County to legislature: ‘Don’t hurt us’

"Don't hurt us."

That's the clear and simple message being delivered by Henrico County's elected officials, administrators and lobbyists to the General Assembly, which convened in Richmond for a 60-day session last week.

The missive represents a change from years past, during which county officials annually presented "wish lists" of top priorities to the county's General Assembly delegation. Six years ago, that list contained 14 items. This year, it's down to just one: Do no harm.

By placing their sole focus on those three words, local officials hope to make a salient point to lawmakers: localities – Henrico included – are struggling to deal with their own financial problems and cannot afford additional funding cuts from the state.

County lobbyists have, for the most part, kept their mouths shut in recent years as state funding to localities have declined annually. Though other jurisdictions in the state had to lay off employees, raise tax rates or trim services – or all three – Henrico has not.

County officials are adamant that no layoffs, service cuts or tax increases will occur in the coming fiscal year either, but by sounding the warning bell to legislators, they hope to illustrate how dire times have gotten statewide.

During the past several years, as state funding to localities fell during the recession, Henrico was able to make up those lost funds in its annual budgets thanks to years of conservative financial planning, Deputy County Manager and Finance Director John Vithoulkas said. (The county annually has capped its growth at 5 percent – during strong and lean economic years – which helped buffer it from the recession.)

But now, the state's failure to meet its funding obligations is having a real impact even on Henrico, which begins its 2012-13 budget process facing a $70.8 million budget shortfall before the process even begins. That's a significant hurdle even for one of the most fiscally sound counties in the nation (Henrico was the first county to have its triple AAA bond rating reaffirmed last summer after the U.S. government's rating was downgraded by Standard and Poor's.)

The shortfall is the result of a combination of factors:

• an estimated $10.8-million decline in tax revenues;

• a projected increase of $32.5 million in the county's required payments to the Virginia Retirement System;

• $6.1 million in additional debt service payments;

• $10.2 million in operating costs for new projects constructed through bond sales;

• $4.2 million in additional healthcare costs;

• $1.5 million in additional diesel fuel for school buses and vehicles;

• $5.5 million in other costs.

"In the Fiscal Year '13 budget, the VRS cost increase is the single largest budget driver that we have, both for general government and for schools," Vithoulkas said.

The VRS provides retirement payments for eligible state employees and teachers and is funded by the state and localities, all of whom make payments into one fund, from which it is then distributed.

But while localities – including Henrico – have been required annually to fully fund the VRS rates established by the VRS Board, the state has not fully funded its share in any of the past four-plus years.

For example, in Fiscal Year 10-11, the VRS board set the rate of payment into the system for teachers at 12.91 percent; Henrico and other localities paid that percentage in full, but the state paid only 3.93 percent – less than one-third of the amount it owed.

Part of the problem was that the VRS investment fund took a significant hit during the recession, losing 28 percent of its value between 2007 and 2009. The fund rebounded to gain 20 percent last year; Virginia Gov. Bob McDonnell's budget assumes that the fund will show 8-percent growth in the coming fiscal year.

McDonnell has proposed funding the VRS with $2.21 billion in new money in the coming fiscal year – including $876 million in state general fund dollars – as a way to begin addressing what he termed the "woefully underfunded" system. McDonnell also is proposing that public employees pay 1 percent of their salaries toward the fund, which would raise another $5.1 billion.

Critics of his proposals argue that the bulk of that new money will come from the very localities who have been paying their shares all along and from employees, for whom the money is intended.

A number of bills related to VRS funding are under consideration in the Assembly, but each would require concessions in other areas to fund VRS.

"There are only so many resources," said Henrico's legislative liaison Mike Schnurmann. "If you squeeze in over here, it's going to pop out somewhere."

Positives and negatives
The county has seen some key economic indicators pointing in a positive direction during the past year:

• residential foreclosures in 2011, through October, were lower than during the same months in 2010 with just two exceptions (May, which witnessed one more and October, which was equal to the previous year);

• the county's unemployment rate dropped from 7.5 percent in February 2010 to 5.9 percent in April 2011, before rising slightly to 6.5 percent in September – a figure that still was 0.8 percent lower than the same rate for Metro Richmond;

• the county's sales tax receipts were up $2.5 million from Fiscal Year 2009-10 to FY 2010-11 (to $57.2 million) and up 2.9 percent during the first quarter of FY 11-12.

But, there are negatives too.

County officials are estimating that Henrico's taxable real estate base will drop from $31.7 billion last year to $30.05 billion this year – a decrease of 5.19 percent. Since 2009, the taxable base has dropped by $4.7 billion (or 13.5 percent).

Other local sources of revenue – chiefly personal and business property taxes – are projected to remain flat in the coming fiscal year.

Also during this year's Assembly session, legislators will consider a number of proposals to restructure the way road maintenance is handled throughout the state. Henrico – one of just two localities that already maintain their own secondary road systems with money provided by the state – will watch the issue carefully, said Schnurmann.

Henrico – which for years lobbied to have its road maintenance allocation rate increased to bring it more in line with that of Arlington County – may now be content to live with its current rate, given that all but one of the new proposals likely would reduce that rate even further, according to Schnurmann.

County officials don't expect any of the proposals to pass the General Assembly this year, but they caution that anything is possible.
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Walkerton Tavern will present “Irish Eyes in Henrico” from 12 p.m. to 4 p.m. The potato famine in Ireland spurred many Irish to immigrate to America, including Henrico, during the 19th century. Hear some of their stories and learn about trotters, soda bread and other traditional Irish foods. Listen to Irish songs and make an Irish craft too. Admission is free. All ages. For details, call 652-1416 or visit http://www.henrico.us/rec. Full text

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