How Henrico officials slashed $99 million from their proposed budget

(Editor's note: An earlier version of this article incorrectly attributed the anticipated use of some rainy day funds. The article has been updated to reflect the county's expected use of those funds. The Citizen regrets the error.)

Having already slashed about $86 million from the proposed $1.4-billion Fiscal Year 2021 budget they had just completed weeks earlier after months of work, Henrico County officials April 14 asked citizens for ideas about how to close the remaining $12.8 million gap they had identified. They also delayed the budget process by two weeks in part to give them time to do so.

The public did not disappoint.

More than 150 suggestions – totaling more than 90 pages – came by email from county employees and citizens, offering advice about how to reduce costs to balance a budget whose projected revenues suddenly were expected to fall by as much as $99 million as a result of the COVID-19 pandemic and its crushing impact on county businesses.

Some ideas were in-depth (such as citizen Suzie Willard’s 12-point plan, which urged officials to create an early retirement option for employees, close libraries on a rotating basis and eliminate or reduce out-of-area training trips or general travel).

Some (like citizen Max Maizels’s) were not: “Eliminate membership in Virginia Association of Counties and save $70,014,” he wrote.

Some were thoughtful, such as one from Henrico employee Jim Burns, who wrote “I for one, and I am sure many others, would be willing to a pay reduction to save the job of a fellow Henrico County employee.”

Dozens were based upon an inaccurate Facebook post that suggested the county might specifically cut the pay of its public safety officials. (Though officials did briefly weigh a number of cost-saving options – including across-the-board pay cuts, according to Deputy Finance Director Meghan Coates – Henrico’s unified pay plan ensures that any pay raise or pay cut would apply to all eligible employees, not just a select group.)

In total, a 40-member group of government and school system officials considered each suggestion, deemed 18 to be “reasonable” enough to warrant discussion – and then selected at least one for implementation: an early retirement option mentioned by Willard and a number of others.

Budget revision ‘a Herculean effort’
On Tuesday, the county’s Board of Supervisors intends to conclude what Henrico County Manager John Vithoulkas has called “the longest public hearing in county history” and adopt what county officials are terming the “framework” of a revised $1.3-billion annual budget for the coming fiscal year, which begins July 1. The term fits, because supervisors will allocate funds only in quarterly increments, while finance officials monitor changes in the economy on a monthly basis and bring revisions or amendments back to the board as needed.

Supervisors originally were scheduled to adopt a budget April 28 but delayed that vote to allow officials more time to make adjustments and the public more time to make suggestions.

“It’s been a herculean effort,” Vithoulkas said of the rapid overhaul of his original budget proposal – which essentially was scrapped in late March, just as supervisors were hosting in-depth budget reviews with the directors of each county department.

Vithoulkas praised supervisors and Henrico School Board members, saying their frequent discussions in recent weeks helped establish the guidelines necessary for county finance officials to devise the new budget.

“Those are the pillars this plan was built on,” he said.

Chief among them: no layoffs, furloughs or pay cuts for any of the county’s 11,000 employees. Other objectives focused on helping Henrico businesses survive (by increasing to $500,000 the threshold of annual gross revenues beneath which businesses don’t need to pay business and professional taxes); eliminating any new burdens on citizens; and ensuring delivery of the county’s core services, Coates said.

Among the expenditures eliminated from the budget proposal:
• $22.7 million in capital projects that were slated to get underway (including the planned indoor sports arena and convocation center at Virginia Center Commons; capital projects already underway, such as the new Tucker and Highland Springs high schools, will continue);
• $9.2 million in operations costs across all county agencies, resulting from a required 5-percent cut;
• $5.7 million from a hiring freeze for all vacant positions (about 300 total between general government and the school system), except for those in public safety;
• $3 million in targeted departmental cuts;
• $2 million in reduced general fund money for solid waste programs.

In addition, the county scrapped its planned 3-percent pay raise for all eligible employees.

The plan retains Henrico’s real estate tax rate at 87 cents per $100 of assessed value.

Vithoulkas’s new mantra to county employees is that they are serving the nearly 24,000 Henricoans who have filed for unemployment since the pandemic began.

“We work for the folks that are unemployed,” he said. “We understand that, our employees are going to understand that. That’s who we’ve been and who we intend to be coming out of this.”

Officials hope to save about $1.5 million through the citizen-driven plan to offer early retirement packages to certain employees, Coates said. About 450 general government employees are eligible for full retirement according to the standards of the Virginia Retirement System, and the county will offer each one 10 percent of their current salaries and pay their remaining sick leave (up to $8,000 apiece), if they take the offer, she said.

Those who accept would need to retire by Sept. 1.

Finding additional cuts
The initial budget would have allocated $962.5 million for general fund expenditures on the general government side (all county agencies except the school system) and $542.2 million to the school system.

The new proposal would direct $899.1 million to the general fund and $509.9 million to the school system, whose share of the overall budget would increase from 56 percent to 57 percent, an all-time high. (The Board of Supervisors allocates a lump sum of money to the School Board, which then can spend it however it chooses.)

Closing that final $12.8-million gap identified by officials last month required the school system to trim $8 million from its proposed budget, which it did in part by freezing a number of vacant positions and contract stipends (about $4.5 million in savings) and pausing plans to spend operating funds on things like travel, furniture, technology equipment replacement and innovation grants (about $2.5 million).

The general government closed the remaining $4.8 million in part by refunding some outstanding bonds last month and scrapping more scheduled operating costs for Recreation and Parks and the county’s library system, since libraries have been closed and most county-involved sporting and recreational events have been canceled.

Initial estimates last month placed the potential revenue shortfall during the fourth quarter (April, May and June) of the current fiscal year’s budget as high as $60 million. But last week, Coates and Vithoulkas told the Citizen that number should settle closer to $43 million, as a result of the county’s hiring freeze and since its March revenue numbers weren’t as bad as expected.

To address that gap, Henrico officials plan to dip into the county's $281-million rainy day fund (surplus dollars it holds in reserve), Coates said. They already had anticipated using about $30 million from the fund to pay for construction costs associated with a number of capital construction projects, including the new editions of Tucker and Highland Springs high schools, and now anticipate using another $13 million. They also expect to use an additional $3 million from the fund in Fiscal Year 2021, Coates said.

“April’s really going to be the month where we can tell where we’re going to go,” she said, referring to revenue data that will arrive soon.

After the county’s Board of Supervisors votes to adopt a budget May 12, the School Board will vote to formally adopt its budget May 14.