City Council and School Board Joint Meeting, Five Year Forecast, 11/18/2025

Usually there's a red light.

Is this on? Yep, it's on.

Well, good afternoon everyone. It's that time of year. It's fall and time for pumpkin pie, but also the five-year forecast. So, it's wonderful to get together with our counterparts with the council and and the school board. We're so delightful to be delighted to be with you and also to hear from the our magnificent staffs on what we can look forward to with the next five years. So, I need to read this little thing.

Um, in accordance with the Virginia Beach Code section 22 2-21 and by the authority vested in me as mayor of the city of Virginia Beach, I hereby call for a special formal session of the Virginia Beach City Council, Tuesday, November 18th, 2025 at 12:00 p.m. Building 19 Municipal Center, 2416 Courthouse Drive, Virginia Beach, Virginia. The purpose of this special formal session is to allow the city

council and school board joint session to receive the five-year forecast presentation. Uh wanted to say the mayor will be here. He um had to open up this big thing at Regent University and uh Miss Henley will be here at uh 2:15 and Mr. Beluchcci it will not be here today and I'll let uh our wonderful chair lady from the school board announce her people that couldn't be here.

Sure. Thank you. Um Vice Chair Williams is out for uh medical reasons. Um and Miss Dwire won't be here today for personal reasons and I I actually don't know about Mr. Kellen um at this time.

So I'm going to assume he's on the way.

So, um, also I just want to, um, thank everybody for being here. I think that it's really important that we do this and we collaborate amongst each other.

So, I'm glad that we have this opportunity to meet together at the same table. So, thanks everybody.

So, and I agree with um, Kathleen that we're so happy all of us to be together.

We don't get this opportunities that often. So, and without further ado, let's get this ball rolling. Um, would you like to get started, Kevin?

Yes, ma'am. Can everybody hear me? Okay.

Thank you, Vice Mayor, School Chair. Uh, my name is Kevin Shadelier. Uh, today we're going to be providing the school board and the city council with an overview presentation of the combined city and schools 5-year forecast. So, it's really the beginning of the overall budget process where we're starting to kick it off uh and begin engaging the elected body, the elected officials with

what we're seeing and what potential trends we're going to be seeing through the upcoming budget making process, budget drivers, and uh sneak peek at what we're seeing with revenue projections at this point in time in the budget process. So, in front of everybody uh or provided to everybody is a more comprehensive document. So included within this document um are various city funds that have been

evaluated, looked at and discussed for public policy discussion on the city side. Schools provided their input and what they're anticipating is be their budget drivers impact on their operations. But in terms of the presentation today, we're going to try to narrow it down to a focus of um city that pertains to both city and schools.

So, we're going to do a budget by committee today and or excuse me, a presentation by committee today with Nikki Johnson who'll be coming up and talking about the economic overview of the Hampton Roads Region in Virginia Beach. So, Nikki's with the Hampton Roads Planning District Commission and she's the regional economist. I'll come back up uh during the middle segment of the presentation to talk about what

we're seeing with revenue projections and then transition into the city's 5-year forecast before turning it over to the school CFO Crystal Pate who'll talk about the school's 5-year forecast projection.

Before we really get rolling, I think we were supposed to do a roll call. I apologize. U if the clerks, we don't have to do it. All right. Just want to make sure we want to keep everything right on track. Thank you.

Apologize for interrupting you.

It's quite okay. It was a perfect time for a break. So, I had a transition slide. So, the thing I was going to talk about is really the annual purpose of the five-year forecast is really to get an overview of the current financial conditions of both cities and schools.

So, there's several assumptions that are made throughout the five-year forecast and we'll talk about those as we're talking about expenditures and revenues.

Um and then you know it really is to establish the framework of a joint collaboration between city and schools to have a policy level discussion um about you know ongoing issues combined um topics that are impacting both city and schools state federal issues things of that nature. So um without any further ado I'm going to turn it over to Nikki to um talk about the economic outlook at Hampton Roads. I was

explaining to a council member earlier, there was a point in time whenever uh city staff attempted to play the role of economist and do this, but then we finally realized why play and pretend to be an economist whenever we can have a real one come and give the the information on our behalf. So with that, thank you. Good afternoon everyone.

We here today to discuss the economic outlook. Now, just starting broad term, despite the significant policy changes and economic uncertainty that we faced over the past year, the broader economy has remained remarkably resilient so far. But as you'll see today, this is slightly less true for Hampton Roads as federal cuts have had really an outsiz impact on our region's economy.

All right, starting with the most broad measure of the national economy, we see that GDP contracted in the first quarter of 2025 was down6 percentage points from the previous quarter. This was largely due to pre-ordering to get ahead of the tariffs which caused a surge in imports which caused net exports to draw down GDP.

Now following in the second quarter we see the significant surge in GDP was up 3.8 percentage points from the previous quarter. The volatility of both of these quarters is largely just due to tariffs.

And if we remove that noise we do see that the fundamentals of the economy consumer spending business investment these have remained strong in the first half of 2025. Now, moving forward, we are expecting slower growth in the second half of 2025 and in the first half of 2026, but slower growth does not mean a recession. We're just facing more of a lower trend growth towards GDP moving forward.

After peaking in June of 2022, inflation at that point was up 9% year-over-year.

We have seen that moderate significantly. As of the latest data for September of 2025, prices were up 3% year-over-year. That is above the fl um the Fed's target rate of 2%. So, we still have some ways to go, but it is important to note that we have seen a slight uptick so far in 2025 and that is likely due to tariff related pressures. But if we think about the tariffs on paper, they've been very big

and it's been somewhat muted in the data, but we believe that that's likely to be a delayed effect. It's going to take some time for tariffs to fully work their way through to prices. And so we're likely to see a further uptick in inflation through the rest of 2025 and early 2026. But that outlook is very uncertain. Part of that is due to this stop start nature of plenty of these

tariffs. We don't know which ones are going to stay and which ones will be pulled back. And then we also have the impending Supreme Court decision. And so one of the president's main tariff powers, AIPA, could be lost. That doesn't mean that all tariffs will go away. It's just going to affect some of the more broad liberation day tariffs versus some of the more sectoral focused tariffs like steel

job growth. So in the United States, Virginia and Hampton Roads, we have seen a notable slowdown in job growth. The n number of jobs added in the first half of 2025 in the nation is the slowest in recent years.

