and expecting a different result. " - Albert Einstein 4.1 Background a) 87 % of private sector average weekly wages are below the average weekly wage of local government for the quarter ending December 30, 2006 ($560.57 versus $767.00).7 According to Department of Labor Statistics released Sept 2007, there has been a Yz % reduction in private sector purchasing power. Table I - Employers in the City, excluding military, provided jobs for 180,692 persons through the third quarter of calendar year 2006, The following table presents the number of employees and quarterly gross wages for this period ending September 30, 2006. Offi ' I B d S d d J 3 200 .. !CIa on tatement ate une 1 , 7, pageA-17) Average Number Quarterly Gross Average Weekly Average Private Industry Group Employees for Wages Wage Per Weekly Wage Below Quarter Employee Local Gov't Private Agriculture, Forestry, Fishing & Mining 95 $478,640 $388 $388 Construction 13,755 126.429,752 707 707 Manufacturing 6,209 49,061,983 608 608 Transportation, Communication, & Utilities 2,623 23,639,063 693 693 Wholesale and Retail Trade 30.279 202,026,328 513 513 Financial, Insurance and Real Estate 14,630 160.412,220 843 Information 4,178 49,365.474 909 Services 82,293 585,691,735 546 546 TOTAL PRIVATE 154,062 $1,197,105,195 $598 $560.57 Public State Government 1843 $14,267,971 $596 Local Government 19,022 189,559,143 767 EE Federa: Go.er~ment 5,765 72,024,863 961 TOTAL PUBLIC 26,630 $275,851,977 $797 TOTAL 180,692 1,472.957,172 $627 b) From 2005 to 2006, average weekly private-sector wage per employee in Virginia Beach decreased from $609 to $598, while city employees' average weekly wages have increased from $698 to $767 over that same period, excluding benefits. (Source: two bond Offtcial Statements dated June 30, 2006 and March 13, 2007). ". 6 City of Virginia Beach Compensation as a Budget Driver updated August 9,2007; Health Care Updates dated June 26. 2007, The Virginian Pilot 8,29.07; Budget 301 Expenditures, where the money goes, July 26, 2007) 7 . . . VIrgInIa Beach Bond Prospectus, June 13. 2007. page A.17 11 I. 1 c) The city has unfunded pension liability of $223 million and an unfunded health care liability of $300 million. This unfunded liability will have a sustainable impact on future budgets.8 d) There has been discussion by members of the General Assembly, of extending the increased retirement multiplier to all city employees.9 e) There has been a national trend of rising health care costs and other employee related cost-drivers that is likely to continue into the foreseeable future. f) Salary costs grew 42% from 2001 to 2007 as the city added 1057 new positions and increased wages and benefits. Hi2hli2hts of this additional staff are: Oceanfront Library Juvenile Detention Ctr Jail Expansion Convention Center Biznet Princess Anne Library New E911 Center Technology Support to new facilities General Booth Fire Station Lynnhaven Boat Ramp & Beach Facility Sportsplex Aquarium Conversion Contracts to Staff Technology staff inlieu of contracts Trash Collection for New Homes Paramedics Police through COPS Grant Aquarium Expansion Historic Homes School Landscaping Human Services Volunteer Support Fire & Police Services Increased Inmates in Jail Development Related Services Water & Sewer Services Stormwater & Beach Maintenance Enhanced Financial Controls 9.05 83.23 87.15 48,96 53 29,5 16 10 25 4.4 4,65 62,58 40.45 13 32.42 55 12,96 3 7 59,71 1.53 13 12 7 23,8 10 4 g) Approximately 25% of city employees will be eligible for retirement within the next 5 years. 6 Source: City Comprehensive Annual Financial Report (CAFR) and Health care Briefings to City Council (June, 2006) 9 Source: The Virginian-Pilot, September 11, 2007 12 I I 40.00% . 35,00% . 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% - 0.00% Full- Time City Employees Years in Service 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35+ Years in Service with City 4.2 Recommendations a) Bring employee compensation plans more in line with the private sector. 1) Revise the current policy of having the "best-paid employees in region" to "attract and retain qualified and motivated employees." This change will assist the City in focusing on the qualities that are essential for the position. The current policy has created a bidding war within the region that is driving up wages for city employees faster than the private sector. 2) Limit total direct salary expenditures, including merit increases but excluding public safety pay compression adjustments, to two percent per year. Each one percent increase in city payroll, excluding schools, equals roughly $2.5 million. 3) Change the policies under which employees receive merit pay. Approximately 97% of employees receive merit pay. The current "merit" system is not truly merit-based as the private sector would understand the term and should be renamed or replaced with a system that is truly merit-based. 4) End the current policy of providing uniform pay increases to all city employees. Tying pay to performance will encourage improved performance and will attract and retain employees of the best quality. 5) Provide the City Manager with the flexibility to recognize and differentiate levels of employee performance by creating a "pay pool" under which Council would appropriate a ftxed total dollar amount for employee raises (for example, two percent of the prior year total salary). Empower the City Manager and senior staff to allocate those funds to specific employees based on their analysis of each employee's job performance. 13 I I 6) For state positions, pass through any raises provided by the state for its portion of salaries but apply the city's revised bonus structure to the city's portion of these salaries. b) Gradually shift from defined-benefits to deftned-contributions. Current benefits are typically more generous than those offered in the private sector. While the city must honor its current pension liabilities, it should begin moving away from defined-benefit plans for new employees to mirror changes in the private sector. Cease adding new employees to the city's current deftned-benefits health insurance and retirement plans after a certain date. As new employees are hired there is the opportunity to establish a 457 plan with some form of city matching funds to encourage enrollment. State legislation may be needed as this would replace VRS. 1) To the extent that the city's legal obligation for health care and retirement are not fully funded, the unfunded obligation, in current dollars, should be disclosed as part of the budget. 2) Consider capping the city's contribution of retiree's health insurance premiums at the absolute dollar value in the FY 2007- 2008 budget. 3) Examine alternative approaches to health insurance coverage that would move from defined-benefits to deftned-contributions. The private sector is turning to Health Saving Accounts (HSA) and Health Reimbursement Accounts (HRA) to provide employees alternatives. c) Reduce overall number of city employees. A one percent reduction in full time city employees (63 positions) would save $3 million annually. 1) Evaluate opportunities to outsource taking into account economics, efficiencies, and levels of service. Outsourcing has several potential benefits: (1) if competitively bid, the product or service may be provided at a lower cost than could be achieved using city employees; (2) avoid long-term commitments and capital investments; (3) reduce future retirement expenditures by bring fewer people in the VRS retirement plan; (4) reduce health-care costs; and (4) allow greater flexibility by not locking the city into long-term commitments. 2) Undertake a Commercial Activities Program, also known as a Competitive Sourcing Program, throughout every city department to determine which full time equivalent (FTE) positions could be outsourced or reorganized into the Most Efficient Organization to provide "best in class" services to its citizens. Recommend the city start this program with its golf courses. 14 , I 3) Explore the recruitment of retired public employees to return on a part-time or contracted basis, which has many of the same beneftts of outsourcing. 4) Look for ways to maintain and expand the city's current volunteer programs which actively reduce costs. For example, the current rescue squad provides a tremendous economic benefit to the City of Virginia Beach while at the same time promoting volunteerism. In addition, the city should resist any efforts to convert the system into a fee-based service that will increase the cost to citizens. See Appendix 2: Volunteerism as a Force Multiplier. 5) Review each position that has been vacated or is to be vacated and justify the continued need for the position before rehiring. d) Task the City Manager with increasing staff productivity by one percent per year. Tie this to City Manager's annual performance plan. Potential savings: $2 million. e) Review overtime costs and determine ways to control them. The city paid $10.7 million in overtime costs in FY2007. Each percentile this is reduced will result in savings of$107,000. f) Evaluate the city's current "no lay off policy" to determine whether the benefits of this policy justify its cost to the city. g) Create a process for professional independent review disability retirements and worker's compensation claims in order to significantly reduce fraudulent claims. Evaluate current risk management procedures. h) The city could significantly reduce benefits payments by requiring parties that are disabled from one type of work in the city to seek all other available city jobs for which they are qualified and then reducing disability payments by the amount they earn from this new job. Enabling legislation would be required. 15 , i Number of Job-related Disability Retirements as a Percentage of Total Retirements 1992 - 2006 [J';'O;- a".. .m,. . . .'-~. -- .. 1-,' :: a, " -:,-:,; S~; 'a\ ?~ , , , , - , , , , , -- ..... . Note: State employees hired since 1999 are in the Virginia Sickness and DisabHity Program instead of VRS Disability i) Reduce the number of paid holidays provided to city employees from 11.5 to 10 to match federal employees. This equates to roughly 35 full time positionslO or roughly $1.6 million in annual payroll costs. I I This change could also reduce overtime expenses. Existin2 2008 Holidavs: January 1 January 21 May 26 July 4 September 1 November 11 November 27 November 28 December 24 (Half day) December 25 New Year's Day Martin Luther King Jr. Day Memorial Day Independence Day Labor Day Veteran's Day Thanksgiving Day after Thanksgiving Christmas Eve Close at Noon Christmas Plus two "flexible" holidays at employee's discretion 10 There are 6,200 full time employees. 12 hours translates into a gain of74,4oo hours or the equivalent of35 positions. 1135 positions, at an average total compensation of$47,000. 