
DATE: Wednesday, September 3, 1997          TAG: 9709030474

SECTION: LOCAL                   PAGE: B1   EDITION: FINAL 

SOURCE: BY JON GLASS, STAFF WRITER 

DATELINE: NORFOLK                           LENGTH:  155 lines

NORFOLK'S RED INK HITS HIGH-WATER MARK IN '97

During this decade, as a bull market has raged on Wall Street, Norfolk's leaders have been bullish as well. Since 1990, they've pumped nearly $144 million into an economic development campaign meant to pull this waterfront city up by its bootstraps.

When added to the millions spent on schools, streets, neighborhoods and public buildings, officials have racked up what is thought to be the largest debt in Norfolk's history - more than $552 million in bonded debt and obligations.

Over the past seven years, the city's debt load has more than doubled, rising from $224 million, or 35 percent of its legal limit of about $638 million in 1990, to more than 73 percent of its limit as of June 30.

City officials say there's no cause for alarm.

The debt, they say, has reached its peak, is manageable and already has begun a gradual decline as the city methodically pays it down and tightens its belt.

``We have a sound financial plan,'' said Mayor Paul D. Fraim, one of the city's leading cheerleaders.

Even so, officials acknowledge that the hefty debt and other stresses pose tough challenges as they strive to maintain the city's standard of living and its standing as the region's financial and cultural hub.

Along with its debt, Norfolk has the highest rates of poverty, some of the region's highest taxes, and a stagnant tax base.

``We are having an increasingly difficult time affording a quality of life that our taxpayers have come to expect,'' Fraim said.

Faced with such pressures, finding new sources of revenue has become a priority. The city is now studying ways to tap the Navy, the Virginia ports and such tax-exempt institutions as hospitals, churches and universities.

City officials also say the need for regional cooperation to plan and finance future economic development projects is more crucial than ever. The health of the inner-city, they say, is critical to the region's financial stability.

The fact that Virginia Beach and Chesapeake promote such Norfolk attractions as Chrysler Hall, Waterside and the Harrison Opera House in promotional videos, Norfolk City Manager James B. Oliver Jr. said, shows the key connections.

Then there's the 200,000-plus jobs located in the city, more than half of them held by workers who live outside Norfolk, Oliver said.

``You never could keep your body healthy if your heart is diseased,'' Oliver said. ``They (the region's cities) would not benefit if Norfolk was perceived as damaged.''

The city's decision to take on millions of dollars in debt for such projects as Harbor Park, the MacArthur Center mall and Nauticus is part of a calculated investment in the future of the city and the region, Norfolk officials say - similar to a family stretching its resources to buy its dream home.

But reality can be sobering.

Despite their optimism, some City Council members were rattled in April when Moody's Investors Service, citing the city's slow revenue growth, below-average wealth and mounting debt, lowered Norfolk's AA bond rating a notch to A1. That could chill investor confidence and make borrowing more expensive - although the downgrading did not appear to affect the city's late-April bond sale.

Also, swinging for the fence with big-ticket projects doesn't always bring home runs. The $52 million downtown attraction Nauticus, for example, has needed city subsidies to meet operating and debt expenses since opening in June 1994, a fact noted by Moody's.

The need for new revenue has become painfully clear.

Norfolk probably has reached its limit in taxing homeowners and businesses, city staffers say. The city now charges the highest rate on 12 of 17 local taxes, including the real property tax on homes.

``You don't want to be at a level of taxes so high that you lose your competitive edge in the region,'' said Nancy Tracy, the city's finance director.

Besides that, the city's tax base has been stagnant, growing at a rate slower than inflation over the past five years.

Officials now project a money shortfall to reach more than $17 million by 2002.

Even tax revenue generated by the MacArthur Center mall - projected to pump more than $4 million into city coffers by 2006 - is not enough to cover the projected deficit, officials said.

``While MacArthur Center is a positive, and our conservative projections show it will add to the bottom line,'' Tracy said, ``it will not solve all of our problems, and we need to acknowledge that.''

State law requires Norfolk to pass a balanced budget. But that means making tough choices. For example, to keep debt in line, the council already has begun to slash spending on such capital improvement projects as schools, streets and neighborhood development.

In 1993, the city spent $85 million on such improvements, including $60 million for economic development. But in the current year, there's only $23 million budgeted - the lowest level of the 1990s - including $5.9 million for economic development, limited to East Ocean View revitalization and Freemason Harbour downtown. Through 2002, the city expects to spend even less - about $18.5 million a year on general capital improvements.

While forecast revenue from MacArthur Center mall and spinoff development will help fill the gap, the city also is looking to the Navy, the port and other tax-exempts for new money.

With military downsizing in vogue, for instance, officials say unused Navy property could be leased to private businesses to expand the city's tax base. Currently, 47 percent of Norfolk's land is tax-exempt, in large part attributable to the Navy and port holdings.

For housing one of the three state-owned ports, Norfolk now gets $135,000 annually from the state in lieu of taxes - a pittance, officials say, considering the $340 million in tax revenue the ports generate for the commonwealth.

In a recent speech to the Maritime Association, Fraim made a case for the state to increase its payment to the ports' host cities, including Portsmouth and Newport News.

``We need to make sure that everyone feels the ports' success is their success, too,'' Fraim said.

The city recently appointed a task force to study whether it could collect service charges, for things such as police, fire and trash collection, from hospitals, universities, churches and other tax-exempt groups.

Another plan to expand the tax base, officials said, is to attract more middle- and upper-income residents, many of whom work in Norfolk but go home to neighboring suburbs.

Currently, only 5 percent of the homes in Norfolk are valued at $200,000 or more.

Some council members were surprised to learn recently that the city pays more to provide services, such as the cost to educate school-age children, than it receives in real and personal property taxes from many households. The planning department figured that the city loses $3,900 annually on a married couple with two school-age children living in a $140,000 home.

``There are some patterns you can't keep going in unlimited fashion no matter what your conscience says or what your political philosophy,'' City Manager Oliver said. ``We just can't keep growing low-income housing and make our finances work out.'' ILLUSTRATION: Graphic

WHERE THE MONEY WENT

Big-ticket* capital spending in the 1990s creating Norfolk's debt

Economic development:

$143.6 million

Key projects include Town Point Park improvements, Nauticus,

MacArthur Center mall infrastructure, Harbor Park, Waterside

improvements, downtown Tidewater Community College campus

infrastructure and East Ocean View redevelopment.

Schools: $80 million

Key projects include a new Tanners Creek Elementary, new or

renovated middle schools at Ruffner, Norview and Lafayette Winona,

renovated and expanded Granby High, and a new school transportation