Now in Virginia, despite the federal job guts, job growth has slowed, but it's stayed positive. It's remained remarkably resilient. We cannot say the same for Hampton Roads. we see that jobs have declined about 6 percentage points when we compare January to August of 2025.

Now, like I said, we still have not seen the full effect of all of the federal cuts. Many of them are still ongoing.

It's also important to note that if you were a furled employee or if you received a defer deferred resignation, you are still counted as employed in the data. And so we have not seen that full effect of the federal workforce and contract cuts. And so we're likely to see a further slowdown through the rest of 2025 and into early 2026.

But the outsiz impact on Hampton Roads should be no surprise when you think about the concentration of federal employment here in the region. We are home to the third largest federal civilian workforce in the nation. If we look at the federal employees as a share of all full-time employees, residents, these aren't jobs. These are people who are living within our region, it's about 11.3%.

That's more than three times the national average. And the city of Virginia Beach is slightly below the regional average at 10.9% but still higher than the state average. And so that impact is going to continue to affect us at a greater rate than it does the rest of the country at large.

If we look at job growth by industry over the past year, we can see that we've lost about 2,000 federal government jobs. I believe that that's a low estimate because we're still waiting for that full impact to be realized in the data.

But the largest gains over the past year have been in healthcare and social assistance and how we've lost more manufacturing jobs over the last year than even federal government. But that's largely due to long-term trend decline in manufacturing over time versus anything that's happened just specifically over this past year. But overall, what you're seeing these broad sectoral trends where most of the growth

is concentrated in services, many of the losses are concentrated in manufacturing and federal government. That's actually very much mirroring what we're seeing at the national level as well.

Labor market conditions, as I mentioned, have cooled both nationally in Virginia.

We're seeing a slowdown in labor market trends, not a decline. That is not true for Hampton Roads. Hampton Roads, we've seen a steady decline both in our civilian labor force and individual employment since the start of 2025.

Now, labor force and individual employment are still above prepandemic levels, but we have seen this sustained slowdown through 2025. With the shutdown and ongoing federal cuts, we're likely to see a further contraction throughout the rest of 2025. I believe that will ease some as we get through the second half of 2026, but we're still going to see that impact. In Virginia Beach,

we're seeing the exact same trend. Labor market conditions are slowing considerably. They're actually contracting. And the pace of decline in the city is actually faster than what we're seeing at the regional average.

And while in Hampton Roads, um, civilian labor force and individual employment are still above those prepandemic levels, that's not the case for Virginia Beach. They've actually fallen below levels that we saw just prior to the pandemic in February 2020.

The unemployment rate both in Virginia Beach and Hampton Roads has historically fallen below the national average.

That's due in part to demographics. We tend to have more higher educated workforce relative to the nation, which means we tend to have lower unemployment rates. But we are seeing that that gap has started to close with a more stronger deterioration of labor market conditions in the region and in the city relative to the nation. So if we compare over the past year from August 2025 to August 2024, we've seen that the

unemployment rate in the US has ticked up about 0.1 percentage points. Compared to Hampton Roads, it's about.5 percentage points. In Virginia Beach, it's.3.

Now we're still at historically low levels. 3.2 2 unemployment rate is still a very good number, but we are likely to see a further uptick moving forward through the end of 2025 and early 2026.

As I said, we have not seen the full impact of layouts, federal cuts, government shutdown. That is not yet fully reflected in the data. So, we might see a further increase moving forward.

Turning to the housing market, data through September of this year shows home sales ticked up slightly when we compare it to the previous year.

Previous year, we were at historically low homes sold within the region. Now, a lot of that flies with mortgage rate trends. We saw mortgage rates come down considerably over the last year. At the peak, they're about 7.6% in 2023. As of the latest data for October 2025, we're at about 6.5%.

So from 7.6% to 6.5%. That's good. But if you compare that to prior to the pandemic, mortgage rates were hovering around what 3 and a half 4%. So we still have some way to go. And that elevated mortgage rate has continue to put pressure on home buying. And that's why the number of homes sold within the region are still below those prepandemic levels. we were hovering around 22 to 2400

just prior to the pandemic. Now we're just a little bit above 2,000. And so home sales have yet to fully recover from the pandemic surge and subsequent decline. We see a very similar trend in the city of Virginia Beach. The number of homes sold year to date is about 9,000 here in the city. That's through September.

rebounded slightly from that historic low in 2025, which is positive news, but we're still below prepandemic levels. Virginia Beach residential units sold, this is existing home sales. It's actually below levels that we last saw in 2015.

So, still at historically low rates.

Now, home price growth has slowed from the rapid pace that we saw post pandemic. At one point, prices rose an additional 40 percentage points within less than three years. Crazy time. Um, in the second quarter of 2025, home prices rose an additional 7.9 percentage points. Nationally, we actually saw slightly faster growth in Hampton Roads.

Over that same period, they were up about 9.2 percentage points. That is interesting because Hampton Roads home prices usually grow at a slower pace relative to the nation. But we are seeing slightly faster growth over the past year.

In Virginia Beach, the median sales price year to date through September actually reached 400,000 in 2025. That's up 4.9% from the prior year. Slightly faster pace of growth than what we saw in 2024 over the same period. So slightly faster growth than relative previous year. It's the same trend that we're seeing from in the region overall. The primary factor keeping home price growth elevated, I'm

guessing we can all guess it's housing, right? That persistent shortage of available homes. Here we have the month's supply of housing inventory. How long it would take off to take to sell off the current inventory of housing given the current pace of sales. Now, prior to the pandemic, both Hampton Roads and Virginia and the United States were hovering just a little bit below three months, around 2.7. We saw that

fall to a historical low during the pandemic of actually just one month. Um, healthy market is around three and a half months. But as of September, we see the month supply has increased slightly, but in Hampton Roads, it's still at about 2.3 months. So, we still have yet to exceed those prepandemic levels. The United States, in contrast, actually has. They're at about 3.3 months. So,

they're right in line with where they were prior to the pandemic. And so, what this means is tighter inventory is likely why we're seeing faster housing price growth within the region relative to the nation.