16 I I j) Discontinue the policy of giving employees a paid day off on their birthday. k) Conduct a costlbenefit analysis of combining sick and annual leave to a universal leave system similar to the State's plan. l) Request that State Legislature require the State Compensation Board to realistically adjust state pay scale and benefits to match compatible salaries in the region. Solicit support from Chamber of Commerce, and other community groups to help lobby for this change. m) Cap city's salary and benefits contributions to existing state positions at their current level. Do not subsidize any new state positions. Potential savings: $ 1 million. With nearly 25% of city employees eligible to retire within the next five years, attrition provides an opportunity for signiftcant changes to the city's current compensation structure. Change - even when its positive- can disrupt morale and zap efftciency. Significant change to employee compensation programs and policies are likely to be met with some resistance; therefore, modifications to such programs and policies should be phased in over time. Gradual change provides an opportunity to make employees part of the process and to reduce the anxiety that can come from both uncertainty and from sudden, unexpected change. See Appendix 3: Psychology of Change. 17 , I Appendix 1: Strate2ic Plan Recommendation: The City of Virginia Beach needs to adopt a Strategic Plan, which is aligned to the entire City's budget, by May 6,2008. What is Strate2ic Plannin2?12 "Strategic planning is a management tool, period. As with any management tool, it is used for one purpose only: to help an organization do a better job - to focus its energy, to ensure that members of the organization are working toward the same goals, to assess and adjust the organization's direction in response to a changing environment. In short, strategic planning is a disciplined effort to produce fundamental decisions and actions that shape and guide what an organization is, what it does, and why it does it, with a focus on the future." (Adapted from Bryson's Strategic Planning in Public and Nonprofit Organizations) "The process is about planning because it involves intentionally setting goals (i.e., choosing a desired future) and developing an approach to achieving those goals." "The process is disciplined in that it calls for a certain order and pattern to keep it focused and productive. The process raises a sequence of questions that helps planners examine experience, test assumptions, gather and incorporate information about the present, and anticipate the environment in which the organization will be working in the future." "Finally, the process is about fundamental decisions and actions because choices must be made in order to answer the sequence of questions mentioned above. The plan is ultimately no more, and no less, than a set of deciSIOns about what to do, why to do it, and how to do it. Because it is impossible to do everything that needs to be done in this world, strategic planning implies that some organizational decisions and actions are more important than others - and that much of the strategy lies in making the tough decisions about what is most important to achieving organizational success." Strategic Planning and Long-Range Planning "Although many use these terms interchangeably, strategic planning and long-range planning differ in their emphasis on the "assumed" environment. Long-range planning is generally considered to mean the development of a plan for accomplishing a goal or set of goals over a period of se\'eral years, with the assumption that current knowledge about future conditions is sufficiently reliable to ensure the plan's reliability over the duration of its implementation." (Note: This is what the city presently does...) "On the other hand, strategic planning assumes that an organization must be responsive to a dynamic, changing environment (not the more stable environment assumed for long-range 12 Adapted from What is Strategic Planning at: http://www.nonprofitcourses.org/lilsamples/sample2.pdf 18 I I planning). Strategic planning, then, stresses the importance of making decisions that will ensure the organization's ability to successfully respond to changes in the environment." What Strategic Planning Is Not "Everything said above to describe what strategic planning is can also provide an understanding of what it is not. For example, it is about fundamental decisions and actions, but it does not attempt to make future decisions (Steiner, 1979). Strategic planning involves anticipating the future environment, but the decisions are made in the present. This means that over time, the organization must stay abreast of changes in order to make the best decisions it can at any given point - it must manage, as well as plan, strategically." Understandin2 the environment within and around an or2anization Part of getting a clear view of the environment and dynamics of an organization is to look at it through others' eyes; both internal and external stakeholders' perceptions of the organization will add valuable information to the situation assessment. The SWOT technique, a simple and effective vehicle for collecting this information, helps focus the process by breaking it down into four broad categories: S - What are the organization's internal Strengths? W - What are the organization's internal Weaknesses? o - What external Opportunities might move the organization forward? T - What external Threats might hold the organization back? Simple example of using SWOT in Virginia Beach: STRENGTH WEAKNESS Location - majority of US population with Transportation infrastructure @750 miles OPPORTUNITY THREAT Defense industry transformation Lack of Regionalization and use of regional resources A successful SWOT process looks both internally and externally to an organization's environment. · Internally: Look at programs, program outcomes, cost benefit of program services, organization's departmental structure, effectiveness and cost with respect to outcomes... 19 · Externally: Who are your customers or stakeholders - really need to get into the facts here, what are their perceptions..., are our programs meeting their needs... · When LOOKING externally, an organization must also THINK BIG picture. What does that mean? The four items below WILL impact VIRGINA BEACH. o The impact of the cost of the War in Iraq o Globalization and China's impact upon the world economy o Changing demographics (birth rates, aging, immigration) o The fracturing of American businesses ( employer I employee relationship) Strate2:ic Plannin2: and VMOSA13 Strategic planning is the process by which an organization defines its own "VMOSA;" that is, its Vision, Mission, Objectives, Strategies, and Action Plans. VMOSA is a practical planning process that can be used by any community organization. This comprehensive planning tool is a blueprint for moving from dreams to actions to positive outcomes for your community. 1. Vision (the dream) Your vision communicates what your organization believes are the ideal conditions for your community; how things would look if the issues important to you were perfectly addressed. There are certain characteristics that most vision statements have in common. In general, vision statements should be: · Understood and shared by members of the community · Broad enough to allow a diverse variety of local perspectives to be encompassed within them · Inspiring and easy to communicate - for example, they should be short enough to fit on a T-shirt COMMUNITY FOR A LIFETIME... is a concept which is not well understood and which means different things to different people. Council should better define this vision and should better articulate that vision. 2. Mission (the what and whv) Mission statements are similar to vision statements, but they're more concrete, and they are definitely more "action-oriented" than vision statements. Some general guiding principles about mission statements are that the-yare: 13 Adapted from an Overview of Strategic Planning and "VMOSA" at: http://ctb.ku.edu/en/tablecontents/sub_section_main_l 085.htm 20 , I . Concise. Although not as short a phrase as a vision statement, a mission statement should still get its point across in one sentence. . Outcome-oriented. Mission statements explain the overarching outcomes your organization is working to achieve. · Inclusive. While mission statements do make statements about your group's overarching goals, it's very important that they do so very broadly. Good mission statements are not limiting in the strategies or sectors of the community that may become involved in the project. The City of Virginia Beach will work efficiently to meet the basic needs of all citizens at a cost those citizens can reasonably manage throughout their lifetimes. 3. Obiectives (how much of what will be accomplished by when) Once an organization has developed its mission statement, its next step is to develop the specific objectives that are focused on achieving that mission. Objectives refer to specific measurable results for the initiative's broad goals. An organization's objectives generally lay out how much of what will be accomplished by when. There are three basic types of objectives: · Behavioral objectives. These objectives look at changing the behaviors of people (what they are doing and saying) and the products (or results) of their behaviors. For example, a neighborhood improvement group mignt develop an objective around having an increased amount of home repair taking place (the behavior) or of improved housing (the result). · Community-level outcome objectives. These are related to behavioral outcome objectives, but are more focused more on a community level instead of an individual level. For example, the same group might suggest increasing the percentage of people living in the community with adequate housing as a community-level outcome objective. · Process objectives. These are the objectives that refer to the implementation of activities necessary to achieve other objectives. For example, the group might adopt a comprehensive plan for improving neighborhood housing. It's important to understand that these different types of objectives aren't mutually exclusive. Most groups will develop objectives in all three categories. Examples of objectives include: · By December 2010, to increase by 30% parent engagement (i.e., talking, playing, reading) with children under 2 years of age. (Behavioral objective) · By 2012, to have made a 40% increase in youth graduating from high school. (Community -level outcome objective) 21 Iii I . By the year 2006, increase by 30% the percentage of families that own their home. (Community-level outcome objective) . By December of this year, implement the volunteer training program for all volunteers. (Process objective) Recommendation: The City will adopt a performance based budget, which focuses on outcomes, in all city departments by May 2008 4. Strategies (the how) The next step in the process ofVMOSA is developing your strategies. Strategies explain how the initiative will reach its objectives. These strategies range from very broad strategies that encompass people and resources from many different parts of the community to very speciftc strategies that take place on a much smaller level. Five specific strategies can help guide most interventions. They are: . Providing information and enhancing skills (e.g., offer skills training in conflict management) . Enhancing services and support (e.g., start a mentoring programs for high-risk youth) . Modify access, barriers, and opportunities (such as offering scholarships to students who would be otherwise unable to attend college' . Change the consequences of efforts (e.g., provide incentives for community members to volunteer) . Modify policies (e.g., change business policies to allow parents and guardians and volunteers to spend more time with young children). Recommendation: The City should adopt Lean Six Sigma methodologies into all its business process to reduce cost and gain greater effectiveness in serving citizens' needs. 