Fy 2018 Proposed Budget Presentation

Proposed Fiscal Year 2018 Budget

Presentation Overview 1. Building on the Momentum 2. Fiscal Discipline 3. Challenges 4. Budget Overview 5. Bold Initiatives

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Thriving Economic Development Approximately 6,000 New Jobs Between Now and 2018

Norfolk Premium Outlets

The Main Hotel and Conference Center

Waterside District 3

Putting Residents to Work

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Boosting Consumption-Based Revenue Meals/Hotel Tax

Sales Tax (amount shown in millions) +7.0% $33.6

(amount shown in millions)

+3.3% $34.7

$38.9

$41.1

$43.0

+3.3% $44.4

+1.7%

+5.2% $46.6

$47.4

2018

2019

+3.6% $31.4 $30.0

$30.3

$29.4

2014

2015

2016

2017

2018

Projected

2019

2014

2015

2016

2017

Projected

Projected growth of over $10 million from FY 2015 – FY 2019

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Norfolk is a Winning City - Today and Tomorrow Ten Traits of Winning Cities  Positive Attitude

 Shared Narrative

 Big Tent

 Livable Place

 Safe and Sound

 Millennial Magnet

 Beyond Borders

 Open Mind

 Open Book

 Caring Purpose 6

Presentation Overview 1. Building on the Momentum 2. Fiscal Discipline 3. Challenges 4. Budget Overview 5. Bold Initiatives

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Fiscal Discipline

Remaining Fiscally Disciplined Achieve Structural Balance

Increase Pay As You Go Capital Funding/Debt Reduction

Debt Affordability Measures • Debt as a percent of taxable assessed value not to exceed 3.5 percent • Debt service as a percent of the General Fund budget not to exceed 10 percent

Fully Fund Reserves

Unassigned General Fund Reserve Risk Management Reserve

Economic Downturn Reserve 8

Fiscal Discipline

Structurally Balanced • Proposed FY 2018 General Fund Budget is structurally balanced • Modest growth 2.2 percent

6 Fourth consecutive year Expenditures $853 Million

Revenues $853 Million

• Brought ongoing expenditure cost drivers in line to match modest revenue growth 9

Fiscal Discipline

Reserves Funded to Policy Goals Unassigned Reserve (5% Reserve) Target 5% of GF

Risk Management

Economic Downturn

FY 2017 $42.5

Target $5.0

FY 2017 $5.0

(amount shown in millions)

Target $5.0

FY 2017 $5.0

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Presentation Overview 1. Building on the Momentum 2. Fiscal Discipline 3. Challenges 4. Budget Overview 5. Bold Initiatives

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Challenges

Overcoming Challenges – Fiscal Stress

Real Estate Tax Rates* and Fiscal Stress High Second most Stress fiscally stressed city in Hampton Roads

$1.30 $1.15

Portsmouth Norfolk

$1.24

Above Average Stress

$1.22 $1.07

Hampton

Below Average Stress

Newport News

Suffolk

$1.05

$1.00

Chesapeake Virginia Beach

Tax-Exempt Real Estate and Fiscal Stress Locality

Tax-Exempt Real Estate

Stress Level

Portsmouth

43.7%

High Stress

Norfolk

37.6%

High Stress

Hampton

24.8%

High Stress

Newport News

21.8%

High Stress

Suffolk

9.8%

Above Average

Virginia Beach

17.4%

Below Average

Chesapeake

8.4%

Below Average

Source: Virginia Department of Taxation FY 2016 Annual Report

*Reflects FY 2018 Proposed real estate tax rates, except for Hampton (FY 2017 real estate tax rate). Chesapeake rate includes mosquito-controlled areas.

Source: Commission on Local Government FY 2014 Report on Comparative Revenue Capacity, Revenue Effort, and Fiscal Stress of Virginia’s Cities and Counties (March 2016) 12

Challenges

Adjusting to the “New Normal�

10-Year Annual Growth Rate 2.1% 20-Year Annual Growth Rate 5.1% 30-Year Annual Growth Rate 4.7%

24.9%

Annual Change in Overall Real Estate Assessments Overall Real Estate Assessments have lagged historical averages

16.8%

17.5%

10.5% 7.8% 6.7%

5.9% 3.8% 2.2%

1.0% 0.8%

0.5%

2.2%

3.5% 3.2%

7.5%

4.0% 4.7%

5.8% 2.6% 0.5%

1.4%

2.3%

1.5% 1.7%

-0.3%

-3.1% -3.5%

-2.1%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Fiscal Year

Source: Real Estate Assessor annual report (various years) and Real Estate Assessor FY 2018 projected growth on July 1, 2017 13