Now, all in all, two big factors that we're seeing, federal job contract cuts.

We just got out of the longest shutdown in history. On top of that, we have ongoing tariff pressures. All of those factors are likely to continue to weigh on the outlook moving forward. One bright spot, however, is defense spending. We saw significant increases in the last in the latest National Defense Authorization Act in ship building. So, that's going to be a really positive boost for our Hampton

Roads region, which should help keep our economy still growing. We also aren't necessarily respecting expecting a in recession in Hampton Roads. We are expecting more of a slowdown as we've seen with the labor market so far relative to the nation, but that should be a positive boost. Another factor though is the international immigration.

Immigration policies are slowing international arrivals. It's important to consider the fact that in Hampton Roads, if you look at the three components of population growth. It's the natural change, burst minus deaths, domestic migration, and international migration. Both Hampton Roads and the city of Virginia Beach consistently lose population due to net domestic out migration. We have more people leaving

the region going to another part of the country than coming in from other parts of the country. Right now the natural change in the population due to long-term demographics is slowly declining. In 2024, international migration was the largest contributor of population growth both in Virginia Beach and in Hampton Roads at large. So how immigration policies will weigh on our already anemic population growth is

still a question but I think it could be a factor and then that will likely continue to flow through and give us slower labor market growth overall.

So overall the economy is slowing but stable. We're expecting slower growth through the rest of 2025 and into the first half of 2026 but we are not expecting a recession.

Thank you.

Thank you, Nikki.

Um, so as I noted before, we'll be doing the presentation by committee today. Uh, and I just kind of want to back up again and talk about the document that's um before uh you all today, but also will be posted to the city's um internet or the website later on today. Uh it's more comprehensive. It goes in depth with um a lot of writing and narrative related to each of the various revenue streams

that I'm going to be talking about shortly. Um in addition to some of the city's funds such as waste management fund, town center, SSD, and again, I couldn't can't thank Nikki enough. um my staff and Crystal and her staff and the level of effort it took to put the overall document together.

So shifting away from the economic discussion for a few moments to talk about revenues.

So in the development of any budget, first thing we're going to look at is baseline revenue projections. So, some of the assumptions that are made in the development of the five-year forecast are things such as the existing tax rates and policies are to remain in place in perpetuity throughout the 5-year forecast. So, for example, uh if a deficit's projected in any one given year, there's no assumption that a rate

will be adjusted up to close that gap or vice versa. There's no assumption that baseline expenditure a program will go away to close that gap. This is just a development tool, a policy discussion tool, and we use each annual budget process to refine that and make those funding decisions.

So again, um, looking at revenues, they're based on growth trend analysis.

So we look at the most recent actual revenues being collected and we look at long-term actuals to project over the five-year forecast period. And then a big assumption in this is the assumption that the city school combined revenue sharing formula remains as is uh currently adopted throughout the forecast period.

So one of the things I'm going to look to do are use the graphs to kind of talk about as similar as what Nikki was doing a little background context of that's driving some of the revenue streams. So starting with real estate which is by far our largest local revenue source. um it represents in fact 46% of the total general fund revenue and is shared with schools. So this visualization is a look

back at assessment data for real estate real estate assessment back to 2002 and I know they're small bars uh but each year you'll see a blue bar and a orange bar and what that's representative of are the different components of the assessment base. So the blue is the residential year-over-year assessment growth and then in terms of a percentage and the orange is commercial assessment

growth year-over-year. So one of the things going back to 2002 you can really see is in the early 2000s the city experienced high assessment growth in residential and commercial assessment base and then you see the fall off and then you see several years of negative depreciation or actually depreciation of home values. So that's the the boom and the bust. That was the housing bubble that occurred where residential

assessments were growing greater than 20% per year. And then we experienced several years of the market um correcting itself and home values actually decreasing. And then in the mid 2010s we began seeing some level of consistent revenue growth. So you might notice there's a red bar going across.

So, what that represents is the historical average assessment growth that the city's relied on year-over-year in budget development and to support angel services. It's about 5% is the long-term average.

Working with the real estate assessor's office, um we at this point in time of the budget process, we get her input and we get a preliminary estimate on what the projection is for real estate growth, assessment growth in coming years. So again, it's very early in the process as it always is, and she won't know more until she's done with her annual report and the report outcomes in February, much later in the budget

process. But as you can see by the gray bars there, um she's anticipating growth of being about 2.8% in year one of the forecast, 3% the next two year, year two and three of the forecast, and leveling off to about 2% um in the out years of the forecast. And as you can see, this is below that 5% historical average that the city's typically um used to receiving or um supporting services

with. Uh overall, the revenue is anticipated to grow. Uh real estate's anticipated to be about $738 million in support of general fund services next year.

So, one of the things that typically happens is going from assessment growth to budgeted um estimated real estate revenue growth doesn't always materialize or come out to be the exact same. So, one of the reasons for that are some of the exemption programs and the way that they're accounted for and budgeted. So, for example, the city um of Virginia Beach is has a mandate as all Virginia localities do to provide

tax relief for disabled veterans. So, it's a mandated program. Um, the state uh passed adoption for this back, I believe in 2016, um is whenever it became um codified.

And so, what we're experiencing with this is year-over-year rapid growth um in this in this exemption year-over-year. So, as you can see in FY26, the current year that we're working within the exemption of this program was about $35.3 million, and we're anticipating this to grow to about $44.6 million in FY27.

That $9.2 million annual growth, to give context to that, each penny of the real estate tax rate generates about $8.4 million. So we're now to that point where annual growth in this program is exceeding what the city generates in 1 cent of the real estate tax rate. So over time um looking back you can see we've had this gradual growth and part of the d driver of this is the assessment growth that the city's

experienced. But the larger contributing factor is the level of active participation that we're seeing in this.

We're seeing year-over-year enrollment within this program of about 23% on average, which is really escalating it.

Um, to give some additional context of the $44.6 million. So, in terms of the overall assessment base, that's the equivalent about $4.6 billion of the city's assessment base being taxexempt.