5. Action plan (what change will happen: who will do what by when to make it happen) An organization's action plan describes in great detail exactly how strategies will be implemented to accomplish the objectives developed earlier in this process. Action steps are developed for each component of the intervention or (community and systems) changes to be sought. These include: . Action step( s): What will happen . Person(s) responsible: Who will do what . Dated completed: Timing of each action step ~ 22 ,i' Ii I . Resources required: Resources and support (both what is needed and what's available) . Barriers or resistance, and a plan to overcome them! . Collaborators: Who else should know about this action Here's an example: Action Person(s) Date Step Responsible Completed Draft John Doe (from March, 2008 Strategic task force) Plan Resources Required <$100 (volunteer time-donated) Potential barriers Collaborators or resistance Change grief cycle Members of the community Your action plan will need to be tried and tested and revised, then tried and tested and revised again. You'll need to obtain feedback from community members then add and subtract elements of your plan based on that feedback. . . . 23 .' Iii' Appendix 2: Volunteerism as a force multiplier Backeround: The realities of the personnel issues facing the City of Virginia Beach can be partially mitigated by the judicious application of volunteers. Encouraging and supporting our citizens as volunteer support for various functions has been beneficial to the operating efftciency of Virginia Beach. The citizens of Virginia Beach have demonstrated amazing concern and commitment to their community offering their talent and expertise in many facets of civic and community support activities. From Public Safety and EMS to protecting the environment and mentoring in our schools, volunteers bring an abundance of knowledge and experience to meet the needs of a growing metropolitan city. As a city we have perhaps one of the most comprehensive groups of volunteer programs in the region. Discussion: Contrary to an attitude shared by some municipal management officials, volunteers are not "free labor". Just like any personnel resource, they have to be nurtured and managed. Current practices vary widely between departments and divisions indicating no formal policy. Further, emphasis seems to be on capturing data when it supports an agenda. As such it is not consistent. V olunteers offer their time and expertise to promote a particular cause or need. More often than not, it is an issue that the citizen has a passion about. While they offer their time without compensation, Volunteers and those who manage them need to feel that their time and effort are necessary and appreciated. Recent reports indicate that this valuable resource and those managing the resource may not be receiving the attention they deserve. History has shown that when people feel that their time and efforts are not appreciated, they direct their energies elsewhere. As a community in transition, this policy can not be sustained. Properly and professionally managed, Volunteers have been proven to be a "Force Multiplier" for staff. Particularly when physical demands of a growing community strain existing resources or when personnel assets are limited or reduced. Volunteers should not be considered as permanent replacements for long term staff losses. However, they can provide temporary relief and/or support to staff resources. Volunteers are best employed when they are provided professional management and leadership by staff. While the numbers of volunteers in Virginia Beach are high, the potential volunteer population of the City of Virginia Beach is far greater than currently being employed. The varying ages and demographics and changes in the culture require that those in Volunteer recruitment and management be trained on an ongoing basis to be better prepared. Motivation of volunteers while multi-faceted can be reduced to two issues: . Determining why they are volunteering? . Determining what interests them? 24 II, I When anyone feels that their work is valued, they will dedicate themselves to the task no matter how challenging. This often manifests itself in response to natural disasters. We as Americans tend to give of ourselves in crisis. But the day to day programs and initiatives are making a difference and can be a major benefit to the Virginia Beach of the future. In many city venues employing volunteers as well as this Task Force, we have engaged groups of people that bring a vast wealth of education, professional and practical experience to the table. City leadership and staff benefit from hearing and seeing an alternate prospective on issues. Problem solving takes on a new paradigm. The whole community benefits from this effort. Benefits: The value of volunteers far exceeds simple extension of personnel resources. For example, if a project involves 50 hours of staff time and 50 hours of volunteer time to complete the augmentation results in 100 man hours to the project. The amount oftime dedicated to the project has been doubled for an investment of 50 hours. While the use of volunteers is not practical in all situations, it can greatly enhance staff productivity and service to the public. As a whole communities that promote volunteerism, enjoy better relations between themselves and the people they serve. . Children and young adults who donate their time to community pursuits tend to develop a connection to their community and are more connected and active participants in local government. They are more engaged with finding solutions and to social concerns. . Employers who encourage their staff to donate their time to their neighborhoods and community realize better rounded and dedicated employees. . Companies who encourage employees to volunteer as groups for events and special projects have utilized these as "Team Building" exercises. The connection between employees promotes more productive workplaces. . Group \'olunteering dynamics are particularly effective with Generation X and Y as they are more comfortable working in groups. The benefit to the community and local government is a lower unit cost for personnel labor and improved communications. . Cost/benefit in select current Virginia Beach programs has exceeded 500% return on the investment of staff and finance. Volunteer resource managers turn a proftt on what they earn. . Force multiplier in providing support to staff during times of extreme need or to meet increasing demands. . Connection to the community, people who volunteer for one program can often be engaged to assist in other programs or assist in recruiting friends and neighbors. 25 ij" 11'1 . Provides a positive outlet for youth and our young military personnel who can benefit from the interaction and training. Recommendations: Other municipalities have recognized this resource as valuable and have instituted Best Management Practices by: . Dedicating a professional with appropriate education and experience to coordinate all volunteer programs. These would work with the existing Volunteer Council to elevate programs and initiatives and promote their impact to the elected staff and business leadership of Hampton Roads. . Require those responsible for Volunteers to be trained in the management of volunteer resources. Currently, this policy is not supported in writing. . Require reporting of volunteer hours to the Volunteer offtce by all departments, divisions and special project coordinators (Including City Council and City Leadership). Hours should include: Time in direct participation, travel time, emails, correspondence review and research. . Set a deftned policy on the management and training of volunteer resource coordinators. People managing volunteers should NOT be the low person on the totem pole. If this is to be a collateral duty, ensure that appropriate resource time is provided to do the work necessary. . Develop a workable program to capture the hours being devoted to volunteer programs by the public. Current programs are cumbersome and do not provide relevant information to the staff or public. A program was developed by a Virginia Beach software developer for the Navy Marine Corps Relief Society, that, according to him, would be perfect for our needs. .. Further, the program could be delivered at a considerable savings as the code has already been written. . Develop a reward matrix policy where those divisions and departments that employ volunteers as force multipliers can receive tangible rewards for their stewardship of community resources. . Develop a reward matrix policy that identifies and rewards specific programs and volunteer commitment (Predefined hours or commitments). . Openly engage the business community as we have the Military in our EMS, Clean Community, CERT and Partners in Education programs. Develop a speakers bureau that will work within these communities to engage our residents Conclusion: While the City of Virginia Beach has perhaps the most comprehensive array of Volunteer programs, fiscal and physical realities will make these programs more important than ever. More 26 :J' Ii I emphasis and support will yield even more increases in productivity. Volunteers enhance the services we provide our community. They promote civic involvement and advocacy. The motivation and needs of our population are constantly changing. Engaging our community in the form of volunteers connects the government to their community. The reality of addressing volunteers and volunteerism is that the challenge is a dynamic, not static problem. 14 14 Prepared specifically for the Expenditure Committee by Dan Baxter - CCO Member 27 I' I Appendix 3: Psvcholo2V of Change "Our community's budget confronts big questions that affect all citizens. As the city changes, it needs change. " Mayor Meyera Oberndorf Then as a city, we really need to understand the psychology of change... 