In proposed $1.25B operating budget, Henrico's Vithoulkas makes push to fill employee vacancies

Henrico County Manager John Vithoulkas's proposed Fiscal Year 2024-25 budget provides several nods to the county's current financial strength while also acknowledging critical employee shortages in several key areas.

Vithoulkas presented his $1.25-billion operating budget and $327.2-million capital improvement budget for the first time publicly Tuesday night to the county's board of supervisors. The board will conduct a four-day budget review session next week, as is customary in Henrico, before holding a public hearing March 26, followed by adoption of a budget April 9.

The operating budget proposal would represent an increase of 8.4% over the current budget and include a 4.8% raise for eligible county employees and an additional one-step pay raise for teachers, bus drivers, and sworn police officers, firefighters and sheriff's deputies. A majority of the county's current 1,135 employee vacancies fall within those positions (including 358 teacher vacancies and 285 public safety vacancies), and since about 78% of the proposed operating budget would fund education and public safety, officials are particularly motivated to fill as many of them as possible. The budget would allocate $17 million toward that effort.

“While over the years we have boasted about how lean Henrico is as a local government, there comes a point where service suffers,” Vithoulkas wrote in a message to supervisors. “We do not want to be close to that level.”

Speaking to the Citizen Tuesday, he added: “We can't continue to have the vacancies that we have.”

County officials have not yet determined if the extra pay step increase would apply only to existing employees within those identified roles or potentially to new hires, too, Henrico Deputy County Manager for Administration Brandon Hinton told the Citizen Tuesday.

The budget would retain the county's real estate tax rate at 85 cents per $100 of assessed value, the lowest rate among Virginia's 10 largest localities. Many property owners in the county will see higher real estate tax bills, however, since the county's residential reassessments have increased by 5.4%.

Vithoulkas's proposal also includes a $327.2-million capital improvement budget, funding that would provide $120 million for water and sewer projects countywide, $110.8 million for projects approved by voters in the 2020 bond referendum, $36.5 million in maintenance projects and $30 million in road and pedestrian improvements (with money primarily allocated through the Central Virginia Transportation Authority, a regional body).

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The budget also would expand by about 1,300 the number of county businesses exempted from paying Henrico's business, professional and occupational license tax by raising from $500,000 to $1 million of annual revenue the minimum threshold for those required to pay it. That change would bring to nearly 85% the percentage of county businesses exempted from the tax, according to Henrico Budget Director Justin Crawford. Another 3,000 businesses would see their BPOL taxes decline as a result of the move.

County officials hope that the move will help attract some new small and mid-size business to Henrico while also encouraging some others to move back into office buildings. The office vacancy rate in Henrico is about 11%.

The roughly $3 million in tax revenue that Henrico would concede by increasing the revenue threshold is more than made up through the economic development benefits it generates, Vithoulkas said. Henrico last raised the threshold in 2020, from $400,000 to $500,000.

“It is paying dividends,” Vithoulkas said, noting in a message to supervisors that raising the threshold over time from $100,000 to $500,000 should have cost the county $3 million but actually resulted in an almost $3 million in increase BPOL revenues.

“The increase in the deduction is a valuable selling point to economic development prospects, particularly those looking for office space in Henrico County,” he wrote.

Henrico officials planned for general fund revenues of about $1.15 million during the current fiscal year, but Crawford noted that the county will collect at least $97 million more than that – an amount equal to the total general fund revenue for which it’s budgeting in the coming fiscal year – by the time this fiscal year ends June 30. Henrico’s 4% meals tax, for example, is expected to generate nearly $40 million this fiscal year – almost $13 million more than it did three years ago.

Henrico's fiscal strength was perhaps best exemplified Tuesday when it sold $121.35 million in 20-year general obligation bonds at a true interest rate of 3.07% – one that surprised even county officials, who had budgeted for a rate of 4% and had seen other financially strong counties sell bonds recently at rates closer to 3.5%.

The county is one of about 50 or so localities in the nation with AAA general obligation bond-ratings – the top rating possible – from each of the top three rating agencies and one of only 13 nationally with triple-AAA ratings for both its general obligation and water/sewer bonds. Those ratings mean that when Henrico sells bonds, investors are much more likely to view them as a strong investment and banks are more likely to offer lower rates. Sixteen banks submitted bids for Henrico's bond issuance Tuesday.

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Vithoulkas’s budget proposal also would increase the eligibility limits for the county's new Real Estate Cap Program, or RECAP, which freezes real estate tax levels in perpetuity for qualifying property owners. The new limits would allow homeowners 65 and older and those who are permanently disabled to qualify for the program as long as their income level is $125,000 or less and their net work is $750,000 or less (excluding the value of the home). Those levels would jump by $20,000 and $50,000, respectively, from their current limits.

The program was implemented during the current fiscal year as an extension of the Real Estate Advantage Program, or REAP, which exempts homeowners 65 and older and those who are permanently disabled from paying real estate taxes if their maximum income is $75,000 or less and their net worth is $500,000 or less (excluding the value of the home).

Henrico's commitment to sports tourism also has paid big dividends. Last year, it generated just more than $60 million in economic impact for the county, Vithoulkas said, and Henrico's hotel and motel tax collections were up by more than 7% during the first eight months of the current fiscal year when compared with the previous one, according to Hinton.

Other highlights of the budget proposal include:

• about $1.7 million for the first year of a five-year commitment to the new Henrico CARES program to address youth mental health, the details of which county officials announced last week;
• $880.8 million in funding for the public school system, including $704 million in the general fund budget (an increase of about 8.3% from the current fiscal year);
• $2.7 million in funding for four new recreational areas: Taylor Farm Park in Sandston; a new Pouncey Tract pickleball complex, currently under construction in Short Pump; the former St. Gertrude athletic fields, which Henrico recently purchased; and a new restroom facility at Four Mile Creek Park in Varina to serve the Virginia Capital Trail;
• $110.8 million in funding for 2022 bond referendum projects that include a rebuild of Quioccasin Middle School; initial planning for replacements of Jackson Davis and Longan elementaries; renovation work at Johnson Elementary; the second phase of Tuckahoe Creek Park; construction of a new animal adoption center; the replacement of Firehouse No. 1; drainage projects; and the construction of an environmental education living building in Varina;
• a 5% increase on water and sewer rates (resulting in an average increase of $3.48 per month for customers).