Tax exemption of these individuals or the qualification is really outside of the control of the city. It's something that the Department of Veteran Affairs makes a determination of whether an individual's 100% disabled or not. This can range from um hearing loss to sleep apnea to a range of things that might total up to individuals being 100% disabled.

So the accounting for this uh program here is actually excluded from our overall revenue estimates. So, that's what I was talking about when you talk about assessment growth being 2.8%, you might see budgeted growth year-over-year being slightly less than that in terms of real estate.

Another local uh program that we have or local exemption program is the elderly and disabled program. The city's had this program in place for well over 30 years. And this is a local option program where individuals who are disabled or individuals who are 65 years and older and meet income thresholds um have the opportunity to receive either partial or full exemption of the real estate tax bill. Over time, this

program's grown at a more sustainable course than the um disabled veterans program. As you can see, the growth in this program year-over-year from 26 to 27 is about anticipated to be about a million dollars where it's going to be about 17.2 million in FY27.

Every few years, we do a regional benchmarking of this program to see how Virginia Beach compares to other Hampton Roads localities. And year time and time again, Virginia Beach is by far and way most generous in the exemption of this program and providing this form of tax relief.

Historically, this program has been budgeted for on a gross basis. So in other words, as a part of the annual budget process, we estimate this revenue and we have offsetting appropriation of an equal amount. And so what that's resulted in over the years is the appearance of an additional, in the case of FY27, an additional $17.2 million being available and looking at real estate revenue estimates to support other

general government services. However, the reality is it's not. We're not even really going to receive it. It's an exemption. So, similar to the tax relief for the disabled veterans program where that's netted out of the revenues. A recommendation we're making going forward is to treat this in the same way so that we we don't give the appearance of additional revenue being there to

support general gun government services and over overstating what the actual budget is.

Um shifting away from real estate looking at personal property which is our second largest local tax revenue.

So, whenever individuals think about personal property, they typically think of the vehicle assessments um and $4 per 100 of vehicle assessments. But personal property is actually a mix of different tax personal property types such as business personal property, mobile homes, um RVs, um trailers, etc. Um, so taking a second to familiarize everybody with this visual of what this looks like

for personal property as all the revenue slides from this point forward will have the similar format. So the orange line going across is the budgeted amount for each of the years dating back to FY20.

The yellow line going across is the actual received. So you can see the context of where the actual landed with original budget estimates. And then the green line going forward is the projection through the four fiveyear forecast period. So we are anticipating growth in this revenue to growth in this revenue stream to FY27 estimate of about 228 million with an assumed long-term average growth around 3% on average um

the remaining years of the forecast. But we're typically conservative in projecting this revenue stream. There's a lot of outside factors and influences market volatility such as the chip shortage that impacted the production of new vehicles resulting in the inflation of used vehicle values. So over time a lot of these things um are monitored and looked at. Uh but this isn't something

we can look at on a month-to-month basis. It's a calendar year tax with 90% of this revenue coming in basically in the month of June. So, what we're working off of right now to try to project what will materialize in June of 2027, um, two years from now, we're working off of what occurred last at the end of last year, FY25.

So, again, um, it's one of the more difficult revenue streams to project and anticipate what's going to actually happen, but um, here recently, we we've been able to do a pretty good job at that. Another calendar year tax is BOL or business professional occupational license. So if a business operates within the city of Virginia Beach, they obtain a business license. That's what this is. The amount of the tax or the

license um cost of the license varies.

So, if a business has gross receipts that are less than $200,000, they have a tiered fee structure in which they'll get an annual license for a an amount of 30,40 or $50. Uh, if gross receipts are reported by a business in excess of 200,000, then the tax rates applied to those gross receipts and that's is them remitted.

Again, similar to personal property, we're a little cautious and slow in our projection of this as this is a also a calendar year tax with the bills um revenue being received primarily in the month of March. So again, that's late in the budget process. So really for majority of the overall budget process, we'll be working off of the FY25 actuals as we won't be getting real-time updates

as to how this revenue is trending throughout the year. again um anticipating growth of this to in FY27 to be around $71.4 million and assuming or resuming the long-term historical growth rate of about 2% per year. This one can be kind of tricky. Also, um an underlying factor in here, you might see a year of growth and then flat um little to no growth. The city has a two-year business exemption program or excuse me

a bole exemption program where if a business is new to the city of Virginia Beach and registers um they're eligible to be exempt from this tax for two years. And so sometimes what you catch are bit new businesses coming out of that exemption program and hitting the baseline.

Uh general sales general sales tax revenue. So, everybody's primarily familiar with the sales tax that individuals pay whenever they go purchase goods at a grocery store or at a um hardware store. So, the Hampton Roads general sales tax applied is 6%.

So, of the 6% the state retains 4.3% 7% is a regional tax. It goes to a regional entity and the localities all retain 1% of the sales tax. So this visual here, it reflects that 1% of general sales tax that the city retains and it's shared with schools via the revenue sharing formula. So not to confuse matters um but this is the schools also in the development of their operating budget receive a state shared

sales tax. So from the 4.3% that the state um retains of that, they then separately remit a portion of that to schools directly. Um and that's estimated and appropriate in the school's operating budget and that's roughly about 1% as well. I think $94 million.

So looking back over time um historically this is a very um consistent reliable predictable revenue stream you can see that there was a a a gap or a virgin a divergence that occurred um during the pandemic era. We were anticipating general sales to actually decline. However, outside influencing factor occurred where a court decision was made that online sales tax um needed to be remitted to

the locality in which the good was purchased. Previously um prior to 2020 that didn't occur. Online sales um did not have sales tax applied to them. So, um, fortunately, um, the timing of that couldn't been better at the beginning of the pandemic where the city was actually able to recover pretty quickly, um, in this revenue stream and instead of a loss, we saw year-over-year growth in

this. Since that time, um, you can see that it's stabilized and we're seeing the cons consistent level of growth.

We're anticipating this revenue stream to grow by about 3% each year of the forecast period, including FY27, um, with revenues being about $101.2 $2 million.

Um, cigarette tax is a little different story to this one.