15 The chart below, indicating the roller-coaster ride of activity and passivity as the person wriggles and turns in their desperate efforts to avoid the change was developed by Dr. Elizabeth KUbler-Ross. Dr. KUbler-Ross discovered this cycle while researching the emotions of terminally ill patients. Her work is now widely accepted as the "grief cycle" people go through when faced with change. Activ~ ... ~ g Stability I \ V 1m mobilisation A ng~r (\ I \~~rg~ining Denial \ \ \ A~ceptance /" TeSting/ Time ". c .2 "0 E w Depression Pa!i<sivo:: The initial state before the cycle is received is stable, at least in terms of the subsequent reaction on hearing the bad news. Compared with the ups and downs to come, even if there is some variation, this is indeed a stable state. And then, into the calm of this relative paradise, a bombshell bursts... . Shock stage: Initial paralysis at hearing the bad news. . Denial stage: Trying to avoid the inevitable. . Anger stage: Frustrated outpouring of bottled-up emotion. . Baqmining stage: Seeking in vain for a way out. . Depression stage: Final realization of the inevitable. . Testing stage: Seeking realistic solutions. . Acceptance stage: Finally ftnding the way forward. Recommendation: To help manage the change process our recommendations to City Council should be SMART: Specific, Measurable, Achievable, Relevant, Time. I~ Adapted from Kubler-Ross Grief Cycle at: http://chan!!:in2minds.or!!/disciplines/chan!!e mana2ement/kubler ross/kubler ross 28 ~t Appendix 4: Reference Data Virginia Beach Annual Contribution VRS Pension and Life Insurance Thollsands $10.000 2002 2003 2004 2005 2006 2007 2008 Fiscal Year $60.000 $50.000 $4(1.000 $30.000 $20,000 $0 -Contribution 100% City paid -No employee contribution City Annual Pension Contribution Percent of Payroll oil 19.00% 17.00% 15.00% 13.00% 11.00% 9.00% 1.00% ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~'$ $ $ $ $ $ $~~~ # # Fiscal Yea r - ., Rates may drop 7 -1 ~08 29 II I Comparison of PV of Retirement Benefits S1 000, CiOO $49..059 S900, 000 $40.883 $49,059 S600. ')(10 $28.618 S800.000 S700.000 S::OO.OOO $.:00.000 $803,568 ~..226 S3 00, :Jl}J $551,654 S200, 000 S1 00. 000 ~- Public Sate!: 2: Years Publi,J Safet: 30 Years n,:n-public Satet. [Jon-public Safet.. 2:: Years 30 Years NOTE: "PV" is Present Value. Age in Virginia Beach as of 2006 55 to 74 years r-il" ':l ~/o CJver 75 years '. \, 5C:{, Under 9 Years: ...F15c:'\:1 ~;lJ to Ei4 ye,~rs ------ 4 (l,': ---- ./ /l~l /~ ~/) ~-' 55 to 5~i years __~.-....~_.- I r: 0< l -' ,':- I I //\ ./ \ 45 to 54 year':;~/ \. '15(~;Cl 10 to 19 veal'S - . j 4~:";:t .........,'~ / ')1-1 t ")' '""-~...", ,.:"../l---____ ~_ D _4 years "'"-. 7(;"(1 '::5 to 44 years, 1 tj'~I(, 30 " I I Six - Year Projections: Medicaid ojected Enrollment Trends 7-l1l.C(X'. 7:'>&(1;('- 7:'''>'0)''- 7.">4.00' 7.12..(0I)~ / 7}!l.CW' ml:ov 7'..6./1.:0 ( . 714.IU', . 7Z!.O."lJ :),:06 ::rm 2((~ 2<.W FJScal Year 2010 :~() r I 2(1I2 Projected GF Expenditure Trends per enrollee $5.000.0 $4.~,no $4,C(x).O s;.sm,() ~. S3.mo.O S2.50o.(J' S:.r.M)).1I $15010 $1.\.0:;,0 S~{o.o 9:).0 21106 21XI7 :::OHl 21111 2012 :Y10R ::0.1) f'....cul Year 'the pr")lc.t:ti~}n~ (,'Hnt;unt.~d in this chan art: b.as.cd (Ion tl1t.'" initi.;d (.~":crn(lr'~ mt.r..:lduccd t-.t:dg.ct 'or the ~O(Jb-2()OX. oicrlfllum pn:scntr:d in. D<::(,X'mh\."r ::-I)U5 ;u~J 1.10 rHll rdlccr JUY rC\bl-..:ms that ha\.'t: been tn;:Sdc ::-.incc its intfoduI..:1i(.'t-n. The nc:\;( rC\:'SJon of the: !'.ix )'car pfojc'-=tl(ln, ,,,ill he rek~x'1..l1n D'CCem~r :(]~)7. .. ., 31 II I I References 1. The Kabler-Ross Grief Cycle. October 6, 2007, from http://changingminds.org/disciplines/change _ management/kubler Joss/kubler Joss.htm 2. Kubler-Ross, E., On Death and Dying, Macmillan, NY, 1969 3. Bryson's Strategic Planning in Public and Nonprofit Organizations. Alliance for Nonproftt Management. (Copyright@ 1998). What is strategic planning? **. Retrieved October 6,2007, from http://www .nonpro fi tcourses.orglli/samples/sample2. pdf 4. University of Kansas System. (Copyright @ 2007). The Community Tool Box. Retrieved October 6,2007, from http://ctb.ku.edulenltablecontents/sub_section_main_l085.htm 32 " I Blue Ribbon Tax, Fee and Spending Task Force Public Input from the Web Site Public Comments Received through the Blue Ribbon Tax, Fee and Spending Task Force website on VBgov.com. These have been categorized: Revenue, Expenditure, and Revenue/Expenditure/General Correspondence and are offered in chronological order within category. Grammatical and spelling errors have not been corrected. Revenules 07/16/2007 subject: Input Comments: A tax source that has long been ignored by the City of Virginia Beach is to implemmt a property tax on boats. The recommendation was made for the 2008 budget year and City Council rejccted this very lucrative tax source. The Bluc Ribbon Tax, Fee and Spending Task Force should make an indepth inquiry into the number of citizens that own boats and advantages to implementing a tax reflective of the automobile property tax, i.e. basing the tax on the value of the boat with regard to size and age. Include all boats that have a motor used for residence and/or recreation. If it has a motor - TAX IT! 07/20/2007 subject: Input Comments: Suggestions: 1) Bill Alarm companies for ALL responses to homes and businesses by local police, fire and EMS resources. Currently the Alarm business collects monthly fees from all their subscrib.;::rs/customers while the taxpayers provide the funds to public safety departments. Currently the city funds 100% of the response resources and the private alarm companies such as ADT, Brinks and others collect 100% of the monthly revenue. All the citizens pay taxes to be protected by the city's public safety services but the alarm system subscribers get added protection and immediate response to thousands of false alarms. The alann companies should respond to their customers and the city public safety force should nJt respond without compensation. 2) Bill for Emergency Medical transports just like in all the surrounding communities. Free transport service is not free for the taxpayers. Free service adds to the abuse of the 911 serv:,ce and delays rcsponses to true emergencies. The volunteer rescue service can be provided stipends for each transport giving them an incentive to staff more ambulance units. The health insurance policies already provide cost coverage for those with health insurance. The cost for Virginia Beach health insurance is not reduced just because the medicall:ransport system in Virginia Beach does bill customers. Get the cost off those who own homes and on those who use the services... Bill Bailey 1 I, I I 07/27/2007 subject: Input Comments: While I acknowledge the topic, I am not aware that the percentage of revenue available from real estate has actually increased relative to other sources of revenue. That is, I recollect that we 35% or so of the revenue budget came from real estate sources; now, it is 28% or so. I guess my point really is that perhaps this whole exercise is predicated upon a false assumption. Please let me know that actual % of revenue for the last ten years or so of city budgets. That should answer my question. Thanks in advance MJB sends! 08/22/2007 subject: Input Comments: I recommend billing for EMS transports AND billing private alarm companies for all local emergency (police, fire and ems) responses to fire/ems and police business and residential alarms. the local citizens are paying taxes for this service but the alarm companies are charging for services and a city funded emergency response. Additiorally, my health insurance provided ems transport coverage costs but I am billed in taxes ':0 cover the "free" city transport service. Bill my insurance company and reduct my re-tax bills. William Bailey 09/06/2007 subject: ::nput CommerJs: Hello - I think that the city should place more emphasis on the BPOL taxes (city business licenses) even though it's a part of state law. Does the state law REQUIRE the city tJ collect these in a certain way, or can it be left up to the city's interpretation? Currently, the method of collecting on gross receipts is unfair. My business is buying, rehabbing and selling houses. My gross receipts are huge when compared with a retailer that is pnbably making more profit than I am. As far as increasing revenue, additional staff would pay for itself as long as the staff is proactive in identifying businesses and collecting the tax. I run into MANY businesses in my line (If work that I KNOW aren't licensed by the city. Staff members could be trained to use the newspaper and other public information to collect more tax. This wouldn't even involve a change in the law..... we just need to be proactive. Thanks fIX your time. Natalie G. Smith Lighthouse Properties, Inc. 2 I I I subject: [nput Comments: -Please Compare Texas and Virginia Revenue Sources- US Census Bureau Federal, State, and Local Governments Quarterly Summary of State and Local Government Tax Revenue 2007 - Table 3 http://ftp2.census.gov/govs/Qtax/Qtx072t3.pdf* Printout of full document attached. TABLE 3: STATE TAX COLLECTIONS BY STATE AND TYPE OF TAX (thousands of dollars) Year. 2007 Quarter: 2 (April, May, June) South Carolina South Dakota Tennessee Texas Total Taxes 2,992,582 313,379 3,485,967 11.536,425 Property tax T01 712 X X X General sales and gross receipts T09 1,142.298 167,751 1,735,757 5,185.214 Motor fuel sa les t<lxes T13 137,392 27,150 214,844 780,152 Alcoholic beverages T10 53,343 2,933 26,666 193,880 Public utilities T15 13,713 360 2 231,533 Insurance T12 30,455 12,308 96,140 -39,502 Tobacco products T16 11,008 17,848 39,327 420,851 Pari-mutuels T14 X 44 X 3,126 Amusements T11 15,731 6 X 6,897 Other selective sales and gross receipts T19 75,658 14,276 22,060 1,037,380 Alcoholic beverages T20 3,257 251 3,151 13,589 Public utilities T27 X X 0 4,361 Motor vehicles T24 68,499 11,380 79,679 403,912 Motor vehicle ope -ator T25 20,657 686 11,240 28,558 Corporations in g(,neral T22 12,573 822 268,482 2,396,077 Hunting and fishin 9 licenses T23 3,338 5,912 9,436 11,847 Amusements T21 1,153 60 74 2,299 Occupation and business licenses T28 29,211 20,477 179,564 170,988 Other licenses taxes T29 2,782 578 772 10,931 Individual income taxes T40 1,231,107 X 212,811 X Corporation net income taxes T41 113,453 29,620 474,742 X Death and gift taxus T50 231 0 41 ,050 561 Severance taxes T53 X 887 418 673,771 Documentary and stock transfer taxes T51 26,011 30 61,462 X Other miscellaneous taxes T99 X X 8,290 X 'The current quarter amount was not available. The figures shown represent an estimate. Note: X = No such tax for that state 3 TABLE 3: STATE TAX COLLECTIONS BY STATE AND TYPE OF TAX (thousands of dollars) Year: 2007 Quarter: 2 (April, May, June) Utah Vermont Virginia Washington Est Est Total Taxes 1,806,608 1,261,010 5,642,319 4,422,768 Property tax T01 X 810,734 20,652 344,131 General sales and gross receipts T09 499,085 78,863 891,298 2,633,945 Motor fuel sales taxes T13 87,357 22,295 299,191 305,734 Alcoholic bevera!leS T10 10,687 4,499 60,684 76,315 Public utilities T15 7,545 7,943 37,388 140,889 Insurance T12 32,456 7,466 197,556 163,114 Tobacco prodUCt!; T16 14,952 15,535 43,509 127.738 Pari-mutuels T14 X X X 511 Amusements T11 X X 82 45 Other selective selles and gross receipts T19 10,640 31,695 181,230 96,931 Alcoholic bevera~les T20 306 270 3,816 2,923 Public utilities T27 X X X 12,118 Motor vehicles T24 43,615 19,432 95,050 122,171 Motor vehicle operator T25 2,408 1,471 11,597 14,952 Corporations in general T22 553 849 13,463 7,337 Hunting and fishing licenses T23 5,607 1,745 6,725 17,106 Amusements T21 X 0 15 207 Occupation and business licenses T28 7,579 2,471 31,841 64,732 Other licenses taxes T29 2,236 1,197 1,792 13,770 Individual income taxes T40 880,209 223,662 3,229,604 X Corporation net income taxes T41 170,460 26,309 313,059 X Death and gift taxes TSO 3,300 669 44,249 11,835 Severance taxes T53 27,613 X 546 14,685 Documentary and stock transfer 1axes T51 X 3,164 154,495 251.579 Other miscellanec.us taxes T99 X 741 4,477 X 'The current quar:er amount was not available. The figures shown represent an estimate. Note: X = No such tax for that state 4 I I Expenditures 08/09/2007 subject: Input Comments: I recently read that City Council is being urged to exempt police, fire, and ems employees from personal property tax on their vehicle. How much will this cost the City in revenues? Public Safety personal have so many extra "exemptions" and privilegt:s at the expense of the taxpayer. Enough is enough! Pretty soon there will be two classes in the City - citizens and Public Safety employees. I urge you to recomm~nd to City Council they NOT allow this exemption. 