City Council Legislative Session - workshop

Good afternoon, and welcome to the Hampton City Council work session. This evening, we or this afternoon, our clerk is not able to join us today. So filling in for her is our deputy clerk, Tammy Lee. And so I'm gonna ask the deputy clerk to call the roll.

Councilman Bowman.

Present.

Vice mayor Brown.

Here.

Councilwoman Campbell. Present. Councilwoman Farrabee. Present. Councilwoman Harper. Councilwoman Muggler? Mayor Gray?

Alright. Here. And councilwoman Muggler and councilwoman Harper will not be joining us today both taking care of business that prevents them from being with us for either the meeting. So with that, I'm going to ask the city manager to introduce the first item.

Thank you, mister mayor. Today is all about budget as we're actively in the budget season. As council members know and hopefully the community knows, over the last few weeks we've been conducting our annual eye value budget input giving residents the opportunity to weigh in on their preferences as it relates to certain key expenditure items before the community as well as revenue options. And today we are going to be presenting the results of that polling that we did. I want to stress now and I'll say at the end of the presentation again that this is preference polling.

It's not voting because ultimately it is the city council that makes the final decisions on the budget and the manager makes a recommendation based upon this input which I very much value but also other considerations that we must take into account that maybe the public isn't aware of at the time that they're polling. So this is information. It's very valuable information. I want to thank all of the people who took time to either come in person or to fill out the online poll and assure you that this input is very much appreciated and will be used in shaping my final budget recommendations. But it does not always equal to an absolute match because there are some things that I have to take into account.

And we'll talk more about that in two weeks when I present the preview of the actual budget. But for today, we're going to be sharing first the iValue results and then after that Mr. Daughtry will share where we look to be with revenues. So I'm going to turn over to Mary Fujair who has been heading up our Conventions and Visitors Bureau as well as our Marketing and Communications Office to give you the results.

Good afternoon. Good afternoon, Mayor Gray, Vice Mayor Brown, members of city manager Bunting, and city attorney Sidnor. I also, as Mary did, I would like to thank everyone who took time to express their opinion and the budget polling process. Whether they attended in person or online, their input is greatly appreciated. We conducted a multifaceted campaign with website presence, social media, e news, and the distribution of approximately 60,000 postcards to Hampton residences.

Engagement. The combined engagement included more than 90,000 social media views, more than 3,600 Thursday I'm sorry. More than 3,600 Thursday March 5 Facebook live views with more than 125 live comments, 49 in person participants, and more than 650 online responses. The total number of surveys included 689 online surveys, 16 in person polled at the Doctor. Mary T.

Christian Theater on Tuesday, March 3. And 33 polled in person at Kecoughtan High School on Saturday, March 7 for a total of 738 respondents. Of our participants, 61% were female and 35% male. We saw nice diversity in the age of our participants with 13 excuse me, 12% age twenty to thirty four. And approximately 30% of each age range 35 to 49, fifty to sixty four, and 65 and over.

66% of our participants were white and race and 24% were African American. We saw cross representation from our zip codes with greatest participation from 23669 and 23666. We asked participants whether they were city employees and learned that 78% of participants were not employed by the city of Hampton, while 22% were. To help us gauge the most effective means to reach residents, we asked how they heard about the iValue budget process. 33% indicated they heard about the opportunity on social media.

37% indicated they read it in e news. 10% indicated they had read the postcard received in the mail. And 14% indicated that they had heard about it through other sources such as friends, family, or through civic organizations. We asked for opinion about the real estate tax rate twice during the polling. We asked at the beginning of the budget polling presentation and then again at the conclusion.

Both times the answer no change was the majority response received with a bump of 5% seen at the end of the polling presentation. We additionally asked whether residents were open to increasing the real estate tax rate to cover the cost of unfunded state mandates in order to maintain current services. And 63% responded no. A blighted property tax was discussed and polling results reflected 71% were in favor of blighted property tax fees. We discussed current public works fees and growing demands on our infrastructure.

With respect to wastewater fees, 75% supported either continuing with previous wastewater guidance of 21¢ in the increases or to be more aggressive with fee increases in order to fund necessary projects. 53% supported an increase in solid waste collection fees to $9.04 per week to adjust for cost increases and to maintain current services. Related to bulk trash, solid waste fees, and the question of whether to continue weekly collection, more than 50% were in favor of continuing with the weekly bulk trash collection, while 42% supported a reduction to collection every other week. With respect to the recycling of solid waste, 57% wish to continue the existing residential recycling program over the 43% who recommend having the city collect recycling and then incinerating that product at the steam plant. Related to storm water fees, 54% prefer to either continue with previous guidance of increasing the fees by a dollar or to be more aggressive with fee increases to fund necessary projects.

46% want no fee increase this year. We shared where Hampton services fees and program cost for school age programs stood in comparison with our neighboring cities. When polled, 67% support at least a 10 increase in fees. With respect to staff compensation, responses ranged across the options. We found that 27% support a 4% increase in compensation and a 54% majority of all responses supported at least a 2.5% increase in compensation for employees.