As you can see, we're anticipating year-over-year decline of about 5% in cigarette tax revenue. Um so similar to the general sales tax where outside influence of a court decision resulted in additional revenue being collected over time the cigarette tax has also had some outside influencing factors resulting in a decline in this revenue source. Good news is I would like to say that smoking cessation is a large part

of this and I do believe that is the case but there's been other factors such as the general assembly raising the smoking age from 18 to 21 um except for making an exception for active duty military personnel. Um and then there's been other influences in the market such as vaping products and the localities currently do not have the capacity to apply tax to that. the cigarette tax or

the tobacco tax stamp only applies to nicotine products and tobacco. Uh the general assembly has the authority and they tax vaping products. Um but that's not yet been provided. Uh that discretion has not been provided to localities yet. So I can't really certainly say that all of this is a result of individuals stopping nicotine habits but instead there might be some leakage in this revenue source as them

just going to another another source in the vaping products.

Um, another one, the trustee taxes, and these are typically what we call the cigarette tax, restaurant, hotel, um, or the trustee taxes. And the benefit of these revenues is we're able to look at these on a monthly basis and get a sense of how they're trending throughout the year. So, we're not waiting for the end of the budget process or one point in time of the year. We're actually able to

look at these. And so, with that um, being the case, we're fairly accurate in these revenue projections over time.

with restaurant. Um obviously the pandemic created some uncertainty and we had a couple of years of revenue overperformance during that time frame.

However, since then restaurant tax revenue has uh come back in terms of being consistent, predictable, and reliable u with a long-term average growth of I believe around 3 to 4%. Uh we're anticipating this to continue throughout the forecast period with FY27 revenue estimates being 115.4 4 million and growing in the out years.

Something I want to talk about also is I skipped on the cigarette tax, but with restaurant is the tax rate applied. Um so the city of Virginia Beach um has a 6% tax rate on meals which is tied with Chesapeake as being the lowest in the Hampton Roads region. One of the things we do each year as part of the budget process is we also do a benchmarking of these type of trustee tax and larger tax

rates of all the localities to see how competitive Virginia Beach is remaining.

And so I'm happy to report that restaurants um Virginia Beach remains tied as the lowest in the region.

Hotel tax or the um occupational tr transient occupation tax rate. Uh so the rate applied within the city of Virginia Beach citywide tax rates 8%.

So um with the exception of Sandbridge where there's a 9.5% tax rate applied.

The additional 1.5 is an additional hotel tax sir charge um for the sole purposes of supporting sand replenishment within the Sandbridge region of the city. And then of the total tax rate, Sandbridge also retains an additional 5% um dedicated currently for the exact same purpose to ensure adequate sand replenishment exists within the Sandbridge region of the city. So, similar to um the pandemic trend um of

general sales and the restaurant meals tax, we were there was a quite a bit of uncertainty in the hotel tax. And to our surprise, we saw a rapid level of growth of year-over-year actuals in the hotel taxes. Um however, unlike those revenue streams, since that point in time, this revenue has really become flat in terms of year-over-year growth. So we're not anticipating based on what we're seeing

today this to change over the course of the next year. So we're anticipating yet another year of flat growth in this and then in the out years of the forecast uh resuming the historical growth rate of about 2%. What's interesting with this is even though there it's flat um in terms of the tax rate year-over-year we're seeing growth in the flat tax fee.

So within Virginia Beach, $2 per room night's charged for each hotel room night stay. And so what we're actually seeing is year-over-year growth in that indicating that there's more visitors, there's more visitations, but there just appears to be a softening in the willingness of paying the average daily room rate, which might be declining.

shifting away from revenues for a moment to talk about operational expenditures and assumptions and looking at the operating budget. Um you got personnel accounts and then operating accounts. So talking about some of the personnel assumptions applied in terms of compensation cost of living adjustment um the assumed increase is 3% annually each year of the forecast period. This is in line with

the three exactly um 3% which is in line with the step plan um authorized or approved by city council um about three years ago and it will remain consistent with that. Uh the Virginia retirement system rates or the VRS you might often hear that referred to. Um, so the city and schools both participate in a state pension plan and so the determination of the rates that are to be paid by each

locality is determined by the state based on the actuarial needs of that fund. So it's adjusted every two years.

Um FY27 is a year where we're anticipating a rate adjustment. So, for the forecast and for in preparation of the budget, we're anticipating a 1.5% increase in that VRS rate. That's the that translates to roughly a year-over-year increase of about $6 million.

Uh health insurance, there's a lot of uncertainty in the health market and future costs of health care and health insurance. So in working with um schools as well as uh Mercer um the city's anticipating or is understanding that uh future costs are going to go up by about 8% per year. So we're anticipating the employer contribution to grow at at least that if not more in future years

and we'll get into more of that in just a moment. Um also for uh the assumption and awareness. So typically for the last 3 or four years, the city's adopted a budget anticipating the use of attrition savings. So following back on the the onset of this and talking about reductions weren't made in effort to close any financial gap for the purpose of the forecast, personnel has been

fully loaded and there's no assumed use of attrition savings. something we've been seeing over the last several years.

I think in FY21, the city had about $30 million in vacancy savings. At the close out of FY25, we had vacancy savings of only about $14 million. So, as the city's actively filling these positions, we're seeing less and less vacancy savings available, which is why this the utilization of attrition savings is really a year-to-year decision that's made as part of the budget development

process. In terms of operating accounts, we're assuming inflation around 3%.

That's higher than the Fed reserves ideal rate of 2%, but it's consistent with what they're projecting based on current market trends. Uh some of the other things that we try to take into account are known contractual increases for software such as Microsoft or in the case of the city garage, the auto parts or um maintenance contracts for specialized equipment. We try to account

for that as best we can. And then we're also assuming debt service remains flat for the forecast period.

So this visual um provides the baseline forecast for the city city's general fund in two in in two visual representations. So taking the applied assumptions and and the revenue projections compared with the baseline expenditure assumptions, we are anticipating each year of the forecast period to operate or to um result in a deficit or a gap. So you can see at the bottom of the table looking at the

numbers year one about $11 million growing to about $72 million over the forecast period. The visual representation at the top is taking the same information except looking at it expenditures and revenue in terms of year-over-year growth as a percentage.

