Mayor's Budget Message for FY2017 Biennial Fiscal Plan and Five-year Capital Improvement Plan for 2017-2021

Click here to view the Proposed Amendments to the Biennial Fiscal Plan 2017 and the Proposed Capital Improvement Program 2017-2021.

Honorable Mayor Dwight C. Jones
FY 2017 Proposed Budget Amendments Speech
(Remarks as prepared for delivery)

Madam President, members of City Council, my fellow Richmonders, good afternoon. Since we met in this room one year ago, our city has only grown more exciting and more vibrant. Hardly a day goes by without Richmond joining another list of cool places to visit, to eat, to live. People around the world are looking to us like never before.

Make no mistake, we owe much of it to last fall’s bike races and the international spotlight. It was our greatest party, and a lot more.

Look all over town, and you’ll see that the Richmond resurgence continues. Stone Brewing has opened in Fulton, bringing new jobs to a neighborhood that had been left behind. Triple Crossing brewing will soon follow a half-mile away—all because Stone is there. Our investment is paying off in a big way.

In Southside, we’ve launched our 40-year partnership to integrate the Richmond Marine Terminal into the Port of Virginia’s global network. This year, our port has received $17 million in new upgrades—paid for by someone else—including a new 350-ton harbor crane. As a result, we’ve grown from six international shipping carriers to ten. In just a few months, we’re at a whole new level.

And right outside our front door, we should all be proud that together we gave the final go-ahead to Bus Rapid Transit. If we continue this momentum, then BRT can be the first step toward a real regional transit system that Virginia’s capital region deserves.

Make no mistake, over the past seven years, together we have worked our way through difficult times. Still, we have attracted new businesses, improved the City’s bond ratings, built new schools and facilities, ignited riverfront development, turned our population numbers around, begun targeting poverty, created an environment for new jobs, built new infrastructure, helped expand businesses, heightened our arts and cultural scene and our tourism draw, and put the city on a global stage.

In short, we have improved the quality of life in Richmond.

Richmond’s future has never looked brighter, but we have some serious decisions to make as a community. And that’s what I want to talk about today, as I present these budget proposals. So let’s turn to the budget.

FY2016 Adjustments

Before we discuss proposals for the new fiscal year that starts in four months, it’s important to understand where we are in the current fiscal year. In short, we have a deficit. It results directly from removing roughly $9 million from the operating budget last year.

It’s important to understand that the budget I introduced last year included funding to cover all city expenses, using the same format and fiscal mechanisms that have been in every budget I’ve proposed, and you have approved, over the past seven years. But last year’s deliberations revealed the need for greater clarity in our budgeting, including the need to specifically delineate certain key line items, such as leaf collection and snow removal. For this reason, I have directed staff to reflect all funding details of these costs and our contractual commitments, in this and every budget moving forward, to ensure a more detailed view of city service requirements to our public.

While previous budgets covered the costs of these services, it was done through operating savings that would typically be re-allocated among agencies in the third quarter of each year. This is how the city has covered numerous costs that can vary from year to year, including overtime for public safety officers and costs related to weather events. The practice had become routine, and for each of the past seven years, you approved these third-quarter re-allocation papers unanimously.

This changed in last year’s budget deliberations, when $9 million was removed from this account and transferred to the Richmond Public Schools. While that action was good for our schools, it has created real operational problems for other agencies, and we are left with a projected deficit in the current fiscal year.

For these reasons, we are taking four immediate actions to reduce expenses across the city government in the current year.

  1. We are instituting an immediate hiring freeze—restricting all non-critical positions through the end of the fiscal year.

    I have directed the Administrative staff to review all vacated positions moving forward and reinstate only critical vacancies in support of public safety and our financial service requirements so as to sustain the core service needs of our residents.
  2. We are limiting discretionary spending. These changes will be felt by all City agencies and service partners.

    They will require uncomfortable but necessary adjustments to prioritize the service and funding commitments of our City.
  3. We are enhancing revenue collections.
  4. I am proposing a one-time transfer of $3 million from our excess fund balance to cover the costs of last month’s extreme weather.

    I need to be clear about two facts:

    This is a one-time transfer to cover the costs of a rare storm that brought blizzard-like conditions.