We explained that the city anticipates a 13.2% increase in the cost of health insurance for employee coverage. We saw 32% of those polled supported an 80% city to 20% employee division of cost and a 52% majority supporting the historical division of cost or higher between city and employees. Project funding request request that would impact the city operating budget were shared. We asked participants to rank them in order of importance. The top ranked operating budget priorities were homeless transition housing for the Human Services and Community Services Board, the upgrade of three permanent full time positions of full time lieutenant to captains, and funding for five permanent full time medic and firefighters for the fire and rescue division.

One permanent full time paramedic pharmacy technician for the fire and rescue division. Funding for the sheriff's transition and reentry program known as STAR Pathway to Success program. And small business development center funding for an outside agency. We ask participants to further share their priorities for the capital budget and to rank request according to their priorities. The projects that ranked highest included improvements to 911 emergency communications platforms, Phoebus library enhancements and library facility enhancements both requested by the public library.

Phoebus streetscaping and Public Amendities Under Economic Development and the Phoebus Partnership, and renovation of the North Phoebus Community Center. We asked participants for their overall budget preference for fiscal year 2027. Forty seven percent responded that their priority before considering other city funding priorities was competitive wages for city staff. Our next steps in the budget process include release of the city manager's recommended budget on April 15, and we will have our first public hearing on April 22 with the second hearing on May 6 and the final council vote on May 13. Thank you very much for allowing me to present these results.

So mister mayor, you know, just to give a concrete example, if you can go back to the public polling on employee salary increases for a moment, you'll see that the plurality supported the 4% whereas the majority if you looked at where did you get over 50%, it really took the 50% or more of the population supported 2.5% or higher. This is an example of where I'm not going to be comfortable aligning perfectly with the public input and that's because we're seeing cities release their budget. Newport News released their budget yesterday as an example with a 3.5% increase for their employees. So if we go too much lower than what our neighboring localities are, what do you think that does? I know I'm asking a rhetorical question for counsel but for the public that maybe has our employees look to go to another locality.

So we're going to need to that's something where I have to keep managerial discretion at least in the manager's recommended budget to be able to say, I understand the public said this, but the public may not have known just as I didn't until they released their budget exactly what every other city was going to do. But as cities are starting to roll out their budgets, some have already released, will be doing over the next two weeks. I'm hearing that localities are likely to be in that 3.5% plus or minus range. So for us to go to 2.5% would not be right for our employees. So I always want to explain to the public why we ask.

We really do care and I think you'll see a lot of alignment for instance with those top operating and capital priorities as well as some of the recommendations we've talked about with fee increases or tax rates. But there will be some areas such as this one where I will just feel compelled to deviate from the public input because I have more knowledge about what's going on than we knew at the time we were asking people to pull. So when I do release the budget, we will do a reconciliation of that and show people so that they don't feel like their time or energy is wasted. Because as we said at the outset, we very much appreciate anyone who takes the time to learn more and to participate. It helps to give us a stronger community based budget. But we we will have some changes we need to make along the way.

Okay. Questions, comments from council members? Okay. Alright. Thank you, Mary. Oh, sorry. Councilwoman Faribay.

Oh, thank you. Thank you, mister mayor. Miss Fugio, I just wanna thank you and your team for consolidating all this data together. And just to foot stomp what the what the manager just indicated, it's clear that 40% of the population wants to ensure that staff members do receive competitive wages before considering other priorities. And and the way I look at the spread of the feedback there, it it appears to me if you look at the somewhere it looks to me like we the majority, even though it's only 27%, do favor a higher pay increase.

And I appreciate you factoring in what the surrounding cities are doing, especially since it is a priority from the community as well as our mayor to make sure that our staff is compensated and with competitive salary. So I appreciate your your words about that as well.

Thank you.

Alright. Thank you, Mary. Appreciate your work on the survey. And so I'll ask the city manager to introduce the next item.

So now you're gonna get the revenue presentation from our chief financial officer, Carl Daughtry. As he's coming up, I'm sure he'll mention this, but I wanna make sure that I echo it up front. We don't have a state budget right yet, which means that there's some holes. I mean, we know what we got last year and it's probably pretty safe to assume that we'll get what we got last year. There are some things that we were tracking that would positively impact us in our budget deliberations, but the state hasn't finalized our budget yet.

So we're once again in that awkward position where we don't have perfect revenue estimates for you. Mister Daughtry will talk about how he's adjusted for that or not adjusted for it in the budget process. There's also some things that we know will happen because of general assembly action assuming the governor doesn't veto them but they're difficult to estimate. For instance, I'm sure people have been tracking marijuana retail sales and there'll be a sales tax associated with that or Skill Gaming and there'll be a sales tax associated with that. But we really have no way of tracking or estimating what we might expect to get from those two revenue sources.