So you can see that the blue line represents expenditures and that's slightly outpacing the year-over-year anticipated percentage growth in total revenue for the general fund.

One of the things you can't really see in this are some of the ups and downs that occur in year-over-year growth.

remember me talking about VRS being a every other year um budget driver.

So this slide tries to capture that or give a reflection of that. So this looks at salaries and fringes as a budget driver. So the dark blue line represents the dollar amount year-over-year increase in salaries and fringes based on all the previous assumptions I was talking about 3% cost of living adjustment, health insurance, VRS rate adjustments. The light blue line represents total general fund revenue

growth anticipated minus that to be shared with schools from the revenue sharing formula. So you can see just with that visual alone um salaries and fringes are primary a large driver of the annual operating budget and they're outpacing in all but one year um salary and fringe growth alone is outpacing anticipated general fund revenue growth.

So this isn't too concerning um as it's it's pretty typical of organizations where personnel is your largest budget operating budget driver. Um it's just one of the things that we try to be mindful of and give u for context and again this is a planning tool. Nothing is fixed requiring the 3% or the assumptions in here. Things could change. So historically, uh, it's been a decision by city council during the

budget development process to find the right balance of the cost of living adjustments, payraises in line with what's affordable and what the will the public has a willingness to tolerate in terms of taxation.

Um, another operating budget driver that we were talking about is health insurance. So instead of going a projection forward, I was going to provide a visual of a projection going back. The city and schools have a combined um self-insured health plan in which offerings and the benefits offered by both city and schools is of similar and but the accounting in terms of the city's contributions and schools

contributions is captured in separate funds. So this visual here is a reflection proforma if you will of the city's health insurance fund. So I know it's a lot of numbers. So I'm going to try to use some text boxes to pop up here to help kind of navigate this. So back in FY20, well it did not pop up. So I will just try to navigate this then without that.

So in um FY20 uh you can see the revenue um the first column there is about $64.5 million. So this represents revenue into the fund as the employer and employee contribution.

Working down the expenditures or the amount that the city paid for employee health claims and administrative cost of the health plan was about $55 million.

Taking the difference revenue minus expenditures, you can see in that year there was a surplus of revenue of about $9.5 million which fell to the cumulative fund balance that year and of about $34.1 million.

That cumulative fund balance is the thing to monitor going left to right across this this table. As you'll notice that the health fund for the city has typically been um well in excess of about $30 million with the exception of more recent years where we're seeing a draw down on that as health care costs are increasing. So this is signaling that it's likely time to begin evaluating increase increases

in employee and employer contributions.

Um the city's held employee contributions and healthcare premiums flat for about seven years.

the city as employers provided continued increases on average about 3% per year.

And so one of the things that we're trying to be mindful of in that over time is this bottom visual here. This is taking the employer employee contribution as a as a pool and given a percentage reflection of that. So you can see that the employer on average is about 80% and the employees about 20% of that makeup. This is a ratio that we've tried to be mindful over time and will

likely be something we try to keep in mind in future rate setting discussions.

Uh but again, it's something that we're going to continue to track and monitor and we've been talking about in the development of the current year. These trends are changing. There's a lot of uncertainty and so we will be evaluating this with rate increases likely in the future.

So there's some uncertainty in the health insurance, but there's also some uncertainty in other um aspects and outside factors that we can't really wrap our minds around yet or uh don't have enough confidence in to be able to build into the FA baseline forecast. And this is related to decisions and implementation of programs and policies in state and federal revenue and what that might look like. So, um, for

example, uh, within the document in in front of you, the five-year forecast, there's a significant writeup, um, that was provided by human services and the department of housing and neighborhood preservation related to some of their federally supported programs and how changes in the federal and state revenue might negatively impact those or what could be challenges going forward. We're

all familiar with the SNAP um discussion recently where the federal government um through the extension they were able to begin funding that initiative again and providing the SNAP supplements but this is um they provide the funds but it's a locally administered program and so the department of human services in doing that they receive a reimbursement from the federal government to administer it.

So recent discussions and indications are that communications been made where for the administrative cost of this federal government's looking to move to instead of a 50/50 cost share with the federal government covering 50 state and local making up the other 50 25% federal and 75% state and local. So, in terms of what that is and day-to-day operations and impacts or what other policy changes

the Department of Human Services has to make to keep in um in line with the error ratio that the state is going to have to be more mindful of in the future to ensure that they receive 100% of the federal revenue for the programs.

There's a lot of uncertainty with that.

And with the Department of Housing, there's also been communication um from the Department of Agriculture, I'm sorry, not Department of Agriculture, but the department uh federal government in terms of the level of HUD or section 8 housing um funds that will be handed down in in future budgets. And then Nikki did a much better job than I could um in talking about the tariffs, good, bad, right,

wrong in terms of economic policy. the macroeconomics of it escape my ability.

Um but I do know that there is going to be a reality of they will have an impact on the price of goods and the city's not immune um to increases in the price of goods just like residents and citizens.

The city is also impacted by inflation and those cost increases as well. So it's just something we need to be mindful of in future years.

Um, so I don't want to be so negative uh that I I you know ended on this negative note. So I did want to kind of give this visual and I had a a little bit cleaner version with a slide to cover this up.

But um I'll just take a second to walk everybody through it. Whenever we talk about balancing the operating budget, we typically talk about s making sustainable reductions. And you might recall a few slides ago, the baseline um forecast year one was anticipating an roughly an 11 million gap or deficit in year one of the forecast. So, what this visual here represents is if an $11

million sustainable reduction is made in year one of the forecast and a program or a service goes away of that amount in perpetuity, you're actually in bettering your future position as that's not something that's going to come back in future years. And so you can see taking that $11 million out each of those years, you actually lower your year two, year three, year four, and year five

deficit by like amount. So um I provide that as we still got a lot of budget process to go. Come March, the city manager will present to city council a balanced um sustainable proposed operating budget that if reductions are needed, it will be proposed reductions to be made in a sustainable manner.

So, um, with that, that's what the city has and I'm going to turn it over to Crystal B.

Yes, sir.

Okay. Stacy, can we hold off questions till after?

Sure.

Thank you.

Good afternoon, mayor, vice mayor, members of city council, chair, members of the school board, and colleagues.