08/21/2007 subject: Input Comments: It is fiscally unreasonable for City Council to subsidize an increased retirement multiplier for public safety staff at a cost of 2.1 million. Once again, public safety employees will gain increased benefits, while other employees are not included. If there is to be an increased multiplier, the access should be made available to all employees and employees should have to pay for it. The expenditure committee should examine the reality of this proposed Council action. 08/21/2(:07 subj ect: lnput Comments: Once again, Council is proposing a costly expenditure on behalf of public safety cnployees ONLY. It is REALLY getting so annoying to those of us who already are treated "less than" public safety. A real kick in the face! 08/21 :2C 07 subject: :nput Co:nmcTlts: Shouldn't the Employee Benefits Review Task Force be the ones to look at Private \:>. Self Insured health care? They are the ones with the insurance expertise. 08212C07 subjcct:nput Commer.ts: Shouldn't the Employee Benefits Review Task Force be the ones to look at Private \ s, Self Insured health care? They are the ones with the insurance expertise. 08/21/2007 subject: ::nput Commer.ts: I was watching the Council informal session today and I was shocked that they wol..ld ask to pursue a vote on approving a retirement multiplier for public safety employc'~s. They want to cut costs and yet they are looking at a 2.1 million bill to do this. (This is after maintaining some of the health care costs.) How are they going to pay for this? I ask you to push the council to vote NO on the public safety multijplicr issue. V,)ting on something that will cost us this much money just to get votes is irrespomib1c. 5 I, I I 08/21/2007 subject: Input Comments: City Council has asked you to look at ways to reduce the cost of government. Today they proposed a 2.1 million dollar investment to increase the retirement multiplier for publ:c safety employees. What are they thinking? Oh, wait a minute, I get it! This way the:! can make the Blue Ribbon Task Force the scapegoat and they don't have to make a decision. Duh! 09/07/2007 subject: Input Comments: How can City Council talk about reducing taxes and costs and then consider adding additional dollars to the fat retirement packages for police, fire and ems? Why did they commission the Blue Ribbon Task Force if they continue to go into debt with such decisions? They didn't listen to the Benefits Task Force they put together. I hope you aren't wasting your time either. subject: Input Comments: How can City Council talk about reducing taxes and costs and then consider adding additional dollars to the fat retirement packages for police, fire and ems? Why did they commission the Blue Ribbon Task Force if they continue to go into debt with such decisions? They dic.n't listen to the Benefits Task Force they put together. I hope you aren't wasting your time either. 09/12/2007 subject: mput Comments: After reading yesterday's paper, my idea is to NOT fund the extra retirement moncy fi)f the public safcty cmployees. Another 2 plus million? Where is it going to come frem? It'll come off other valuable city services. From where I sit, I think other city departments are already stretched thin. As noted in the paper - other employees risk their live:s during storm, cleanup, emergency responses to road and utility issues, reporting to duty in bad weather to serve as shelter providers, public information providers. etc.... Enough segregation of employees in VB. Do I smell a lawsuit? 09/12/2007 subject: ::nput Commer.ts: Idea: Don't add additional retirement benefits for public safety employees. It's anotrer 2 million dollars!!!! and will go up. Ask instead: What current benefits do police and fire already have? I understand a requirement of the job is to be physically fit. How many of them workout while "waiting to respond" to an emergency? How many firefighters have created a fire related business and do it on city time? Ask those questions first! 6 I I I 09/13/2007 subject: Input Comments: As a long time City employee, I was very disappointed to see the article in this week's paper, promoting additional retirement benefits for public safety employees. This will solidify the division in our workforce because of the "hardship benefits" this segffient of the workforce receive. Ultimately, it will cost the city more money because the dollas will have to come from other employees and services. It will drive other employees to formally organize and demand more, costing more. The rationale that it's a recruitment issue is bogus. Look around at the openings for key position:; in other departments and question why it is taking so long to recruit. I think you will discover it is pay. So this isn't just a public safety argument, it's an excuse to get more by playing on sympathy. Poor public safety workers. I believe we arc a good organization, we deliver cost effective services and I thank the city for the benefits I currently receive. Don't jeopardize service and the benefits of others by committing another 2M to an already generous public safety retirement system. Thank y)U for your service. 09/13/2008 subject: Input COlmnents: If the City is serious about reducing costs, then don't vote to spend 2 million on additional retirement benefits for police, fire and ems? This is the second time Council is committing money for the long term while asking you to look at ways to reduce c-)sts. 'What message are they sending to you? My take... "We really aren't serious about this, but an election is coming up." And you can become their scapegoats when things go up in smoke. Shame on you Mr. Dyer and Ms. Wilson for sitting there and letting this happen. Reven u(~s/Expenditures/General Correspondence 07/19/2C07 subject: Input Comments: I feel sorry for the people now. We had considered moving to your area a while ba~k. I thank my lucky stars we chose NC close enough for our needs of your city. It is disgusting to us how you could vote in so many tax increases but I guess when you have one senator that was fired by Reagan and a nasty man at that. You probably don't know any better. But we are glad it is not us. Thanks for letting me have a piece of mind. We are sorry but I guess we made a better choice. Suzanne NC 7 I I I 08/09/20)7 subject: Input Comments: Expenditures: Oceanfront/tourism spending does not result in adequate Return on Investment. Spend less on oceanfront/tourism project. Revenue Absolutely against increasing state income taxes. Sales tax increase gives people choices (whether or not to buy, and what to buy). Revenue: Hold Economic Development Dept. accountable. If not meeting goals, fire them! 07/21/2007 subject: Input Comments: Your first analysis should be to identify and reduce the bloated V.B. city government. The bloat that keeps identifying non-government projects and spending taxpayers hard earned money to serve special interest. 09/087/2007 subject: Input Comments: I do not understand why City Council would create the B.R. Committee with the primary purposes being to raise revenues and/or reduce costs, and then support a $21 Million cost increase to provide the Retirement Multiplier for Public Safety employees. This is classic hypocrisy. Council appears to be only interested in rhetoric than actually leading by example (maybe that's why it feels it needs it's own media "spin doctor"?). Providing $21 million additiondly in a year that is "bad", with a forecast next year of "worse" makes no sense. It also furthers the disparity between non Public Safety employees and those in Police, Fire and EMS. Past Council actions regarding special pay, benefits and privileges offered to that employment segment demonstrate preferential treatment at the expense of rank and file employees. Continued favor will most likely result in an organized workforce that bargains with Council. That is a downward spiral for everyone involved, with the end loser being the average citizen. Costs will increase (+ S21 million), morale will further deteriorate, and quality services will suffer. 09/25/2007 subject: Jnput Comments: Making developers and applicants responsible for the cost of required certified mailings for public hearing held at the Planning Commission and City Council will reduce cost to the City. A user fee should be established in regards to elective redevelopment request which would eliminate some costs to all residents. We make even go further an ensure that developers cover all administrative cost of their requests. 