So those are also obvious holes right now. And I think most localities are taking the position that since those are yet to happen, they won't happen in some cases until actually calendar year 2027 that we won't be planning for those revenues at this point in time. So just wanted to say that upfront given that we are in a place where we don't have the state budget right now. But Karl Daughtry as you know does a really good job of projecting what he is able to look and forecast into. And so we're pleased to have him give you a sense of where he believes the revenues will show up this year.

Good afternoon, mayor Gray, vice mayor Brown, city council members, me, city manager Bunting, and city attorney Sidney Norr. I'm glad to be with you today to talk about preliminary revenue projections for fiscal year two thousand twenty seven. The revenue process and development process is a collaboration between many departments. I work with the treasurer's office, the commissioner of revenue, the parks and recreation, the fire department, and many other departments. But behind the scenes, there's one of my staff members, Sybil Ellsworth, that does a lot of work to help me produce this final product.

I wanna talk about some factors that we consider in developing projections. The first one, the revenue budget is built on the real estate tax rate of a dollar 14 per 100 of assessed value. Then moving on and talking about the economy. While the national state and Hampton Road economies expect modest economic growth for 2026 and '27, we see that the state is seeing a shift in employment. While federal and manufacturing jobs have declined, we see growth is pretty strong in health care.

Defense spending remains an anchor for our regional economy with the fiscal year twenty six defense appropriation bill including pay raises for service members and increased shipbuilding investments. The we also see the economic effects of tariffs and shifting in trade policy have slowed container volumes at the Port Of Virginia. And one of the things that we also see is that the retail and tourism sectors have cooled as customers spend more cautiously. The Hampton Roads Planning District Commission reported a year to date decline in both retail sales and hotel revenues in the Hampton Roads economy. While we anticipate some whole headwinds in the upcoming year, we believe that the Hampton economy is resilient and will will continue to maintain resilient.

This is a slide that I really demonstrate the the actual performance of the budget over a ten year period of time. That white line represents one if we met 100% of the revenue budget. So all of the green bars above that 100% budget, meaning that revenues were able to exceed the budget. You see in fiscal year twenty one, revenues were slightly under budget at 99.8%. So one of the strengths of the city revenue budget process is is that we're conservative.

And as a part of that conservative process, it enabled us to deal with some of the economic risk that we may encounter during the year that we can't predict. As miss Bunty indicated, the general assembly adjourned the session without agreeing to a budget for fiscal year twenty seven and twenty eight. The senate wants to eliminate the sales and use tax exemption for data center computer equipment and software, while the house wants to maintain the exemption. So the legislative asked the governor to convene special session on April 23 to finish the budget. So we don't have a a state budget.

And so what I've done as a part of developing the preliminary revenue estimates, I have adjusted the revenues for public assistance programs. Those are federal and state revenues related to those public assistance programs and also for our Virginia Department of Transportation urban maintenance funds for our roadways. So I've adjusted those two road revenues. HB five nine nine funds, constitutional officers, I have not made any adjustments for those. And, hopefully, as a part of the state budget process, we'll have those numbers to make some adjustments probably after the city manager submits the budget.

Wanted to make you aware that the general assembly adopted two bills that create new revenues for local governments. One is the creation of an adult use cannabis retail market starting 01/01/2027. Cannabis products will be subject to a 6% exercise tax in addition to the Commonwealth's 5.3 retail sales tax, with local governments allowed to impose an additional sales tax of up to three and a half percent. In addition, the law of America has also approved legislation creating a statewide regulation system for electronic gaming devices known as skills games. The state is imposing a 25% gaming tax tax on all gross profits.

We will receive 15% of the revenues distributed from those gaming taxes, and I believe 75% will go to the state's general fund revenues and other sources that the state has described. Both of these bills may be changed during the upcoming budget process, and and in addition, the governor must sign these bills. So we don't have enough firm information to provide revenue estimates, but as as soon as the bills are formal finalized, we will work with the commissioner of revenue's office to come up with some estimates. And before I move

Hello, mister Daugherty. Vice mayor Brent. Yeah. Thank you, Carl. On the on the gaming tax revenues, when those funds come back to us, are they restricted how they can be used?

They are not restricted.

Mhmm. No. They're not. And the other question is with the Iran war going on, what effect do you think that you may talk about in your presentation that will have on us as a locality Well, that in terms of revenues?

That is a great question, council member Brown. As a part of developing the revenue estimates, I did consider the potential impact of a war. And but for now, I have assumed that the war would be short lived and have no long term impact, but we do see some short term impacts of the wars raising fuel prices, which impact, you know, the consumer's ability to spend. We're hoping that that would not be a long term trend. So and so for purposes of development and budget, I've assumed that the war would not be a long term war.

Thanks.

Okay. This slide really looks at the budget revenue budget for 2027, you look at the first line, recurring revenues, these are revenues like general property taxes, other local taxes that that occur year after year. So we're projecting $472,600,000 in recurring revenues, which is a 15,900,000 increase over fiscal year twenty six and a three and a half percent increase. As I go further in the presentation, I'll talk about some of those main drivers of that 15,900,000.0. The second line looks at one time revenues.

