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Service cuts feared
If state budget not approved

Wednesday, May 28, 2014

By MICKEY POWELL - Bulletin Staff Writer

Budget cuts leading to reductions in city services eventually may occur if the General Assembly does not approve a state budget soon, according to Martinsville City Manager Leon Towarnicki.

In a unanimous vote, Martinsville City Council on Tuesday gave final approval to an approximately $89.3 million budget for fiscal 2015, which will start July 1. The budget does not contain any reductions in services.

With state lawmakers at odds over budget issues and no effort in sight to resolve them, though, Towarnicki is concerned because about 27 percent of city revenues — excluding schools — for the new fiscal year is state funding.

Essentially level state funding was plugged into the spending plan because officials do not yet know how much Martinsville will get, Towarnicki said.

“We had to make assumptions” in budgeting on amounts of state funding that the city will receive, Towarnicki told the council. If budget cuts eventually must be made, he said, “they will be handled based on their magnitude.”

That could mean cuts in services, he said during a phone interview earlier in the day.

Based on information he obtained from the Virginia Municipal League, Vice Mayor Gene Teague said he understands that state funding to localities “will continue to decline” and the league advises planning for reductions.

So “we may not be done with the budget” for the coming fiscal year yet, Teague said.

Towarnicki said city officials must be mindful of the possibility of reduced state funds because with most city expenses that the state pays, the city must spend its own money first and then be reimbursed by the state.

Within a few months after July 1, if a state budget has not been approved, the city is getting no state money and there is no indication that lawmakers will resolve their budget impasse soon, city officials will need to have “some very serious discussions” as to how to proceed, Towarnicki said.

Expenses in the adopted city budget total $89,326,163 and anticipated revenues total $86,730,389. As a result, the budget is balanced by using $2,595,774 in reserve funds, the approved budget ordinance shows.

According to a budget document, the city expects to have about $17.8 million in fund balance, which includes reserve funds, at the end of the current fiscal year.

Officials have said they think the city’s finances are in good enough shape now to take such a large sum from the reserves to balance the budget. Yet they have said the city cannot afford to continue dipping into the reserves well into the future.

Reserve funds can be used to maintain cash flow in months when little to no revenue is coming in, officials have said.

However, Towarnicki said he thinks it “would be a last resort” for the city to dip further into the reserves in the new fiscal year to either make up for no state revenue coming in for a long time or a major loss of state funding.

More than likely, he said, the city would have to reduce its spending, even if it means drastic cuts in services.

If the city was to see a loss of $100,000 or more in state funds for any particular expense, “in all likelihood there is no way we could absorb that” through budget cuts, Towarnicki added.

Teague said he understands that if its revenues drop below certain levels, the state can “dip into its rainy day fund ... to levelize the impact” on local governments.

At the urging of Teague and Councilman Mark Stroud, the city plans to send the area’s lawmakers and Gov. Terry McAuliffe a letter encouraging them to adopt a budget before the new fiscal year starts and, if necessary, to use rainy day fund money to help localities deal with budget cuts.

Councilman Danny Turner suggested sending a letter only to McAuliffe.

Ultimately, Turner said, “it’s the governor who’s at fault” for the budget impasse due to matters pertaining to Medicaid funding.

Stroud said he thinks fault lies “on both sides” — the governor and the General Assembly.

“We don’t need to give in to (state) politics” right now, said Councilwoman Sharon Brooks Hodge. Mayor Kim Adkins agreed.

Several potential letters may be drafted for council members to inspect and then choose one to send, Towarnicki said.

The adopted city budget contains no increases in tax rates or service fees. The council removed a water and sewer rate hike from the proposed budget that it was presented in April. Towarnicki said he thinks the council is not willing to increase taxes and/or fees to generate more revenue.

When facing major budget shortfalls, he said, basically “you either have to find a new revenue (source) or cut expenses and services.”

The budget keeps the city’s real estate tax rate at $1.0621 per $100 of property value. That means the owner of a house assessed at $100,000 would receive an tax bill for $1,062.10 in the coming year.

The tax rate on vehicles will remain $2.30 per $100 of value, although the state provides the city funds which ultimately lower amounts that residents pay on their cars and trucks. The rate for business machinery and tools will remain $1.85 per $100 of value.

The adopted budget includes $6,735,531 in local funding for city schools. That is $375,000 more than the level funding that had been proposed.

Recently, council members decided to increase the school system’s funding for the hiring of new employees, including teachers, that schools officials say are needed.

Turner mentioned that the fiscal 2015 budget is the first one he has voted to approve in the six years that he has been a council member.

He said he voted for the budget because he thinks city departments did a good job of saving money in the past year.

Still, “we need to make more (spending) cuts” in the future, Turner said, adding he thinks that will help Martinsville attract businesses.


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