Appreciate this opportunity to share with you the 5-year forecast for Virginia Beach City Public Schools. This presentation is designed to give us a forward-looking view of both the opportunities and challenges that lie ahead as we continue our shared commitment to providing an excellent education for every student.

Our mission is to empower every student to become a lifelong learner and engaged global citizen. Our vision that every student achieves their maximum potential. Our core values of put students first, seek growth, be open to change, do great work together, value differences, guide every decision we make as a school division.

Our work continues to be guided by Compass to 2030, the division strategic plan. This plan provides a unified divisionwide direction.

It focuses on preparing every student to be future ready with a central element called the future ready profile that describes the skills, habits, and mindsets of students that students will build from preK through 12th grade.

Compass to 2030 is structured around several focus areas, including challenging and supporting every student to excel and be future ready, enhancing well-being resilience and responsibility, valuing and investing in our staff, strengthening community partnerships and advancing organizational excellence and efficient operations.

The framework emphasizes high expectations, strong relationships, and giving each student the support they need. Every budget decision we make should align with this plan and advance our long-term goals. Achieving these goals requires responsible financial stewardship to sustain the highquality programs our community expects.

These priorities form the foundation of our financial and operational planning and they shape every decision we make, academic, operational, and financial.

Our students and staff continue to achieve at exceptional levels. Our preliminary on-time graduation rate is 96.9% among the highest in the Commonwealth.

Our dropout rate remains low at 2.2%.

We exceed passing rates in all so subjects leading the region in reading, writing, science, and history. In 2425, 35% of high school students enrolled in advanced placement courses and 74% of the AP exams taken by Virginia Beach City Public School students were awarded a score of three or higher.

Students have earned 14,540 industry credentials across 130 plus different approved credentiing exams and over 3,200 students have completed approximately 44,000 workbased learning hours contributing an economic impact of over $550,000.

These results reflect the strength of our staff, students, and community and our colle collective commitment to excellence. Our financial forecast shows expenditures are projected to outpace revenues over the next five years. Key factors driving expenditure growth include rising compensation pressures, increasing health care cost, and debt service related to major capital projects.

Projected deficits from 27 through 31 are not actual shortfalls, but early indicators of potential structural imbalance if current trends persist.

The forecast is a planning tool and not a budget. It allows us to look ahead, identify challenges early, and develop strategies to maintain long-term fiscal sustainability. At this stage, no budget balancing actions are included, and the intent is to frame the conversation for future decisions.

Enrollment and student demographics continue to evolve. While overall enrollment shows a gradual decline, the number of students with higher academic and social emotional needs continues to rise. Trends include growth in English language learners and special education populations, fluctuations in students affected by poverty, which is influenced by economic and federal factors. These

shifts increase demand for specialized instruction, mental health, and behavioral supports. All of which raise per pupil cost and are required under the Individuals with Disabilities Act and titles one and three of the Elementary and Secondary Education Act.

We have built the forecast using conservative assumptions. Our baseline revenue assumptions incorporate current federal, state, and local funding trends with modest growth projections assuming no major formula changes.

We gain additional insight into the state's budget when the governor introduces their budget typically the third week of December.

Key points to to note are the state rebenchmarking for the next bianium will update key cost inputs and could significantly impact school division budgets. The rebenchmarked costs are submitted as part of the governor's introduced budget and become part of the budget deliberations.

There are still issues with the school funding formula noted in the July 2023 JARK report. This report identified major funding disparities particularly for at risk special education and English learner populations.

Current state funding for these student population falls well below the levels identified as necessary by comprehensive cost studies conducted in other states.

This shortfall limits Virginia school's ability to provide the resources and support essential for an equitable and inclusive education. While progress was made in the 2024 and 25 budget processes, work remains to fully align funding with JARK recommendations. Our five-year revenue projection highlights include projected annual increases in the local contribution year-over-year are projected at 1.5% for 27, 2.8% for

fiscal year 28 and 29, 2.2% for fiscal year 30 and 31.

State revenue figures will be updated once the governor's budget is released and going forward during the general assembly session. Currently, we are projecting a 3% increase for all five years of the forecast.

Growth in state sales tax revenue has remained relatively flat. We are projecting a 0.5% increase for all five years of the forecast.

The primary federal revenue source for the school operating fund are federal impact aid and Medicaid reimbursements.

We are projecting a 5.1% increase in the first year of the forecast and then the remaining years will be flat. And even though we've seen a temporary uh continuing resolution, it's important to note that the federal impact aid program is one of the only federal K12 programs that is not forward funded. And that means that that when the federal fiscal budget is not approved or a continuing

rel resolution is not passed, school divisions receive no money for federally connected students. And furthermore, the amount the funding of funding divisions are entitled to may end up being prrated up or down depending on the final funding level included in the federal fiscal year 2026.

Other local revenue comes from various sources such as the stop arm enforcement program, tuition fees, facility rentals, indirect costs for grants, lost and stolen technology, and the sale of salvage materials and capital assets.

The stop arm enforcement program has limited had limited prior year revenues but is expected to grow significantly during the forecast period. In addition, the implementation of a streamlined school facility rental platform and a revised fee structure to be implemented the latter part of this fiscal year is anticipated to boo boost future local revenue.

This slide reflects the baseline revenue adjustments as dollar values in a line chart to reflect the trend. As you can see, state sales tax, federal revenue, and other local revenue remain modest with slight upward trends in the revenue sharing formula and state revenue.

Several key expenditure assumptions are built into the forecast. There's a 3% annual salary placeholder for staff, employer health insurance, um, and Kevin went over that, um, for the city. That increases uh 13.5% in fiscal year 27 for the schools and 9% annually thereafter through fiscal year 31 based on our current health claims trend. We have a 3% inflation assumption for operating

cost and we have rising debt service and payo obligations as a result of ongoing increased large maintenance projects.

These placeholders are not commitments but planning figures subject to schoolboard and city council approval during the annual budget process.

This slide reflects the key budget assumptions for expenditures again as dollar values in a line chart. So you can see the trend over the forecast period. As you can see expenditures for personnel services and fringe benefits are steadily increasing over the forecast period while non-personnel expenditures are remaining relatively flat. There is also a slight uptick in debt service payments as we anticipate

future bond sales.