These are revenues that we use from our fund balance. For fiscal year twenty seven, we are planning to use $9,800,000, which is about 4,470,000.00 less than '26. And if if you recall, most of the revenues that we use from fund balance is for our capital improvement plan. For fiscal year twenty six, we did use 5 roughly $5,000,000 and some for the our equity share in the Western Tidewater regional jail. We received proceeds from the sale of the Hampton Roads regional jail, and we used about five slightly over $5,000,000 for our equity share in the Western Tidewater.

So we didn't have that recurring revenue source in 2027. So when you look at the 15,990,000.00 increase in recurring revenues, 11,200,000.0 is available for council general appropriation to be used for general purposes. The other 4,700,000.0 is committed for specific and dedicated purposes, and let me talk about some of those specific and dedicated purposes. One of the commitments that councils made to the school board is that we will share based on the school funding form 61.83% of residential real estate revenues, personal property, and utility taxes with the school. Based on the funding formula, we are sharing $2,800,000 more for fiscal year twenty seven with the school system.

In addition, we also for the I I mentioned to you that we were increasing the revenues for the VDOT urban maintenance funds. Those funds are dedicated by the state to be maintained for our urban roadways. We are projecting a $609,000 related to that. And one of the things you'll see in the budget process, we do anticipate an increase in business license tax of roughly $525,000. And we anticipate most of that increase is related to the construction that's going on at Hampton Roads BridgeTowner.

So they we did not wanna program those revenues as a recurring revenue into a budget process because once the construction is completed, those revenues are likely to decline. So we are using that revenue source for business license tax as a one time revenue source in the capital improvement project plan. So those are some of the commitments the the main commitments that we are making. We also have the two plus two meal and lodging tax commitment that we make to the convention center, and we have the commitment that well, the special assessment revenues for the CDAs as well as the bids. So those are the primary commitments that cover the $4,700,000.

I'll stop for a second and see if you have any questions.

Questions from council members? Okay.

Thank you. You'll see by the time I finish the presentation, the the main drivers in growth in in revenues is real estate assessments, other general property taxes, the per mutual tax, state and federal revenues, and charges for services drive our overall growth for 2027. Before I talk about some of the revenues, I've wanted to really talk about the revenue categories. You'll see me throughout the presentation to talk about general property taxes and other revenue categories. This slide really gives you a snapshot of the main revenue sources included in each revenue category for general property taxes, for instance.

Example, you have current real estate, current personal property. You have delinquent real estate and personal property taxes. You have public service corporations. You have the bid real estate taxes, special assessments for the community development authorities, the Elizabeth Lake service district, and machine tool tax. Those are some of the more significant items that are covered under general property taxes.

Under other local taxes, we have our business licenses, our sales, mails, lodging, communication, and emissions. We have a per mutual cigarette tax and bank franchise. The license permit fees, that's primary of our building permit fees, our zoning fees, our animal license, and our tax route permit fees. And then on the fines and forfeitures, we have our traffic penalties, our court fines, our special assessments for the sheriff court security, and the criminal justice training academy. And we also have the school speed zone fines and the red light photo enforcement fines.

And revenues from use of money on property, this is primarily interest income that we earn off of interest from investments. We have rental shelters and from parks, billboard revenue, and rental special equipment. Charges for services, this is primary revenues from fee based programs like parks and recreation leisure services. We have the EMS transport fees, the the fees for school age programs, the payment in lieu of taxes for Fort Monroe, the host fees for the landfill and fire inspection fees. Under miscellaneous revenues, we have reimbursement for radio maintenance, services provided to the school, and indirect costs that we recover for some of the other funds.

And on the state and federal revenues, we have h b five nine nine funds. We have recovered costs that we get from the NASA fire station. The jail per den we get from the state. We get shared expenses for the constitutional officers, public assistance for juvenile block grant, and public law library books. I just wanted to give you a flavor of what was under those categories.

The first category I wanna talk about is general property taxes. We're projecting a $262,400,000 revenues for general property tax, which is an increase of about $10,000,000 over 26, over 44.4%. Of course, the main driver for this is real estate taxes. Real estate taxes based on the tax rate of a dollar 14 per 100 of assessed value. The assessor is projecting that total taxable assessments will increase about 4% for '27, and that's a kind of a weighted average.

This 4% increase translates to $7,200,000 increase in revenues. Revenues will go from 184,200,000.0 to about a 191,500,000.0. This one revenue account makes up 40% of our revenue budget, and and that is pretty typical. I looked at Newport News and see what their real estate taxes made up, and it was about 40% of their budget. So it seems to be in line with other localities.

There's no change in the collection rate, 98.4%. The treasurer's office does a great job in collecting taxes, and so that rate has been consistent over the years. Each penny of our real estate tax rate generates approximately $1,700,000. And I wanted to just, for informational purposes, show you what some of the other localities are experiencing in in terms of real estate assessment growth. It ranges from 3.52% with the city of Chesapeake all the way to six point o 1% for Portsmouth.

