As we enter into the second work session toward the adoption of the FY21 budget, this informational report provides an overview of recommended budgetary changes based on Council direction in the first budget work session. While the Town Council was scheduled to adopt an annual FY21 budget on or before the June 9th Council meeting, the Town Manager is now requesting to adopt an emergency appropriation for the first quarter of FY21.
The departments have been working on the FY21 Budget for the past 5 months, and now find ourselves in a state of emergency that will impact our budget forecasts, both in revenues and expenditures. We are defining and curtailing non-essential services as we deal with the impacts to our community from this pandemic. Employees have been segregated into teams and working flexible shifts to minimize the virus transmission amongst our work group. Where possible, teleworking has been encouraged.
Given the current extraordinary circumstances, as Town Manager I recommend the Council consider adopting only an emergency budget appropriation for the first quarter. While we have some level of ability to assess the impact of the closures for the four months remaining in FY20, it is almost impossible to estimate the potential loss of revenue or the delay in revenue receipts for FY21. The length of the national emergency and the Governor’s order on closing restaurants and other non-essential services remain the primary factors that will determine whether our community returns to a normal collection of taxes, fees and rates. Another factor that is clouding our ability to forecast is the fact that some businesses, despite federal assistance, may not be able to sustain their former level of service and/or reopen.
Following the recommendations of Davenport, the Town’s financial advisors, we are developing a strategy to maintain, where possible, our unrestricted fund balance in the General Fund and our net positions in our two enterprise accounts to protect the Town’s excellent bond rating. My office, in concert with the Finance Department, has directed Davenport to evaluate the issuance of an RFP to local banks for short-term financing, which could be utilized much like a line of credit to maintain continuity of government functions and service delivery.
Local Chairs, Mayors and County, City and Town Managers, are currently working together to lobby our federal legislative delegation to provide an economic relief package to all municipalities across our state and union. Our Director of Administration, along with our Finance Director and Grants Coordinator, are assessing and collecting data that we will be able to utilize for possible federal recovery assistance. We fully recognize the need to revisit revenue and expenditures as more is known in the upcoming months. Future modification to the interim plan can be managed via Budget Amendments as necessary.
METHODOLOGY FOR THE 1ST QUARTER FY21 APPROPRIATION
STEP 1:
Our initial focus was to prepare an annual budget for the full fiscal year of FY21 revising it in light of the current crisis by eliminating the need for the 2 cent increase in Real Estate tax, the half-cent increase for Fireman’s Field special tax district and the 1% Meals Tax rate increase (which was intended to help subsidize utility rates and pay for a comprehensive Transportation Plan).
On the expenditure side, the departments worked to reduce personnel costs, travel and training and the deferral of the:
· Traffic study, Comprehensive Zoning Ordinance, Recreation and Events Master Plan and other non-essential programs within departments
· Capital Asset Replacements
· CIP that requires Town funding
o CIP funded with “other funding sources” like VDOT, NVTA, County grants will still move forward.
The net result of these changes is that the Town Manager cut another $1.2M in operating budgets out of an already lean budget. (excludes CIP)
Furthermore, the Total Budget decreased ($3.552M) or (15%) from the FY 2020 Adopted Budget. The Operating Budget decreased ($0.1M) or (0%) from the FY20 Adopted Budget. Three of the four Operating Funds decreased from the FY20 Current Budget. The Total Operating Budget declined ($0.4M) or (2%) with (2%) in General Fund, (13%) in Parks and Rec, +3% in Water, and (5%) in Wastewater. The CIP Budget decreased by ($11.3M) or (91%) from the FY20 Current Budget.
METHODOLOGY FOR THE 1ST FY21 QUARTER APPROPRIATION
STEP 2:
Once the team revised the proposed annual budget for FY21, we then projected revenues and expenditures for the first quarter only. This analysis is outlined in the attached Powerpoint, which will be delivered at the April 8 Work Session.
The interim emergency 1st quarter appropriation assumes an average quarter for both revenues and expenditures, based on the manager’s revised proposed annual budget of April 8, 2020 which is $1,493,780 below the budget presented on March 18, 2020. Further, the FY21 1st quarter appropriation allows no tax rate, fee or utility rate to increase.
ADVISORY:
The Council and future Council should be advised that the three remaining quarters for FY21 will need to be revisited in the month of August of 2020, where the new Council will have new information on the lifting of the state of emergency, the financial impacts from the Town’s Sales Tax, Meals Tax and BPOL tax as a result of the temporary closures.
In addition, the management team may be in a position to assess federal relief, funds and/or disaster assistance from the federal and state government. We also may be in a position to determine permanent closures as a result of the interruption to business continuity. Lastly, the management team will have recommendations for closing the budget gap in revenue through the use of the proposed line of credit and/or funds from the Town’s unrestricted General Fund Reserves and Net Positions of our two utility accounts. If we are still at a level of uncertainty, the management team may recommend passing a second appropriation for the second quarter in FY21, until the state of emergency is lifted or we have a higher level of confidence in our revenue and expenditure forecasts for the remaining budgetary quarters.