8 i, I 09/27/2007 subject: Input Comments: With all the employees the city has, why is nobody checking on street lights being out? My business pays monthly for lights from Virginia Power regardless of them being on or off. 09/27/20)7 subject: Input Comments: Privatize the Economic and Convention Businesses in Virginia Beach. Have the Chamber of Commerce and Business Community guide and shape both these services. Yau would save in salaries, overhead for facilities, etc.. Or...if this is unacceptlble to someone...make them enterprise funds and not supported by taxes - they have to SlppOrt themselves with the business they bring in. 9 I I City of Vi:rgi:r~ia Beach VBgov.com OFFICE OF THE C!TV MANAGER 1(57) 385-4242 FAX (757) 427.56,,5 MUNICIPAL CENTER BUILDING " ROOM 234 2401 COURTHOUSE DRIVE VIRGINIA BEACH, VIRGINIA 23456.9001 October 26, 2007 The Honorable Meyera E. Obemdorf and Members of City Council Subject: Summary Report on Budget Town Meeting Dear Mayer and Council Members: On October 16, more than 80 citizens attended City Council's town meeting on "City Budget, Community Choices." All of the comments and suggestions were recorded at each of the 15 discussion tables. Attached is a report compiling the unedited citizen input for your review. The comments are arranged according to the question being discussed. We will provide a copy of this report to your Blue Ribbon Tax, Fee and Spending Task Force members. This information will also be posted to the City's Web site for convenient access by citizens. Please contact Dave Hansen with any questions. Wi~iRour City, ~~~~ Q~mes K. Spore 2.)City Manager JKSIDCR Attachment c: Blue Ribbon Tax, Fee and Spending Task Force Management Leadership Team Diane C. Roche, Media and Communications Group 10 j, I Town Meeting: City Budget, Community Choices October 16, 2007 SUMMARY More than 80 Virginia Beach citizens attended the October 16, 2007 citywide town meeting on the budget. The theme of the briefing and roundtable dialogue was "budget choices" and the questions were chosen to ret1ect the City Council's charge to the Blue Ribbon Tax, Fee and Spending Task Force. Dialogue Questions: ~ In our community, are there services that can be reduced or should be added? ~ 'What changes and/or needs within the community should we be anticipating? ~ 'What alternatives to the real estate tax might we consider? ~ What other budget initiatives can you recommend? Notes from Fifteen Tables Discussion question #1: In our community, are there services that can be reduced or should be added? Social SE~rvices Increasec funding for mental health services was the most frequently mentioned service request. (12 mentions) Moving mental patients from jails was frequently cited. (4) Other recccurring social service needs mentioned were differing services for the elderly, (5) the homeless, (3) and returning prisoners.(1) The youh of the community was a concern - programs for at-risk youth and special attention for neighborhoods "challenged with drugs and violence." Other comments: . Need transitional services for ex-offenders . S:.ngle moms need insurance for kids . Help the elderly, they are historically underserved . More services for the poor 11 I I . Poor need medication assistance . Rent, utility assistance for those who need it . Need more foster care staff . Childcare help for the needy . Facilities just for senior citizens Schools . Revisit the school formula (7) . S,;::hool funding policy a mistake (2) . Take advantage of declining school population to review funding formula . City should review school budget (3) . City should go to a needs-based budget for schools . Need coaches for special education teachers . S,;:rvices for autistic kids is a growing service need . FJnds for special education programs and aid to find jobs after . Need more help for mentally ill students . S:?ending too much on testing, shift resources to teaching . S :::hool building aesthetics unnecessary spending . Not using school buildings long enough, look at Norfolk . Do we really need all these academies and separate football fields? . Are there too many teachers? City Emplovees or Not . Don't need the best . Reduce employee holidays and/or birthday leave . rump VRS, find something more affordable . Ir:centlvc programs for service providers, e.g. college aid for teachers . Havc a hiring freeze . ~ 4~ (, pay raise is higher than others get . Reduce though attrition (3) . Circet City Manager to cut staffby some percent . Rl:assess administrative salaries in Human Services Department . Cut back on overtime . \Vhy don't employees pay for health care? . City pay should be rethought and compared to private industry . 'L se simulation technology to assess the start-up costs associated with new employees and the indirect costs of current personnel . Reevaluate the "no layoff' policy to increase the ability to eliminate inefficient workers . Convert employees to defined contribution plan . Contract out repetitive services like vehicle maintenance and recreation center operations 12 I, I . Cutsource jail functions . Independent contractor to do permits, paid for with fees . More outsourcing (3) . Look at profit costs associated with outsourcing . Grandfather retirement benefits for city employees . Set ceiling on health care, pass increased health care costs to employees . Pass increased benefit costs to employees Shifting Resources . Reduce police department (2) use private security for business . Get rid of sheriffs department or combine with police . Increase positions that benefit citizens, cut others . Consolidate divisions, Fire and EMS were mentioned . Prioritize services, some may be under funded . Spend more HUD money on housing instead of code enforcement . Pay staff and free up community block grant money . Use money from unfilled FTEs for one-time capital needs Affordable Housing . Need inclusionary zoning . Concentrate on fixing areas with affordable housing . Hard to find staff with housing costs . Need more affordable housing Infrastructure Transportation, bike trails (4) and sidewalks (4) dominated the requests for infrastructure improvements. More money for rural roads and improvements around Town Center was also mentioned. . Other comments: . Cpen space - need dedicated funding (1) . Cpen space for Shore Drive . Keep 4-5% open space . Bettcr transportation . Improve city roads . Fix drainage problems . Morc mass transit . Money for Town Center roads and not rural, is unfair . 1\eed rccreation centers in poorer areas (2) . Questions on the cost of sand replenishment (2) . Transportation needs of certain populations . City should reevaluate property and infrastructure development I . . I . I I . 13 " I I . Invest in children, they are the city's future (2) . Cut across the board, then restore for needs, but don't cut police and fire . Cut fat first . Prioritize services in the face of graying population . Cut back on all services . Go back to basics . Review all departments for cuts . Set spending first, then budget . Need better method to document spending associated with mandates . Rather pay higher taxes than cut services . Moratorium on debt Efficiendes . Timely completion of roadwork and traffic signals . More efficiencies . Reduce employees on a work site so there are no observers . Costs of Convention Center is hard to determine . Reduce duplication of trash trucks driving same route . Let weeds grow longer . One leaf pick-up . Integrate police, fire, EMS for emergency response . Extend life of city fleet . Get rid of vehicle license fee and put into real estate taxes to save on costs of collecting . Integrate needs of mental health for planning to place group homes Ii Monev Saving Recommendations . Privatize golf courses (2) . Get out of economic development, not a core service . Stop City Page (3) . Stop funding the Contemporary Arts Center . Reduce ads in Virginian-Pilot . Cut Parks & Recreation, welfare apparatus, health services . Cut funds for Town Center, beach area . 1 ap prisoner work force . Stop resurfacing roads that don't need it . Cap external legal services, spcnding too much . Spending too much on public/private partnerships (2) . No more public/private initiatives (2) . Reduce City Manager's salary . Downsize all city vehicles . Find cuts 15 II I . 10% department cuts, then add from there . Decrease personnel and education . No new big projects . Get out of the regional development authority . Take new look at constitutional officers . Make uscrs pay for the cost of lights on tennis courts . Downsizc city government . Salary freeze above $61,333 . Move Treasurer and Commissioner of Revenue undcr Finance . Eave Sandbridge pay for sand . Less expensive construction for city buildings . Eliminate glossy publications . Eliminate using police for speed traps . Consolidate divisions, Fire and EMS were mentioned . Instead of spending money on bike route near Seashore State Park, just widen the sidewalk Ask the citizens . Eold a referendum before doing public private partnerships . Let citizens vote on service cuts . Eold referendum on abolishing Commissioner of Revenue and City Treasurer . More citizen involvement in decisions for eity projects . Get citizens more involved . Council and citizens have to cstablish priorities . 1 ax increases to referendum . Process for referendums may need revamping . Referendum on new debt over $10 million Miscellaneous . 1\eed more public awareness of good group homes . Commercial not paying "fair share" . Economic Development not bringing enough high paying jobs . Private sector should be doing stadiums, golf courses . Budget needs to be more understandable . More transparency where the budget is concerned 16 I, I Discussion question lb. What changes and/or needs within the community should we be anticipating? Comments: . Needs of aging population (5) . Growing gang violencc . Lack of affordable housing is bringing change . Need tremendous improvements in transportation . Need more EMT/Fire for growing community to reduce travel time . Light rail, transportation alternatives needed now (2) . Virginia Beach is behind tcchnology curve . Average city population aging because young can't afford housing . Necd emergency housing for homeless . Not enough facilities for special needs persons . Need more walking districts . Should anticipate declining home values (4) . bcreasing hcalth care costs . Cost of fuel (2) . Necd to look at how we are shrinking . Need to addrcss needs from growth . Methods to rcduce offenders returning to jail . How to serve mentally ill on Medicaid that hospitals won't take . Growing number of uninsured workers . Schools are under-funded, teacher pay too low . Problems associated with increased density (2) . Economy will change from turnover of population . Real estatc assessments will flatten out . Tolls will pay for roads . Homeless will be homeless longer . Morc needs to keep kids out of trouble . Need more teclmical training for youth . High school and college graduates going to cities attracting the creative class . Workforce impacted by overseas manufacturing . Mental health resources (2) . Marc areas planned like Historic Kempsville with pedestrian traffic . A"ging infrastructure and maintenance concerns (2) . F lanning for critical services during emergencies . Cultural demographics are changing . Facilities more open to all . Need to anticipate military nceds . Changes in public safety . Changes from the Chesapeake Bay and the environment . Changes in waste management 17 i I I ! i i . More unfunded mandates . More referendums on key issues . More "green" initiatives . More use of volunteers . J\ eed overall plan exploring key questions about future, e.g. "Does City want older or younger citizens?" . Declining school population, aging schools . Incomes that need to keep up with inflation . Slow down growth, losing friendliness of neighborhoods . Traffic - Town Center . Consider infrastructure before growth . "Griving out older citizens . Concerns from debt service . People before beautification projects . Marc facilities for youth in Bayside . Stop over-taxing per capita income . Help people on fixed incomes with taxes . J\ecd police on bikes to keep areas safe . Education and training to help those in need . Community facilities including training centcr . Mental health services in jail . Concern for effects of rising fees on people with limited means . Alternatives to incarceration for non-violent offenders . "Cse more volunteer labor and encourage more private responsibility . J\coo to attract and educate professional workforce . Aging baby boomers causing changes II i I ~ I I I Discussion question # 2 - What alternatives to the real estate tax might we consider? Comments: . Local income tax (5) . Graduated "workman's tax" (salaries) . Sales tax (4) . Expand sales tax to exempt items, like services (2) . Increase sales tax on food, drugs . .01 sales tax to offset the real estate tax . Cut spending (7) . Property tax on boats (5 - plus entire table in support) . Gas taxes (4) . Alcohol taxes (2) . Cigarette tax (3) plus one entire table 18 Discussion question #4: Is there anything else you want to mention? · More housing for mental health with supportive services nearby including adequate transportation · Mentally handicapped persons need to have ready access to needed services · City has been losing high income families and gaining lower income families and needs to reverse that trend · City needs to align services better and not depend on a 70/30 ratio for taxes · City is not getting return on investment. This includes the ocean front, convention center and the multi-million dollar sidewalk on 19th street from the convention center towards the ocean. · Lots of expenses which are not investments on achieving City's visions . There are strategic visions but no strategic plan · Ocean a will eventually change its mission which will have a drastic impact on the local economy · This town hall meeting is a good way to involve citizens but feel it was only done because citizens demanded it · Government needs to be trusted · Government needs to be comfortable with the issues and citizens to more freely endorse referendums · Don't mind paying fair share of taxes but only want basic services · Need to have meaningful performance measures · Will gladly support sidewalk installation in neighborhoods but do not w.mt the gold plated sidewalks such as the one being planned on 19th street · Find more beds for the mentally ill · Continued support to services for health and human services · megal immigrants who don't pay taxes · Cox Cable monopoly (there should be competition in utilities) · Current assessments are higher than the homes could sell for · Homes are highly unaffordable (many citizens are spending 50% of incomes on housing while national standard is that it should not exceed 30%) · Recreation centers are great; City could raise the prices on the fees-but some disagreed. · Libraries are great and not properly recognized · In the Recreation Centers, the patrons of the weight room only pay the basic annual charge to use these services, but patrons who attend specialized classes are charged an additional fee. Some disagreed about imposing an additional charge on patrons of the weight room. · Discontent with agenda, citizens felt meeting was stacked. After the speech, they wondered why they were here. · Isn't the City of Virginia Beach making a lot of money from tourists along the oceanfront? · Question on the difference between commercial and residential property taxes. · Need to cut some recreational facilities. 21 I, I I, " I, . Maybe libraries can pay for themselves iflibrary fines can be used to fund library S';:fV1ces. . Need to have the greatest good for the greatest number of people. . Need to protect the weaker members of our society. . City administration is top heavy. . Money supply is getting out of hand. . Maintain vbgov.com - it is an excellent city service. . Need homeless shelters. . OPEB pension fund for city employees needs to be funded. . Have the budget readily available on vbgov.com . \\lhy is Virginia Beach paying more per capita than other cities in the region for regional projects . Need more advance information about the format and agenda of future town meetings. , l' ~, r: I I I I 1 i I I I I I 22 ~ . II I 2 Virginia Beach Fiscal Pianning An Alternative View What is the Panel's task? Deliver a set of fiscal policy recommendations that puts the cost structure of local government on a sustainable basis and reduces the financial burdBn local government on Beach families ,~ .,...; , ,,..... 1 t""l r\ c:: ..... ""S Cl ~v! u~~! it:\oJ~C '~ 25 I' I 3 Virginia Beach Fiscal Planning An Alternative View 'Nhat are the governing principles? · The, city's annual percentage change in taxes and fees by families should not exceed the annual percenta,g,e change in the pri\late sectoremploymeot costinde~.,. e The best means to grow wealth and income for Beach families and businesses is through tax n~;~,~f and reducing the growth rate in lecal government spending,whicbgrpws tax f€\/enues without reducing personal living -..-. .....,OJ ~ ;."'ds ~,-a;H.4cH c 26 II I 4 Virginia Beach Fiscal Planning An Alternative View J.\re there assumptions to be made? · Current fiscal policies are not sustainable. · No material change in property tax mix. · Current pension liabilities must be honored, but future benefits and cost sharing on table. · No current policy is off-limits. · Fan,ilies need tax relief to restore a balance between families' generation of income and city spending. 27 " I 5 Virginia Beach Fiscal Planning An Alternative View What are the the big cost drivers? 28 II I I 6 Virginia Beach Fiscal Planning An Alternative View ~-Iow will the near term be different? · Revenue growth will fall to low single digits · Nlext two budget cycles real estate revenues will be relatively flat in nominal terms. · Health care, lack of pension, and higher education costs will outstripped growth in family incomes · Per unit cost of energy and commodities will E!xceed the percentage change in family incornes and city revenues. 29 II I I 7 Virginia Beach Fiscal Planning An Alternative View 'What are the Taxing Competitors? r~milies taxable t,ransactio"ns a, re",.,."",r, e~,.~,,'" d, ~urther slowing local reve,nu'e growth!" 30 II I I 8 Virginia Beach Fiscal Planning An Alternative View rc~;t of Making fj.Q Fiscal Policy Chan~es? I ,..;, IncJreilSes;t :, :;~I<::,;~';(,j2";;~'~~E:~~~;f~~;~~;' '...;: nCI~ases;~ .. ';;E' ':':;:'~,;~'j";D"~,J~;~l;~~Sb:~;.':'::;~Pi<~~,~ , .' '$' a' '; .'" .. ~'D" '1\ . ,,::::;~ ~t: ;h': :,:~?;~'~~>' j~7({fffS;; :~,};;4:i<~'i' WI' 'n"o' ;"0" < "', . ;',' ~,~ " . ':" ~ .::. R'<;};:l:I;;~~i~':~~:1;';id::<::i~~~~(~,1 < .,~,e(uce ':'58 :,...' ,..: , ,.::~,,~~::,;;;>~::~: :~Y~f::~~::;',fr: U ' f~" "><~';';;'.;..I . ..- ,lllUnUW:: _,,' ....,',.~.~ ',> .,<'~"t;'i~ :<::~ ~,>\"j_r,!;,~, y"<~, /~'{+:;~\S be",,':', "-'!"l' ." '*0""',<,3, .., o'::'"e' 'I "C~A, ~. " < If ; .:' W : y --;, ,~. ,;~ <<:~~:::,:', v<;...:;.,/<~<:' ,;~";-:::,'~";:X1Z'.."k""",,,,,Y*,,'''-k 31 II I I 9 Virginia Beach Fiscal Planning An Alternative View What Should One Conclude? ---I I i Th"", ("" I I 1 c; \...1 a d School Board cannot immune thernselves from the realities of the economic marki9t places by tax and fee increases, and shouid at violate our fundamental political \lalues of Ilrrlited government, fiscal restrain( and o r"qcc nf frc..r, on+orpric:::;:::. v ,,-, v "-,,,1 "vC '-' I\...... ! """''J. 32 II , I 10 Virginia Beach Fiscal Planning An Alternative View W'hat Should the Panel Recommend? E$ Councirs Adoption of "An Alternative ViewH tf Get labor cost in line with reality: ~ Cap the city's contribution to retirees' health insurance premiums at the absolute dollar value in the FY 2001-2008 budget G Cap the city's contribution that pays the otherwise employee's share of theirVSRS retirement cost at the absolute dollar value in the FY2007..2008 budget 33 " I I 11 Virginia Beach Fiscal Planning An Alternative View W'hat Should the Panel Recommend? $ Council's Adoption of HAn Alt,rnativeView" -Get iaborcostin I:inewithreality:l continued I '" No new employees added xQ the city's defined pension retirement plan after a date certain Q AJI nev~1 employees after a date certain are entered into a defined contribution plan · Number of holidays reduced from 12.5 to 10 to match federal employees 34 II , I 12 Virginia Beach Fiscal Planning An Alternative View \I\lhat Should the Panel Recommend? G\ Council's Adoption .of "An Alternative View" · Get labor cost in lIne with reality: I continued I \Ill Limit total direct salary costs toincluge the cost of merit increases, but excluding public safety wa!ge compression adjustments to TWO percent in the FY 2008",2009 budget .. limit the increase the city's total compensation (direct salary, supplements, benefits, etc.) to no gn~ater percentage then the prior year change in tho private sector employment cost index. 35 I" I I 13 Virginia Beach Fiscal Planning An Alternative View Wrhat Should the Panel Recommend? * Council's Adoption of "An Alternative View" · Get labor costin line with reality: I continuedl i' FY 2009..2010 and.beyondlimltlotal direct salary co~;ts (including employer costs on direct salary and benefits~ as well .as merit increases) to no Tn G r6 than the percentage change in the ,srr;:d::yment cost index from the prior year. \< L.~;"""'J achieving a ONE percentp.~r year labor ;)T': G;Jctivity as part of the City Manager's annual ;:: c rfo rrnance plan, with budget savings., if any, ;r~\;ested to reduced unfunded pension iiabHHtles. 36 II I I 14 Virginia Beach Fiscai Planning An Alternative View 1-_.' I W'hat Should the Panel Recommend? i , ~ ~ Council's Adoption of "An Alternative View" "Increase the flexibilityaf...Revenue Streams: $ EHminatebackingadditiol1~l third party issued debt whether by bond or lease purchase '* Cap cont.ributions to existing programmatic '~stove pipes" of city council's creation at levels in tht~ FY 2007...2008 budget plus to the extent permissib!e by law <<> Eliminate the school funding formula I continued I 37 . II I I 15 Virginia Beach Fiscal Planning An Alternative View W'hat Should the Panel Recommend? ~CouncU's Adoption .of "An Alternative View" $ Tax Rel.ief forov;er taxed homeowners: · Support the adoption ofahomestead act $ Hold the real estate t.ax rate to the revenue neutral rate in the FY2008..2009 budget to percentage change in employment cost index nlinus inflation as.measured by the consumer price index less one percent. I continued I 38 I I I 16 Virginia Beach Fiscal Planning An Alternative View r I W'hat Should the Panel Recommend? I o Cap city's salary and benefits,contributions to state positions.. ~ Cap statep.ositionsinc~t~'s budge~ to those appr~)ved by the State Compensation Boa~d's staffing standards. 4) City implement an ag.gressive, Lean Six Sigma Program. borrowing from thepr.ivate sectc)r to increase taxpayer value at lower cost.. I continued I . 