So there's a range of increases in assessment values. And before I move on, wanna check and see if there's any questions. Any questions?

Comments? Okay. Okay.

Wanna move on to our second largest revenue source, personal property taxes. Wanna talk about some of the general factors that are impacting 2027. Our new car sales in 2026 are projected to experience a slight decline for forecast pointing to about a two to 3% decline from 2025. This cool down is driven by high vehicle prices as well as higher interest rates. With the overall used car values are expected to remain relatively stable, we do anticipate an influx of vehicles ending their lease terms coming into the used car market, which will impact the used car values.

The other thing that we see is is that used electric vehicles are experiencing the most significant drop in value due to the expiration of the federal tax credits and increased supply. So so and and and working with the commission of revenue and the analysis performed by the commission of revenue, it shows that our assessed values for the city for calendar year 2026 are expected to be flat when compared to 2025. Actually, when I look the Newport News' budget that they released, and they do also expect their values to be flat. So based on that information, we are adjusting the fiscal year twenty seven personal property taxes to the actual revenue collections for fiscal year twenty five. That is at $52,000,000, an increase of $1,000,000.

Person property represents about 11% of the total revenue budget. And and so what we see is and expect is that '26 revenues will track along with 25 because they're, you know, pretty much a flat revenue budget. And so we ended the fiscal year twenty five on a positive note with revenues exceeding budget. And so we're making the assumption that we will at least generate the revenues that we generated in 2025. We are projecting the collection rate of 90%.

It is lower than the real estate tax rate. And, traditionally, because personal property assets are movable, it takes a little bit more collection effort to do, but that is a great collection rate. Okay. Before I move on, any questions? Okay.

Moving on to other local taxes. The are projecting a $108,600,000 in other local taxes, about a 2,500,000.0 increase over 2% overall increase. The largest five other local taxes are meal tax, sales and use tax, a business license tax, a lodging taxes, and communication sales tax. These five taxes make up about 78% of the total local taxes projection. On the next slide, I'll talk give you some factors that are driving the revenue projections for 2027.

When you the revenue these revenues are Carl. Yes. Excuse me.

Question back to your previous slide. I know you say you may cover this. My my question was related to the communication sales tax. So are we charging the same rate that the state charges, or are we given an opportunity to add an additional tax? I'm not exactly sure how to

tax it. We are required to charge the state rate, which is 5% on all telecommunication. And that that rate is set by the state. Okay.

Well, not all telecommunications because it's not on streaming and things like that.

Right.

But, like, cable, cell phone, telephone, those kinds

of things. Okay. And and the reason for for asking was because I've I'm I'm just kinda wondering what the general assembly's reluctance is to give us a bigger cut of that tax now because we're collecting less less tax now on, you know, hardwired cable, I guess, and and landlines and because, you know, now we got cell phones, we got streaming services, and all of that. So if it's all still taxed at 5%, I'm just, you know, I I just think at some point we gotta put a greater emphasis on giving us more of the share of those taxes since we're losing it elsewhere in

Or apply it to the shifts, you know. So like, at one time, it was only landline and then they did out at cell phone as people moved to cell phone. Mhmm. But we haven't the state hasn't made the adjustment for as people move from cable to streaming. Mhmm. So if they move they put the same tax on streaming that they put on cable, this likely wouldn't be going down.

So so we are getting that tax on cell phones. Mhmm. Okay. Yeah.

So we used to charge these individually as a set of localities. All localities had a cell phone tax or a cable utility tax or a telephone tax. The state came in and made this larger uniform state telecommunications tax that we send to I mean basically they collect on all the bills and then they divvy it up and they take their administrative cut off the top and then they send it out to localities. So there are a couple of things that have gone over the years. One is that we lost the ability to administer it locally, it's done statewide.

Two, they take an administrative cut for their application of the program. So we lose some of the revenue through that. And then three, what you were talking on the shifts in patterns of usage and not keeping up with modern technologies. So all those factors have resulted with where we're at.

Yeah. One one of the factors is that we've seen a lot of people take out their landlines and that, you know, that had a definitely impact on the communication sales tax. The state did have a group that they kind of were committed to look at the sales tax and make some recommendations, but there was nothing that ever came out of those recommendations. The general assembly did not take any actions on the recommendations.

Well, I've been I've been holding on to my car, but I don't know how much longer I'm a hold on to my my landline. So Right.

The sales, lodging, meal, and mission, and communication sales tax are consumer driven taxes. That mean they're really sensitive and impacted by the economic climate, the economic conditions. In general, we we have seen the decline in some of the consumer driven revenues or we've seen slower growth, and I'll talk about those in detail on the next slide. As I indicated to you previously, the Hampton Roads Planning District Commission reported a decline in year to date retail sales and hotel revenues for the Hampton Roads economy. This slide really in this table, I will talk about those individual revenues.