Challenges

Partnering to Address Regional Issues

• FY 2016 year-end true-up of $1.97 million  Over 10 percent of HRT budget • Average true-up previous seven years was $85,000 • Allocated $700,000 in one-time funds in Proposed FY 2018 Budget to begin three-year true-up payment

• SPSA is working on a plan to remove excess leachate and upgrading leachate monitoring and pump control systems • SPSA member localities are receiving biweekly status updates • The city has kept the tipping fee budget at $125 / ton 14

Challenges

Managing Increasing Benefit Costs $2.9 million increase to Proposed FY 2018 Budget

Healthcare Cost

Retirement Cost $28.2 Five-in-Five Conversion

$25.8 $24.8

FY 2015 Actual

$29.6

$29.3

$26.9

$27.9

$25.6

FY 2016 Actual

Adopted FY 2017 Proposed FY 2018 Budget Budget

FY 2015 Actual

FY 2016 Actual

Adopted FY 2017 Proposed FY 2018 Budget Budget

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Note: Amounts reflect General Fund only and exclude Norfolk Public Schools

Challenges

Paying for Generational Projects • 10-year average* funding for General Capital Improvement Plan (CIP) $104.1 million • Anticipate growth of $6.2 million in debt service expenditures for FY 2019 • Maintenance CIP ranges between $25.0 and $30.0 million • Remaining within the debt affordability measures helps preserve current bond ratings

Cruise Terminal and Community Centers

Consolidated Courthouse Nine New Schools in 13 Years

Light Rail

Slover Library

* Average calculated based on FY 2007 – FY 2016

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Presentation Overview 1. Building on the Momentum 2. Fiscal Discipline 3. Challenges 4. Budget Overview 5. Bold Initiatives

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Budget Overview

Applying a Multi-Pronged Approach

Raise Revenue

Reduce Expenditures Become More Efficient Grow Economy Share Services and Leverage Resources

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Budget Overview

FY 2018 Balancing Strategies • Requested one-percent reduction strategies from departments • Analyzed citywide utilization of personnel funds to maximize savings from vacant positions • Completed an in-depth base budget analysis to allocate existing funds to match operational needs prior to beginning budget development • Evaluated healthcare plan offerings to mitigate cost increase 19

Budget Overview

FY 2018 Budget Proposal Process Starting Point

Base Budget Development

FY 2017 Adopted Budget

Remove one-time items

Annualize prior year actions

Adjust benefits, debt, contracts, new facilities, revenues

FY 2018 Preliminary Base Budget

Policy decisions

FY 2018 Proposed Budget

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Budget Overview

Proposed FY 2018 Budget Overview General Fund Revenue - $853.2 million • No new taxes • Total Revenue Growth $18.1 million • Over two-thirds of the growth comes from local taxes

• General Fund growth in line with other Hampton Roads cities

Real Estate $5.1

General Fund Revenue Growth 2.2%

Consumer Taxes $3.8

Local Taxes Total $12.1 67%

Other Taxes $3.2 State Aid $5.2 Net All Other $0.8

State Taxes $5.2 29% Net All Other $0.8 4%

FY 2017 Revenue Budget $835

FY 2018 (amounts shown in millions) Note: totals may not exactly add due to rounding

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Budget Overview

Proposed FY 2018 Budget Overview General Fund Expenditures One-time Undesignated $2.0 Enhancements $2.4

Policy Decisions

Total Expenditure Growth $18.1 million 2.2%

Technology Initiatives $2.2 Compensation $3.7

FY 2018 Base Budget

Adopted FY 2017 Budget $835.0 million

Nondiscretionary $12.8 contractual, debt service, annualize salary increase, benefits, inflationary

Remove FY 2017 One-Times $5.0 million

FY 2018 Starting Point $830.0 million $812.4 million

(amounts shown in millions) Note: totals may not exactly add due to rounding

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Budget Overview

Capital Improvement Plan Overview Capital Improvement Plan Adopted Budget and Planned Amounts (General Capital only)* FY 2018 - FY 2022 = $121.8 million

$180

Proposed FY 2018 CIP $26.3 million

$145.2

$150 $131.0

FY 2018 Planned $18.8 million

$120 ($ in millions)

Additional $7.5 million

$124.2 $121.5

$113.7

$102.2 $104.9 $88.8

$90

$60.4

$60

$49.4

$26.3 $29.7 $23.5 $21.5 $20.8

$30

$0

------Planned Amounts------

$43.4

2007

2008

2009

2010

2011

2012

2013

2014 2015 Fiscal Year

2016

2017

2018

2019

2020

2021

2022

* General Capital amounts excludes other CIP amounts such as, for Parking, Storm Water, Water and Wastewater.