39 , I I 17 Virginia Beach Fiscal Planning An Alternative View [}Yhat Should the Panel Recommend? il Council's Adoption of "An Alternative View" ~This is just a. start, the aAly limit is your imagination on how to accompli what you knoVlfis right! · Cornmons sense exercised by common citizE~ns is the best defense against an excessivepublit purse" 40 j, I I Economic l~ financial implications are severe for many Virginia Beach stakeholders. ", . . In addition to being msponsible for managing the tax base, a community should be responsible for helping to ensure economic prosperity for all its citize1s." - Richard Gsottschieder, President RKG Associates, economist BRAC report The fundamental policy of ensuring economic prosperity for the city's residents, the primary economic engine in this city, continues to be shamefully disregarded by this administration. Within the last four budget cycles, the major taxpayer in Virginia Beach has witnessed soaring housing assessments, ancrored by skyrocketing real estate taxes, which was a catalyst for rising home insurance premiums that have doubled for many stakeholders. Combine this with escalating utility bills, storm water costs and water fee hikes, and you have a serious erosion of each family's disposable income. The massive financial burden confronting many households has virtually forced many of the 136,000 homeowners into spending half or more d their household income for monthly housing costs. With an average home cost of $350,000 and a household income of $62,000, many homeowners are dedicating a multiple ratio of 5.2% (50+%) of their income for housing costs which is now classified as "severely unaffordable housing" for many constituents. 41 I, I I Residential tax base soars to 87% while commercial, industrial and hotels plummet to 13%. A 90/10% tax base ratio is just around the corner. Since 1977, the assessed value of residential construction has far outpaced the commercial sector by a margin of 76% vs 24%. Cc.T""",':'a: ~ P;e s 'c'~~lt:a! CC"'1r-,e'::'ai 'i:; Res :ce"'~.a: ..-/~.,~ . '~. . ~?S~ ::ty Ccun::.H c!ir~,c!rj C~~y Mana;c-f tc achieve ~ ~':'$!dcnE;:t:'cQmrr;eiciJ~ ;.:JX bast' rZltlc or 70..:;oe~.. ',}91, City Couflci: dirc<:ted City Manager t,: ac!lt('vc a ..~sidcn~.iat<ommcrcja: t:t.x base ra!ic e" 70<~Q'~ '.', The o.~cvc :ha!1 ~s ~cr ~h(' yc~r 2000. !",:;~{:: yC'a~s t!ftcr ;oar ''-''::is ("stab~~sh~.:t The ,)bovc chi:lr'! is lor tlle 'ici.lr 2007. sixt~cn yc-arS a!1cr gO;)! Vl:J:$ CS!at1;shcd. 42 I, , I Within a few budget cycles, VBTA estimates that ninety (SO.90) cents out of every real estate tax dollar received by the City will be off the backs of the financially impacted r,:sidential community, The real estate tax rate will shift to 90/10% because residential housing has escalated by 183% since FY 2000 while commercial assessments has grown by just 84%. Of the $4.568 billion in new residential and commercial construction, approximately $1.110 billion is attributable to commercial. Accordingly, the massive economic development programs purportedly designed to shift the residential tax base to a minimum of 70/30 and elevate per-capita income has failed to influence the one-sided severe residential tax burden. The Virginia Beach residential tax base is believed to be the most disproportionate in the nation for similar sized cities. The goal of achieving a 70/30 mix was initiated by Council in the early 90's and has failed to achieve the basic goals promised to citizens. In addition to increasing the inestimable residential burd :n, many hundreds of millions of taxpayer dollars have been redirected from revitalizing the City's 975+ aging neighborhoods, a move tha: is critical in order to maintain, enhance and increase property values. In FY 2000, the City's tax base was reported at 81.4% while Commercial (Industrial, Office, and hotels were 18.6% of the tax base. The "Real" economic eng'ne in Virginia Beach. Despite providing the real e5tate assets that have sky-rocketed from $16.8 billion to $47.5 billion since FY 2000, the residential community has not received long overdue ~pgrades which should include but not be limited to Curb to Curb street repaving in all neighborhoods strategic greenscaoes tree olantings and other important infrastructure uoarades. V~rgj!l!a S~ach ?iltC:<1r: Rea! Estate Assessment Changes FrCtm 2000 to 20G7 S-::7~, ;~JC S1';C 30: L . ': '.~! - ~ ~ . - -: . ~ -':-" ~ ':' . -, - - - - ~ 2000 ii 2007 43 I I I 87% of the City's debt ceiling ($1,662 billion) and State constitutional debt capacity (*$4 7 billion) is orovided by taxpayers and their residential real estate assets, To recap, housing is taking a disproportionate portion of the family's total income. While assessments increased 135% (excluding major insurance hikes) since FY 2000, the City Council has chosen to reduce the tax rate by just 33 cents or just 27%. Note the residential increase in just one fiscal year. As shown below, the tax rat;) was lowered from $0.99 cents to $0.89 cents or just 10% in contrast to the monumental assessment increases. District Homes Assessment Increase FY 07/08 Bayside Beach Centerville Kempsville Lynnhaven Princess Anne Rosehall ':7,582 '15,288 '19,640 '19,889 ;~1 ,703 22,677 '!8,080 +22,4% +21.9% +23.4% +18.8% +19,4% +17,4% +31.1% Major Insurance Hikes are linked with higher real estate assessments. Across the board, homeowr:ers are now being victimized by a "triple threat" hike in fixed operating costs triggered by combined increases in insurance premiums, oil and gas bills, and real property taxes. The Community Housing Irrprovement Program reported that premium insurance renewal quotes run as high as 3-5 times current charges. In addition, housing cost to income ratios has significantly escalated the financial burden for each family by spending half of household income on monthly home costs. For many of the existing 136,000 stakeholders in Virginia Beach, homes are rated as "severely unaffordable", Families in Virginia Beach will have to choose between essentials between health care and food costs or be compromised between energy costs vs, housing cost. 44 , I I Homeowners Are Being Clobbered. - Assessments soared $16.8 billion to $47.5 billion since FY2000. Real Estate tax historical burden below based on a tax rate $1.22 / $100 in FY 2000 vs. $0.89/ $100 in FY 2007/08 = 27% tax rate decrease vs, 183% increase on assessments since FY 2000. Increase since FY 2000 1. Single Family 2. Town Houses 3. Low Rise Condo's 4, High Rise Condo's 5. Duplex Homes 2000 vs. 2007108 89,759 - 95,977 19,201 - 19,240 11,915 - 16,964 1,173 - 2,319 1,797 - 1,557 2000 VS. 2007108 $140,800 - $360,100 $69,200 - $167,200 $92,700 - $270,700 $130,800 - $337,800 $160,500 - $474,900 Pet +155.7% +76.3% +192.0% +196.4% +276.0% Virginia Beach housing growth from 2000 to 2007 in units '.::'; ~I'; ~ 9 ';~lJ ~J5 ,0":;'; "'1,915 ;~~1: . ,', 1,:73 2,0":; 1 757 - 1 SS7 - ~..,' 7 ~,~- . . ' , ~ ,.:t ." - - ... - . '-J. .., :.~ ~:~"~'l'~'~ -~.:, ~ 2000 Ii 2007 Note: Since FY 2000, residential assessments have soared by 183% while commercial assessments has increased by just 84%. Commercial properties include industrial. office, & hotels. As noted earlier, the current tax base in Virginia Beach has climbed to 87% residential VS. 13% commercial. This ratio represents the most disproportionate residential tax burden in the nation for similar sized cities. 45 , I I The Major ~conomic Engine in Virginia Beach receives very little in return. The City's 165,000 households shell out most of the taxes and bills in this City including a major chunk of the annual City budget Of the $1.732 billion in this year's annual budget (07/08) the residential community is believed to support 80-85% of the budget Upon information and belief, this includes the subsequert return of federal & state taxes. This tax is originally delivered in the form of sales tax and personal income tax, With an average household income of $62,000, Virginia Beach residents create disposable income that exceeds $10.230 billion, Based on the multiplier ratio of 2:1 of residential expenditures, approximately $10 billion is produced through an echo-effect throughout the local and economic region, City Budget Skyrockets by 5654 Million Since 20GO! Financial impacts to Residents Hits New Record Levels. S' S~ ti'O'':' 0:,: '.nC $1. 4 - ~ ~ ,:;.oO.v..l: 000 S! ,~oo.:o: QOO 1JIIlO:.oocca: :s~,~'S 000 :~ so;:;: O<JC' x.: Since 1999. the Virginia Beach City Counc1f approved tax and fee increases that grew the budget by 610'0 in just eight years. 46 j, I j Examples of the economk; effects on Virginia Beach by the residential community The direct economic effect on the region is best illustrated by a report instituted by RKG Associates, a prominent economic research organization that conductec an economic report on the BRAC decision on behalf of the City in 2005. The following represents an extract of the RKG report regarding the spending by the Virginia Beach residential community, which includes 136,000 homes. As you will note below from the RKG excerpt, almost $4 billion in retail sales is attributable to the residential community. The average household supported $25,200 in retail sales and 75 sq. ft. of retail space as well as a major component of the city's workforce. RKG Associates Excerpt 'VB had a supply of nearly .12.9 million square feet of retail space (C-11) Virginia Beach. The 2002 Census of Retail Trade indicated that there was $4.7 billion in retail sa/Els in Virginia Beach, suggesting that about 83% of retail sales were taxable sales. Estimated total retail sales were therefore around $330/SF cf retail space. Of this, Approximately 85% of retail sales were estimated to come from Virginia Beach residents. Therefore, the average household in Virginia Beach supported $25,200 in retail sales and approximately 75 sq. ft. of retail space. Each household's retail sales activity also equated to an estimated 0,2 to 0.4 direct retail employees". Pg. C-12 Retail sales include, but are not limited to the following major categories: Automobiles, supermarkets, department stores, energy costs, white goods, HVAC, appliances, restaurants, clothing. fuel, travel, and just about any commodity imaginable is supported by over 165,000 households 12 months out of the year. Note: The 165,000 househclds also serve as host to invited family & friends, who in most cases stay in residential households. Overnight visitors do not incur costs when staying with family members and should be omitted by any City tourist summaries, Upon information and belief, at least 500,000 people visi': family and friends each year. At 3 visits per household per year, VBTA believes the family visitation noted is conservative at best. In addition, with 165,000 households, which include 136,000 homeowners, many vendors and professionals visit Virginia Beach to provide diverse gcods and services where household spending and economic effects exceed $20 billion locally and throughout the region, Accordingly, overni9ht visits not associated to the Oceanfront are primarily attributable to servicing the monumental needs of the residential and business community. "1 47 "I Jl , " , il II . II /II III ill III " II liJ IJ II II II