But before I do that, I wanted to kinda talk about one of the big factors that have had an impact on the Hampton Roads economy. If you recall, we lost about 6,000 federal civilian jobs and to the from from two twenty four to 25 as a part of the government reduction process. And those 6,000 civilian jobs have definitely had an impact on the Hampton Roads economy. So that's one of the things that we are seeing. The other thing is that we are seeing consumers to be more cautious and, you know, and being more discretionary about how they spend their discretionary funds.

So those are two of the overall big picture impacts that we're seeing. When you look at meal tax, meal tax if you look at meal tax from '18 from 2018 to '20 2024, it grew over six percent annually. In '25, it ended the fiscal year with about a growth of 1.6%. And so based on those trends that we're seeing a slowdown in mail tax, we are projecting a growth of 1.3% of about $400,000 in mail tax. Sales and use tax, we you're saying that we are expecting a reduction of 1,500,000 or 6%.

For 2026, we budgeted at $1,500,000 increase in sales tax. It's not happening. We're not realizing it. And so we are basically collecting in 2026 what we collected in 2025. And so that's why we are adjusting sales tax back down to the actual trend.

Business license tax, we're projected to collect 17,300,000.0, which is about 600,000 more than what we project to collect for '26. Most of this is driven by the construction at the Hampton Roads Bridge Tunnel. We have not programmed this revenue as a recurring revenue. We're using this revenue as a one time source in the capital improvement project plan so that when in the future, when this revenue go down, it won't have an impact on our recurring revenues. And so that is a conservative move that we decided to do.

Lodging taxes, we are projected to decline by 300,000 or 4.3%. As I indicated to you, the Hampton Roads Planning District Commission is seeing a year to date decline in in in hotel revenues in the region. But also, one of the things that that Mary Fajiro shared with me is a a monthly report by STR, and it looks at lodging in our region. And, specifically, it looks at lodging specifically for Hampton. And one of the metrics that we look at is the average daily rate.

This is a measure of income generated from rooms sold. When you look at that on a twelve month basis from March 2025 to February 2026, that metric is down three and a half percent. When you look at revenues track for Hampton Hotels, that those revenues are down based on this report by 4%. So you can see that our adjustment to lodging tax is in line to what we're seeing, the trends that we're seeing. And communication sales tax, one of the things that I was surprised about this trend, this tax has gone down every year since I remember.

I I come to council every year. We're we are adjusting the budget down. We see that trend slowing for '27, so I was able to maintain the budget at $5,800,000 for the communication sales tax, which is definitely a positive trend based on what we've seen historically. So overall, we are projecting eighty five point eighty five point zero million, which is a reduction of about $800,000 in these five local taxes compared to '26. On a on a bright note, per mutual license tax.

Many of you may remember this this tax, you you know, has has definitely been effective for the city. So but we we have a change that the general assembly approved. Starting 07/01/2026, the distribution model for sharing revenues will change. The city, as the host locality for the satellite facility, will retain the entire point 56% local share of the Pari Mutual pool. We used to previously had to share it with the racetracks locality.

That's New Kent County. And so for '27, our revenues are projected to increase by $3,300,000 to $5,900,000. So our revenues are basically will double for '27. I work with the commission of revenue. They double checked it, triple checked it, and and based on their calculation, we will receive about $3,300,000 more in '27.

The cigarette tax, we continue to see a decline in revenues due to a decrease in cigarette consumption and the increase of use of electronic cigarettes. Those electronic cigarettes are not subject to the tax. So we are projecting revenues to decline by 287,000 or 9.4% to 2,700,000.0. If you

I'm sorry. I didn't mean to cut

you off.

Oh, okay.

I thought

you were gonna

end your slide. Was just gonna ask mister mayor if I could clarify for the public since we saw some traffic on this on social media this week. Electronic cigarettes are not subject to the tax, not because council hasn't chosen to do that, but because the state doesn't allow localities to apply this tax to vape products and electronic cigarettes currently. This council did include a proposal to be able to charge it on those products general assembly package this year and in past years. And to date we've been unsuccessful in being able to get the authority for localities to apply it to these other devices that have emerged over time.

So I just wanted to make that clear because I saw a lot of social media traffic over the last week or so of people saying, why aren't we charging vape shops for the same, you know, kind of taxes? But it's not because we've chosen not to, it's because we're not given that right currently by by the general assembly. Thank you for allowing me to interrupt.

There was a bill in the 2026, the general assembly concerning this, but it did not pass. So k. License permits and other fees. We are projecting revenues of $1,600,000 of a a decrease of 283,000 or 15% decline. When you look at the data from the Hampton Roads Planned Addiction committed Commissions March 2026 economic monthly report, it shows that year to date, new construction builder permits remain well below last year's pace, down 20.2% when compared with the prior year.

So when we look at our bill to print rent revenues, we also see a decline in our revenues. Therefore, based on this trend, we have reduced the budget by 283,000 for fiscal year twenty seven. Fines and forfeitures, we are projecting the same amount that we projected in '26, so there's no increase or decline in this. And the two primary revenues included in this projection is the the red light photo enforcement cameras and the school zone school zone safety photo enforcement cameras. We have three VDOT funded red light photo cameras in place.

