THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, February 16, 1997 TAG: 9702160051
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY MAC DANIEL, STAFF WRITER
DATELINE: CHESAPEAKE LENGTH: 99 lines
With a projected $19 million shortfall, an expected downturn in city revenues and millions of dollars in new costs, Chesapeake is finally experiencing the pains of growth.
So how did the state's fastest-growing city find itself behind the eight ball, facing a hiring freeze and a hold on new departmental projects?
Basically, Chesapeake is now paying for its booming past.
The real impact of growth - the need to improve roads, schools and other infrastructure - always lags behind the population explosion.
And expansion brings more than a one-time building cost. There also are annual expenses to operate the buildings and keep things in proper repair, plus the interest charged on those loans.
And in Chesapeake, paying off past debt alone accounts for $40 million a year, an amount the city must spend over the next 10 to 15 years.
Because Chesapeake was forced to spend lavishly in the recent past, the city's bond debt, lease arrangements and lines of credit for internal purchases are close to being maxed out, according to City Manager John L. Pazour.
That leaves the city with little flexibility for funding new projects at a time when the school district is looking at $87 million in new needs.
The predicted downturn in city revenues adds to the problem. The city is expecting $1.5 million less in revenue this year, thanks in part to a natural ebb in development and council's deliberate efforts to control growth.
The city instituted a policy in 1995 that allows the Planning Commission and the City Council to deny rezoning requests if the roads, schools and water and sewer lines around the proposed rezoning aren't adequate to meet the project's demands. It is a policy for which Chesapeake has been lauded across the country, but one which also has contributed to the current budget situation.
Chesapeake still is issuing 951 certificates of occupancy and building 1,129 single-family homes every year.
Chesapeake grew by 1.74 percent last year, down from 2.3 percent in 1995 and 4 percent in 1993 and 1994, when the city was one of the fastest growing in the country.
City officials say Chesapeake is still financially strong, and there is little fear here that this latest fiscal hurdle will have any long-term effects. In fact, the hiring freeze and other measures taken this week were done to prevent a future fiscal crisis.
Other unseen factors are playing a role. For example, Chesapeake is trying to prepare for the millions of dollars required to fund a change in state pension laws, which will likely cost the city an additional $2 million annually over 30 years, said Pazour.
Choices must now be made about how to handle the situation. ``Frankly, I'm reeling from some of the things we have to do,'' said council member Elizabeth P. Thornton.
The city won't know until late spring if there will be an increase or decrease in local revenues. Personal property taxes won't come into the city until late spring, and the next quarterly payment of sales taxes won't be due until April.
Pazour instituted a slight cutback in services last week when announcing the moderate hiring and project freeze. That attacks the problem from the spending side but will come nowhere near meeting the shortfall.
The controls that Chesapeake is putting into place now should pay dividends in about three years. However, this latest wave of past spending must be crested first.
Cities usually weather such tight times with a tax increase or a major cutback in city services, both of which the City Council and Pazour are trying to avoid.
City officials say even a slight tax increase would have a ``symbolic impact'' that could affect the city's much-valued double-A bond rating.
A tax increase could also hinder the city's efforts to bring in new businesses that city officials hope will bring in badly needed cash.
Every cent added to the Chesapeake tax rate would bring in about $840,000 annually.
The overall tax rate in Chesapeake is $1.26 per $100 of value, which is 14 cents less than Norfolk, which has the region's highest tax rate. Chesapeake wants to maintain that difference to retain its competitive advantage in the region, Pazour and members of council have said.
Since 1984, Chesapeake's taxes have increased only by 9 cents per $100.
In 1988, citizens approved a 14.1-cent tax increase in a referendum, but the council used only 9 cents. A 7-cent increase was approved in 1992 but was never instituted.
In fact, the council lowered its real estate tax rate by 1 cent in 1995 in response to an increase in overall property assessments.
The rollback, which was approved by seven of the current nine members of council, may have been shortsighted, some members now say.
``If they would have taken it then, we wouldn't have had the problem,'' said Councilman Peter P. Duda Jr. ``The people don't mind paying the taxes if they know where it's going.''
``I want to look at every single obstacle, every single hidden corner that we have,'' Duda added. ``If we have to put on hold some projects, I think that would be our first step. I'm a strong believer in economic development. Curbing the residential growth and bringing in more businesses is the key. I'd love to see a lot of businesses come in.''
City officials had suggested an array of fee and tax increases to help erase the shortfall, including an increase in the local cigarette tax, creating a cable television fee and increasing fees for emergency medical services.
This decision will likely be put off until the council considers the operating budget in the next several months.
KEYWORDS: CHESAPEAKE BUDGET