JCC May Look at Cuts to Cover Budget Gap, School Funding

By Desiree Parker Sunday, January 22, 2012

James City County’s Board of Supervisors got a look at financial projections and started preliminary discussions Saturday on the upcoming two-year budget. The Board agrees things look pretty grim, thanks in part to upcoming retirement fund repayments and low real estate assessments.

WJCC and the VRS funding gap

County Administrator Robert Middaugh explained to the Board that WJCC is facing a funding gap of roughly $7.5 million, of which the school system can cover about $1 million, leaving a shortfall of over $6 million. “We can ask them to fill the hole all by themselves, but you will see some substantial changes” if that were to be the case, Middaugh said.

The shortfall comes mainly from about $4.5 million in paybacks due to the Virginia Retirement System (VRS), which the state directed school systems to underfund in 2010. County Financial Manager John McDonald told the Board the “catching-up” on VRS funding will be more than a two-year process. “I expect this to be a six- to eight-year problem,” he said.

Middaugh said the General Assembly will be hearing objections from all the state school systems, and that legislators might try to ease some of the payback burden. He said he expects that the state will soon pass legislation to allow localities to have all employees contribute towards VRS, not just those hired since mid 2010 (called "plan two" employees). This would help ease the local government burden on future payments.

Supervisors noted that, since fiscal year 2008, the county has kept school funding level while the county operations budget has been trimmed by 10 percent over the same period.

Board members expressed some frustrations over the fact that WJCC knew about the impending VRS crisis but didn’t try to save anything ahead of time to help with the problem.

They also were unhappy that the school board can’t seem to figure out what it wants to do with James Blair, formerly a middle school and now administrative offices. The Board questioned a proposed expansion of WJCC’s newest middle school (to expand a cafeteria and add classrooms to Hornsby Middle School) when it could reopen Blair in the future to address capacity issues.

Supervisor Jim Icenhour noted WJCC’s decisions on school capacity “have been piecemeal” and that “we are always in reactionary mode,” instead of having firm long-term plans for future school needs. “I expect the schools and the city to make a commitment to make cuts,” he added.

Board Chair Mary Jones said the city of Williamsburg is facing much higher school costs for their portion of WJCC funding this year and it might look to JCC for help, for which the board seemed to have very little sympathy.

Supervisors seemed supportive of trying to cover a good part (or all) of WJCC’s VRS shortfall, about $4.5 million, but to leave the rest of the problem to the school board to figure out.

The rest of JCC’s budget troubles

Though many business taxes in the county have been seeing positive numbers recently, the county still faces about $2 million to $3 million in extra expenses outside the school's VRS woes, mainly due to an expected six percent drop in real estate values, rising health insurance costs and a rise in county employee VRS payments.

Supervisor Jim Kennedy summed up the board’s discussion: “We’re in a pretty bad situation,” he said.

Thanks to sound management on the part of the board, according to Middaugh, the county has about $6 million in surplus from 2011 and expects about $1.5 million from 2012. This is a one-time cushion that could help with the school problem, but only for this budget, he pointed out.

WJCC’s VRS problem and the county’s lower real estate values will drag out for more than the short term, so Middaugh explained to the board it had three options: to use its savings, institute spending cuts or generate new revenues, or some combination of these.

Residents will see lower real estate tax bills when the new assessments are out, and Middaugh said one option would be to raise the rate and generate funds that way. Raising the rate from 77 cents per $100,000 in value to 81 cents would still give most homeowners a slightly lower tax bill (since their values will be lower), but would raise an extra $4.2 million in revenue. Raising the rate to 79 cents would raise $2.1 million.

Jones and Kennedy said citizens had enough burdens with increased living costs and tough economic times, and they weren’t comfortable with the idea of raising real estate tax rates.

Supervisor John McGlennon asked Middaugh to put together two budgets, one with the real estate tax at its current rate and one with the rates increased to 79 cents.

Middaugh asked the Board what it was willing to cut to make up for the expected shortfall; supervisors indicated they wanted to protect core services such as public safety and education, and they wanted to protect charity funding (which they pointed out was a very small amount of funding that had a big impact to various agencies).

McGlennon said he couldn’t see lowering the operations budget without “significant impact” to county services.

Middaugh suggested the Board consider shopping around for a solid waste provider that would offer county-wide trash collection and recycling. Doing this would save the county around $900,000, Middaugh estimated; this is what the county pays now for recycling, and if a company got a county-wide deal to pick up refuse it would likely mean the county wouldn’t need to pay for recycling.

Middaugh said some residents might not like this idea as it would mean they could not choose their trash collection provider, but it would mean “a substantial savings” for the county and possibly for residents, too.

The Board discussed the county’s greenspace bond capability, as well. After a 2005 referendum, voters agreed to take on debt to pay for buying greenspace. Middaugh noted that time was running out to spend the remaining $14 million, and that the county still had about $6 million in additional funds available for greenspace.

McGlennon suggested the county look at using some of the remaining bond capacity to buy environmentally sensitive land that would help the county meet new Environmental Protection Agency pollution mandates that are expected to be a huge expense for localities around the Chesapeake Bay.

Staff agreed that, based on their current understanding of the new EPA rules, this sort of land acquisition would count towards the county’s responsibility in polllution reduction. McGlennon suggested using the $6 million to pay the debt service on any purchases.

Kennedy said he didn’t know if the referendum would pass today, “given what we’ve gone through over the last six years.”

Jones said many citizens are concerned about the county buying any more property, which is expensive to maintain. She said she was “hesitant” to add staff to work on finding suitable land, and that volunteers in the community currently keep an eye out for possible land the county could buy.

What’s next

Middaugh will start having some public meetings to explain the situation to citizens and get their thoughts on spending issues. He is working on creating a preliminary budget for the Board to examine.