The revenues are tracking to exceed the fiscal year twenty six budget projection. For the schools zones, photo enforcement cameras, we have deployed cameras at 13 locations. We also have a corresponding offsetting appropriation in our non departmental for the cost of this program. So, basically, we're using all the revenues that would fund the school zone, photo enforcement cameras for the direct cost of the program. These revenues are tracking slightly under the 2026 revenue projections.

Did wanna make you aware there is a bill that passed the adjournment assembly that's restricting the use of these revenues to direct program costs, and any remaining funds out the direct program cost must be deposited into a dedicated local fund and must address needs and highway work zones, high risk corridors, and school crossing zones first. And after then, you can address traffic safety needs. So there you know, as a part of the twenty sixth general assembly, we these funds will once the governor signed, will be restricted and can't be used for general operating budget purposes. Public works will continue to study the other 10 school zone locations to see if there is a significant speeding in the zone. And so before I move on, if if you have any questions.

I do have one question if you go back to that slide. So the 5,400,000.0 that we're getting, is that all from red light cameras? Or is there other We we budget

3,100,000.0 for school speed zone cameras. We budget 1.2 for red light. So most of this revenue, you know, is related to those two items.

Okay. But you said that that the majority of what we take in is funding the cost of the program.

For the school speed zone cameras. So

we're we're not netting any We're

not using any of those revenues for general operating budget purposes. And we didn't do that because we we we knew that potentially the general seven would come back and restrict those revenues.

So so we are we are we're just not budgeting for the for the revenue that you're getting from it?

Yes. Yes. We are. We are budgeting for direct program cost. Okay. The cost that we have to pay the verbal mobility, which operates the cameras on our behalf.

Mhmm. Okay. So all of the revenue goes back into the program? Yes. Okay.

We have not spent all of the revenue that we have taken in because not all of it we have had expenses for, but we didn't wanna budget for things because we knew the general assembly was changing it. So this year we identified things that besides the verbal mobility cost that would qualify. So for instance, that deal with school safety zones like improving crosswalks, improving guardrails, things like that we can use it on. So we've been carefully looking at the legislation to see how we could align any net revenue to expenses that are approved, but it doesn't go to offset anything in the general fund.

Okay. Because the perception that I guess that's portrayed in the media is that, you know, the localities are racking up a lot of money, you know, at the at the expense of those that, you know, speed or don't pay attention or whatever. But if if we're not doing that, I I don't know how you counter that, but that seems to be the reason that the general assembly is given for, you know, wanting to control how and what we do with the money because they're seeing us getting a lot of revenue that the lease here in Hampton, we're not getting.

Be clear, the red light photo enforcement money we did use for public safety in a more broad way, not just for the specific zones. Whereas the school zone camera things, they they're more specific in the legislation, but we could use them for broader public safety purposes. We cover first all the costs associated with the photo enforcement program. So that's the cost for the cameras as well as then for instance as Carl mentioned here, the extra officers time that we need to review the cameras and things like that. But to your point, no, we're not using it to just massively subsidize the general fund budget.

Okay. Revenue from use of money and property, we are projecting $6,500,000, about a 182,000 or 3% increase. This revenue category is primarily composed of interest income we earn from on our cash balances and investments. One of the main driving forces for interest income is the Federal Reserve short term benchmark rate. We are projecting that the Federal Reserve would cut the their short term benchmark rate once in 2026 and twice in 2027.

So based on this assumption, we are projecting an interest income as of about $6,200,000 for fiscal year twenty seven, which is about a 156,000 greater than fiscal year twenty six. We had as a part of our conservative budget process, we know that when interest rate comes up, interest rates will come down. And so we we didn't want interest income to have a major impact on the budget process. So we have channeled this 156,000 into our capital improvement program. So when the when the interest rates come down, we will reduce our capital improvement program so that doesn't really offset any recurring budget expenditures.

Charges for services. These are fee based programs. We are projecting approximately $12,000,000, 1,100,000.0 increase over 26 of about 10%. The five largest revenues in this category are EMS transport fees, host fees for landfill, the fees for school age programs, the pavement and lure tax for Fort Monroe, and the park recreation legal services fees. When we look at EMS transport fees, we are projecting about 256,000 increase in revenues.

We do see somewhat increase in the number of transports. So based on those current trends, we are budgeting about 256,000 more. Host fees for landfill, the well, waste management operates the landfill on the behalf of the city. They pay us a host fee. That host fees has been increasing over the last couple years because of the tonnage that's been deposited at the landfill.

So we based on those trends from the past two years, we are increasing this revenue source by almost $670,000. So that is the largest increase in in this charges for services. And finally, the fees for school age program. This revenue, as you recall, we are programming a 10% increase in fees. And that 10% increase in fees results in about a $161,000 increase in revenues.