    I am moving ONLY excess money above the fund balance limits that we’ve all agreed upon. This money exists ONLY because we are projected to end FY 2015 with a budget surplus and ONLY because we have worked within our means.

By taking these actions, we hope to be able to end Fiscal Year 2016 with a balanced budget and avoid a deficit.

FY2017 Plans

But fiscal year 2017 will bring a similar problem. Our interim strategies are not a long-term solution. A growing, thriving city cannot freeze hiring for a year, restrict necessary spending, or assume that a new surplus will emerge.

For the new fiscal year that begins on July 1, I am proposing to hold Richmond Public Schools harmless and once again allocate the $11.2 million that you set aside last year for them.

In addition, I am proposing to allow RPS to keep $1.5 million that they have not spent from the money you approved last year. Over this two-year budget, this represents more than $22 million in new operating funds for Richmond Public Schools.

In addition, we have turned over another $18 million in capital funding to begin planning and design of school buildings. Together with more than $17 million in annual debt payments on the four new schools we’ve built over the past seven years, public education remains the largest single investment we make in Richmond.

In fact, schools are the only agency that will not see its budget cut in FY 2017.

In order to hold our schools harmless from cuts, I am proposing three actions.

  1. Other departments will have to help. I am proposing to cut discretionary budgets for all other agencies by 12% or more across the board, excluding debt payments and Risk Management. This is on top of the 3% reductions approved last year, and it will force all agencies to embrace a new commitment to efficiency.
  2. Our community partners will have to help. Therefore, I am proposing a 25% reduction in all discretionary non-departmental funding, excluding key strategic partners.
  3. Our residents will have to help by paying higher fees for service delivery. These include changing parking rates downtown by 50 cents; the refuse fee from $17.50 to $20; the Police Department’s “false alarm” fee; turning the Sheriff’s “dollar a day” fee to run the justice center into the “two dollars a day” fee; creating new fees on vehicle licenses and street vendors; and creating new fees for delinquent taxes.

All of these changes are necessary to maintain the policy decision made last year to re-direct $9 million from operations to the Richmond Public Schools.

I am proposing to maintain this level of funding for Richmond Public Schools, and to hold our schools harmless from the cuts other agencies are receiving—but that decision comes with a cost.

Finding New Money for Schools

Like all of us, I have heard loud and clear the calls for dramatic levels of new funding for Richmond Public Schools, and I agree that our schools need additional investment, even above what has been allocated over the past two years.

We all know that the main state education funding formula disadvantages the capital city. In addition, during the recession, the state revised school funding downward to give even less money to localities. In short, the state stopped funding thousands of support positions and student services, leaving cities and counties to pick up the tab.

So as Mayor, I’ve had to write budgets with limited local revenue, declining state dollars, and rising needs. Our dollars are limited, and any new ones have to come from somewhere.

My approach is to live within our means as much as possible. And I have proposed to fund RPS and all other services using existing resources and by raising some new ones. But when the call comes for even more new investments in a range of services, there are limited ways to generate it.

In preparing this budget, I chose NOT to raise the meals tax, furlough employees, or lay anyone off.  To generate the revenue necessary to fund the schools’ operating request, it could mean 26 days of furloughs for city workers, or laying off 400 employees. I chose not to take these actions because they are bad ideas.

It’s also a bad idea to continue down the path that was taken last year—the path of cutting operations without regard for the consequences. Any additional cuts beyond the carefully targeted measures I am proposing today, will inevitably cripple the city.

New Multi-year School Investment and Funding Plan

Against that backdrop, I want everyone to know that I recognize the need to upgrade school facilities.

The School Board has rightly brought to the community’s attention the effect that years of deferred maintenance have had on our school buildings. This is a problem across all city departments, but it is acute in our public schools. The problem did not occur overnight, nor will it be solved overnight.

I am proposing a new, multi-year School Investment and Funding plan to begin implementing long-term renovation and construction plans for public school buildings, and it could infuse new operating funds as well.

Like all capital projects, it’s important to remember that this investment plan will be funded by borrowed money. It’s also important to remember that this debt has to be paid back by annual payments that come from the City’s general fund. It’s just like your credit card. You can borrow $5,000, but you still have to pay back a little each month.

In the same way, it’s easier to pay back your credit card if you have money specifically set aside for the bill.

I will introduce legislation to set aside 20% of all incremental new real estate tax revenue to fund school construction and renovation.