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Budget Overview

Striking the Right Balance

Bold Initiatives

Momentum

Fiscal Discipline

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Presentation Overview 1. Building on the Momentum 2. Fiscal Discipline 3. Challenges 4. Budget Overview 5. Bold Initiatives

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Bold Initiatives

Long-Term Stresses Provide Strategic Opportunity Living with Sea Level Rise

Resilience RESILIENCE

Balancing the Economic Portfolio

The city’s decision-making lens Deconcentrating Poverty

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Bold Initiatives

How to Stay Bold

Collaborative A Community that is‌

Connected Creative 27

Collaborative Regional Partnerships

Public (Local)

Public (Military) P4 Private

Partnership 28

Collaborative Providing Excellent Core Services

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Collaborative

Continuing ARMD Initiative for Team Norfolk • Two percent general wage increase (GWI) for city employees • Beginning January 2018 • Sixth consecutive year for a GWI of two percent

• Step increase for sworn Police and Fire-Rescue • Step increase and bonus for sworn Sheriff • Market-based adjustments for 16 classifications

FY 2018 $3.0 million

• Adjust living wage from $24,300 to $24,600 30

Collaborative

Investing in Refuse Collectors Compensation Enhancements Effective July 2017

Attract

Retain

Increases pay for all Refuse Collector positions

Establishes career progression opportunities

Average pay increase of 7.6%

Automatic promotion after meeting experience requirements

Motivate

FY 2018 $200,000

Develop

Places supervisory pay above the regional market average

Preserves apprentice training

Rewards strong job performance

Provides 17% increase in minimum pay upon training completion 31

Collaborative

Executing Phase II of the Public Safety Pay Plan • Provides step increase for sworn Police and Fire-Rescue • Average pay increase of 3.5 percent

• Addresses Police Officer compression • Positively impacts two-thirds of Police Officers

FY 2018 $680,000

• Adds compression adjustments for Police Sergeants • Positively impacts 50 percent of Police Sergeants

• Supports the continuation of Master Firefighter 32

Collaborative

One-time Retiree Supplement

• Cost supported by the General Fund • Initial eligibility plan was similar to FY 2017 • Retirees earning $30,000 or below with 15 years of service or disability

• Met with Retired City Employee Association

FY 2018 $600,000

• Revising eligibility plan • Present recommendations to City Council • Goal - ensure pool of beneficiaries represents, as best possible, career public servants 33

Connected

New Southside Library

Promoting Health, Happiness, and Well-being

STEM Academy

Connecting Southside Broad Creek Library Elizabeth River Trail Investing $500,000 in CIP over five years for Capital Campaign match

• Opening December 2017 • Invested $10.0 million in CIP • FY 2018 General Fund operating $463,000

• STEM Academy opened Fall 2016 • Invested $34.2 million in CIP • Southside Library opening Spring 2019 • Invested $6.3 million in CIP

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Connected Information Technology Vision To be an innovative and trusted partner in delivering technology solutions that improve employee productivity and service delivery, engage our residents, and promote business growth and educational opportunities.

Pay software license cost of $850,000 from the General Fund

Free up short-term financing of $1.0 million for computer replacement

$2.2 million Begin addressing IT backlog with ongoing General Fund support

Establish a Technology Reserve Fund of $1.35 million

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Connected

Using Data and Evidence to Improve Results

Open Data

Performance • Process efficiency • Linking resources to outcomes • Taking stock and improving

• Transparency • Accountability • Community engagement

Network of Partners • Expert technical support • Best practices • Collaboration and innovation 36

Creative The most inclusive, vibrant, and authentic urban waterfront in America

• Embrace the urban core

• Promote diverse experiences throughout the city • Attract new residents

Town Point Park The Port of Virginia

Sarah Constant Shrine Beach NEON District

Elizabeth River Trail

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Creative • Cultural facilities that are unique and excellent • Spend FY 2018 developing an investment plan • Public Amenities Fund used for investment in cultural facilities  FY 2018 $1.0 million for capital improvements