And so and that is programmed as a part of '27 budget. The payment in lieu of taxes, Fort Monroe is stand at the same level of 26, which is $983,960. And the park restoration leisure service fees are also at the same level of 1,100,000.0 for as '26. So those are the primary drivers for charges for services. Miscellaneous revenue, we're we're projecting $6,300,000, about 75,000 increase or 1% increase over '26.

One of the two two main revenues in this category are reimbursements for Hampton City Schools. The schools reimburse us that we share a consolidated procurement operation with them. They reimburse us 50% for the cost of operating a procurement office. They also are sharing cost of operating and maintaining the Rupert Sergeant Building, and they also provide us reimbursement for school resource officers. So their cost is increasing roughly almost $30,000 for fiscal year twenty seven.

And the other part of the increase is related to administrative fees for delinquent taxes and charges. When you have a delinquent fee or tax bill, there is added on to that bill a $30 administrative fee, and so we are seeing a slight increase in the transfer that revenue source. State and federal revenues, I talked about this previously as I mentioned that the state has not adopted a budget. So we've only really adjusted two revenues. We adjusted state and federal revenues for public assistance.

So that's about 1,500,000.0 adjustment, and that's based on historical trends. The VDOT urban maintenance, we've adjusted that about $700,000, and that's based on what we are collecting for 2026. As the general assembly adopts the budget for 2027, we will make adjustments to those other revenues like h b five nine nine, state constitutional officers. Now you do see a 31,000 adjustment in here for recovered cost. That is for the NASA fire services.

We have a contract with NASA, and they and that's the increase that we expect for '27. And this is the last slide before we get back to the summary slide. This slide looks at transfers and the use of fund balance. Fund balance are really those things that we use primarily for our capital improvement plan. We project to use about $9,900,000 in 2027, which is about 4,400,000.0 less than 2026.

As I mentioned to you previously, we are programmed in the '26 budget $5,000,000 for the western tie our equity share in western tie water. We don't have that same cost in 2027. We plan to use $5,100,000 of of unassigned fund balance from what we refer to as savings account for the two excuse me. It should be 2020 '7 CIP. We also use 354,000 for the PC replacement program.

We have a program where we refresh PCs and laptops on a periodic basis so that they they don't get old. And and so that program has worked really, really well. We in addition, we plan to use 2,900,000.0 from budget savings for our citizens satisfaction bonus, our performance based bonus program, and the 2027 CIP. And this is just a recap of the first slide that I talked to you about. We are projecting revenues of $472,600,000 for '27, $15,900,000 or three and a half percent increase over '26.

Of the 15,900,000.0 increase in recurring revenues, 11,200,000.0 is available for general appropriation and general expenditures in the general fund. 4,700,000.0 is committed in for specific and dedicated purposes. I talked to you about some of those dedicated purpose. $2,800,000 for the school funding formula that we share with the schools. We also had 609,000 related to the VDOT urban maintenance program that we have to use for roadways, and we also set aside $525,000 from business license tax for the capital improvement plan.

And we indicated to you that the major growth in revenues was from real estate assessments and other general property taxes, the para mutual tax, state and federal revenues, charges for services really drive the overall revenue growth for '27. With that, I'm available for any questions that you may have.

Are there any questions from council members? Okay. Okay. I guess you've explained it as clearly as you can possibly do.

It's a

good job. Thank you for that. Okay.

Alright. Senior manager. Carl, I just wanted to clarify because I've gotten a question from one of our council people who's out of town. If we could get on record what each penny on the real estate tax rate is worth and what we would lose if we lowered the tax rate. Now again, the majority of the public as we talked about earlier about 54 to 58% depending upon which question you use supported keeping the tax rate the same. But just to put in context for people who ask, how much would we lose if we lowered the real estate tax rate by 1 penny? And if you remember, and I don't know if you remember, how much of an impact it is for the city versus the schools?

I do not have that in front of me this split, but each penny is roughly $1,000,006.79 $5.00 3. I do not have, but I can get that information for you.

Okay. Okay. And so we would have to cut off of whatever we do that roughly $1,700,000.

$7,000,000. And then the schools would, you know Take a share of that also. They may take the majority share of this, and so it will probably have a bigger impact on the school system.

Okay. Alright. Thank you.

Okay. Alright. If there are no other comments or questions from council, city manager, you have any closing That

concludes our budget workshop items for this afternoon. In our next meeting on April 8, I'll preview the expenditure side of the budget that will align with this revenue side realizing again that with the state not having adopted their budgets, there may have to be some shifts. And then we will have the official release of the budget document on April 15. That's when it will be available online and then libraries and things like that for residents to pour through all the details they'd like to pour through. And then we'll have our first public hearing.

I'm forgetting the date now. I think it was the April 22. Yes, April 22. So we look forward to an active season with the budget and hearing from the public not only on the before I release it, but the after I release it and answering any questions that you and council members may have during that process.

Okay. Alright. So we do not have any closed session items this afternoon. Are there any regional issues? Any new business? Alright. So with that, we are adjourned until 6PM. Alright.