Virginia Beach will need to cut budget next year to avoid deficits, official warns

Virginia Beach — If the city of Virginia Beach doesn’t make any budget cuts next year, it will be operating in the red annually for the next five years, the city’s budget director warned on Tuesday.

During a presentation of a five-year financial forecast report, Budget Director Kevin Chatellier told the City Council that the region has weathered the coronavirus pandemic better than most, but that city tax revenues have taken a hit.

“The uncertainty regarding the path of the pandemic makes it impossible to forecast what the future might hold,” Chatellier said. “We are trying to position ourselves in a conservative manner to be prepared to weather the storm, however long it may be.”

His analysis included a 3% salary increase during the next fiscal year, and 2% raises for the following four years. He also assumed healthcare costs would increase 3% annually.

The real estate market is doing well, but the pandemic is still a major threat to the economy, Chatellier said. He added that it is difficult to predict city revenues beyond next year.

Councilman John Moss said the council will not pass a budget that runs a deficit. He also said pay raises for workers may not be doable in the current economic climate.

“I haven’t seen anyone campaigning to raise taxes to increase pay,” Moss said. “We are going to have to be mindful of our expenses so we can keep this city affordable."

Chatellier warned the federal government may reign in federal spending in the coming years and that the Defense Department will likely be impacted along with workers in the region.

Chatellier said the tourism sector, while negatively affected by the pandemic, has performed better than its competitors because Virginia Beach is a beach destination people can drive to.

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But, the coronavirus has had a significant impact on a special fund used for tourism development projects that relies on consumer and tourism related revenues.

The tourism fund has the capacity to maintain and meet all of its existing obligations over the next five years, including financing of the sports center and the Atlantic Park development, which will be located on the former Dome site property.

However, Chatellier said it does not have enough money to finance a Resort Management Office, which was approved by the council in September with the expectation that it would be funded with this special pot of money.

Oceanfront groups urged the city to create the office to enforce code and zoning violations, deal with infrastructure improvements, and beautification of the Resort Area, among other things.

Chatellier recommended the council create additional revenue streams, or reduce budget allocations to keep a positive fund balance.

Chatellier said the $1 per night hotel room tax created to fund the infrastructure improvements for the arena, which was never built, will sunset in December 2021. The extra money has been used to support the development of the sports center, Dome site and 19th Street infrastructure. He said the council could extend it to help fund the Resort Management Office.

Alissa Skelton, 757-995-9043, alissa.skelton@pilotonline.com.