Attucks Theater

Chrysler Museum of Art

Wells Theater

Harrison Opera House 38

Community Carrying Out Council’s Priorities

Housing Public Safety Education 39

Council Priority – Public Safety

Improving the Public Safety IT Infrastructure Replace radios and upgrade communication system

Replace 911 ComputerAided Dispatch System

FY 2018 $4.2 million

Upgrade Police Records Management System

Upgrade 911 Call Handling Equipment 40

Council Priority – Public Safety

Continuing Public Safety Resource Support Facilities $1.0 million • Maintain fire stations

Equipment $502,000

Fleet $3.4 million

• In-car video systems

• Ladder truck

• Police protective vests

• Pumper truck • Three ambulances

• Tasers • Ten utility vehicles • Lucas CPR devices

• 15 marked patrol cars • Medical supplies • Commercial extractors and dryers

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Council Priority – Education

Local Funding

Commitment to Education

$118.6 million in FY 2018

Per Pupil Expenditures

$65 million above required local effort (RLE)

$11,417 $11,185

$11,191

Virginia Beach

Newport News

$10,896

Starting Teacher Salary* Student Teacher Ratio

$43,622 - $51,344

$10,664

$10,764

$10,432

Highest in region

12.1 to 1

Lowest in region

Suffolk

Hampton

Chesapeake

Portsmouth

Norfolk

Source: Virginia Department of Education's Superintendent's Annual Report, 2015-2016

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*Source: Segal Waters Consulting 2016-17 Compensation Study Results

Council Priority – Education

$159 million Capital Investment in Education Opened Broad Creek

• Advanced FY 2018 school bus allocation of $1.0 million in FY 2017 for EPA Clean Diesel Rebate Program

• Proposed FY 2018 includes $2.0 million for school maintenance needs

Crossroads

Southside STEM

Under Construction

Camp Allen

Larchmont School photos courtesy of S.B. Ballard Construction Company website

Ocean View 43

Council Priority – Education

Moving Forward with Education • Great cities have great schools • Develop School Funding Formula in FY 2018 • Align interests • Incentivize efficiency • Share in city’s revenue growth 44

Council Priority – Housing Implementing Five-Year Housing and Poverty Strategies $112.7 million Ohio Creek NDRC Grant Implementation

$2.0 million Community Development CDBG*

$14.0 million Transform Newton Creek $8.7 million Housing Study Initiatives

$12.5 million Improve Neighborhoods Citywide

*Reflects FY 2018 only 45

Council Priority – Housing

Transforming Newton Creek Public Safety

Education

Housing

Resilience 46

Council Priority – Housing

Ongoing Flood Mitigation Strategies Storm Water Five-Year CIP $7.62

$4.82

$7.62

$4.82

$7.62

$4.82

$7.62

$4.82

$7.62

$4.82

Reduce neighborhood flooding $2.85 million Improve storm water quality $2.35 million Create citywide flooding reserve $1.32 million Improve system and facilities $1.1 million

FY 2018

FY 2019

FY 2020 Planned

FY 2021

FY 2022

Proposed 47

Proposed FY 2018 Budget Recap

Provide Excellent Core Services

Grow the Economy

Set the Table for Bold Moves

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Laying the Policy Groundwork for FY 2019 • Advance a comprehensive technology replacement strategy • Develop a school funding formula • Determine cultural facilities investment plan • Develop a strategy for transforming Newton Creek

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FY 2018 Budget Calendar Wednesday April 19, 2017, Granby High School 6:00 PM • Public Hearings on the Operating, Capital Improvement Plan, and HUD Grant

Tuesday April 25, 2017, Council Chamber 6:30 PM • Public Hearing on Real Estate Tax Increase (due to increased reassessment) • First City Council Work Session

Tuesday May 2, 2017 • Second City Council Work Session Tuesday May 9, 2017 • Third City Council Work Session

Tuesday May 23, 2017 • City Council Budget Adoption 50

Proposed FY 2018 Budget Breakdown Fund

FY 2018 Proposed Budget

General Fund

$853,176,054

Enterprise Funds

$142,121,764

Special Revenue Funds

$63,698,401

Internal Service Funds

$106,298,225

Total Operating Funds Capital Improvement Plan (All Funds, FY 2018 only)

Total Operating and Capital Funds Annual Plan for HUD Block Grants Total Financial Plan

$1,165,294,444 $83,579,933

$1,248,874,377 $5,405,297 $1,254,279,674 51

Shifting the Approach Housing

Public Safety

Education

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