This means when new homes and commercial buildings go up in Richmond, the schools will be guaranteed to receive a major portion of the new money. When the city grows, so does school funding.

Here’s an example of what it could mean.

You recently approved Bus Rapid Transit plans that include economic assumptions of significantly rising real estate valuations along the Broad Street corridor as the project moves forward. When major projects like this come on line, revenue to the city obviously increases. That is further enhanced by the normal course of residential and commercial growth across the city.

This growth of residential and commercial expansion is the key to significant new funding for Richmond Public Schools. In fact, under the legislation that I propose, it could mean up to $7 million in new revenue for schools—which could then be used to back approximately $100 million in new borrowing. Along with the anticipated opening of the city’s bonding capacity, this could fully fund the construction plan proposed by the School Board over time.

Basically, this proposal means that when our city expands, so does funding for the capital needs of our public school system.

To move this forward, I will immediately establish an implementation team to lay out these plans and make sure that they are fiscally responsible and sustainable. The working group will include leaders from City Council, the School Board, our financial advisors, and other stakeholders.

The group will be charged with examining our debt capacity, determining whether our debt policy needs any changes, assessing how we project revenues for new projects, and determining whether any additional City Council action is required to move forward on meeting the facilities needs of our schools. I want them to report back by September.

This new School Investment funding will allow the city to move forward on the school construction that RPS is currently planning, funded by the $18 million in planning money that you set aside last year—and that’s a good thing for our community.

The Path Forward: A Community Conversation

We all know that Richmond has changed dramatically over the past 10 years. Our population has increased 10% since 2005, and we celebrate the city’s return to growth. But at the same time, the number of city personnel to serve that growing population has declined by 9%, and revenues are roughly the same as they were a decade ago.

This is partly because the City had also decided to lower the real estate tax rate twice just prior to the recession. That action, together with the economic downturn, basically has us operating today, in 2016, at 2008 financial levels. These are the facts.

When I say we’ve done more with less, I really mean it!

Overall, this has led to the funding problem that we’re now experiencing across all city departments, including Richmond Public Schools. At the same time, we also know that school funding is further affected by state policies that hurt Virginia’s capital city. In Virginia, public schools are funded with a mix of state money and local money. The state sets the rules, and the rules hurt Richmond, primarily because they fail to account for our high poverty rate.

Then, during the recession, the state changed the school funding formula to give even less money to localities. In short, the state stopped funding thousands of support positions and student services, leaving cities to pick up the tab. In the meantime, we still have a problem in Richmond, and residents are demanding action. But the costs are high, and our current budget is not sized to meet the needs of our city.

The only way forward is to bring in new revenue, likely in the form of a tax increase.

This is a serious decision that should not be made exclusively in the Mayor’s office or in Council Chambers alone. The public needs to be involved in a major decision like this.
Therefore, I propose that during these budget deliberations, we explore together the idea of an advisory referendum on the November ballot to determine whether the public wishes to raise its taxes, and by how much.

And we have to consider that while public schools are critical, Richmond has many priorities, so I believe we should also include questions on the ballot about other critical infrastructure needs. That way, the city will know what our residents expect.  And residents will be clear about the impact on other services as a result of spending decisions made.

If it is the will of the people to significantly raise taxes, then they will have a chance to directly indicate that. If the people prefer to drastically cut services – give up any leaf collection, cut City Hall hours of operation, reduce trash pickup, bulk trash services, etc.; then we’ll know that too.

With this approach, together, we’ll determine exactly what course Richmonders would like to take to address our future needs.

That way, future Mayors and City Councils will have a clear consensus from the community about the course we should take—expand services, or restrict them?

This is a fundamental question for any city. A city in decline would make one decision. I hope that a growing, thriving, resurgent city would make a different decision. As leaders, our job is to position the city to provide the greatest impact for our citizens. And it is my hope that we’ll make the right decisions together.  We need to hear every voice and not back down from making hard choices.

As for me and my Administration, together with all of you, I’m proud of what we’ve accomplished together. Our work has been good. We’ve set a clear course for an even brighter future. But we know that much work lies ahead, including difficult budget deliberations.

The choices we make will shape the future of this city. I’ll be working to keep our city on the right course for the future, and I know you will be too.

Thank you.