Based on the outlined revenue and expenditure assumptions, the school division is projecting a deficit in the school operating fund for each year of the forecast period as shown on this slide. These figures reflect cost trends. These are not final budget decisions but placeholders to model realistic future cost growth.

And this slide reflects that baseline forecast as dollar values in a line chart. So you can see the trend over the forecast period and the forecasted structural gap widens by 2031.

We continue to face several budget pressures that will shape our outlook over the next few years. Maintaining competitive compensation to recruit and retain staff. Rebuilding the health fund reserve to ensure stability in our self- insurance program. funding for the Princess Anne High School replacement project, managing declining enrollment alongside rising student needs, and addressing uncertainty in federal and

state K12 funding, especially with the conclusion of the All-In Virginia supplemental funding targeted at tackling three major K12 education challenges: learning loss, literacy, and chronic absenteeism. These pressures are interconnected and require strategic prioritization moving forward. Our approach to financial management is strategic disciplined and collaborative. Virginia law requires a

balanced budget each fiscal year, and we remain fully committed to that principle. We continue to monitor economic trends, engage stakeholders, and strengthen reserves to protect against future volatility, especially in the health insurance fund. We strive to balance immediate needs with long-term fiscal responsility.

There are several external factors that could significantly alter this forecast.

Possible changes to the state SOQ funding formula. Adjustment to benefit rates in the next bianium. Healthc care cost trends continuing to exceed projections. New state or federal mandates. Evolving schoolboard priorities, future compensation decisions, inflationary pressures on goods and services, and increased debt service obligations as major projects progressed. These variables remind us

that adaptability remains key. We will update projections as new data emerges throughout the budget process.

So in closing, our goal is clear to balance today's needs with tomorrow's vision, sustaining excellence while maintaining fiscal responsibility.

Looking ahead, we will continue to align programs and staffing with available revenues. Invest in our people, programs, and facilities, and partner closely with the city and the community.

Together, we will ensure that Virginia Beach City Public Schools remain a model of educational and physical excellence for years to come. Thank you.

Okay, my colleagues, we have our challenges ahead of us. Let's start with Cash and we'll go to Stacy on the uh I just wanted to make sure uh director um uh Kevin sorry I couldn't get up here fast enough. I apologize.

Um and this was on page 27.

I mean, every time I I see that there's just this sinking void, right? Um when you see cigarette taxes and we're still continuing to tax it. Um there is a house bill u cannabis bill that's on should be sitting on the soontobe governor's um elect desk. Is that has that been talked about with uh Brent, who is our legislative um aid? Has has that been talked about that that would be a bill

that would be submitted to the governor to to really take I mean that needs to be like the next plan of action. Um because in that house bill 2485 um is vaping and other things and other things. I know these are projected numbers but I would think that needs to be in there as a way to say but we have this as a plan of action.

Kevin, I got it.

Okay.

Council member Jackson Green. Um the next general assembly session we anticipate that cannabis is going to be taken up again. um it'll have to be taken up by this session and then sent to the upcoming governor as well. So right now I think it's tabled at the time until the next general assembly session which should start probably in the January February time frame. We anticipate that if this is passed and

lost there's going to be a significant debate amongst the general assembly in terms of what revenues will go to the state and if there's going to be any local carveout for revenue as well. And to your point, if there is a local carve out, it should possibly be um some some significant dollar value to localities to deal with the impacts associated with it. We're not necessarily sure how

they're allocated to us. They may not use the cigarette tax revenue time frame, but if this is to come to fruition, if the general assembly does take action in this, and if the governor does support it, it's it's like it could be a revenue source. Sir, thank you. Thank you, sir.

Okay, we're going to go with Stacy, Jennifer, and then Kim.

Thank you. Um, can you go to slide 33?

Do we have the information or is it possible to break those num the this information out between city employees and schoolboard employees?

Um, I I have this proforma um from what we pulled in looking at the city fund. I can work to get uh the information and a a historical look at this as well um from the schools uh the school's health fund to provide that to city council.

I think that'd be useful in maybe formulating some additional questions.

Yes, sir.

And um I guess the vote registration did did you touch on that? I I may might have missed that. So the vote registration um I'll back up to personal property. Uh so initially um in the proposed budget last year there was a proposal to implement a boat personal property tax um that was swapped out in lie of an a registration fee that's dedicated entirely to the CIP coastal section. So that's actually a revenue

source that comes in and um goes right back out. They're still in the process of implementing it um to go into effect.

So we don't have any anything to really revise our initial estimate off of. So we're still working off that initial estimate that was adopted in the current year budget.

Thank you.

Yes, sir.

Okay, let's go with Jen Kim for Thank you, Mayor. Good afternoon, everyone. Um, so I'm going to um I just really my thoughts are all over the place with this uh presentation because it's something that we get every year and it's something that particularly for city council we know about these issues about housing stock and affordability.

We know about um out migration and what for whatever reason perhaps if it's economic and work decline. So these are things that are um they come up over and over again. So my mind at this point is what tools are available to us at the city level. So we know there are a lot of unknowns at the federal level. There are some unknowns with the state. So as a city, what policy tools do we have

available? All the tools like what are all the options to us that we can look at whether it's best practices or trying something new, trying something different. And if we don't yet have if there's a tool that we don't yet have um in our toolbox, what do we need to ask the general assembly for, you know, changes or permission to do? But um I'm interested in like putting everything on

the table. So I know we have a lot of professional expertise in house and also just in the region. Miss Johnson just gave an incredible report. So I know that the information is out there. I would like it consolidated. So just at the city level, what are all the policy options? So, as we're thinking about solutions, because we're elected to at minimum maintain a quality of life,

hopefully to improve it, and so what are tools that we could try um to address these issues because it just feels like it's a cyclical thing. And I'd like to know what um I just want to see some options.

Okay. Thank you. Okay. Uh Kim Worth and Rosemary.

So, thank you. Um, Councilwoman Rouse, those were my exact words. Um, my thoughts are all over the place, too. But specifically in the housing market, the low inventory, the high, uh, housing costs, I think you reported 4.9%, uh, the average home price is $400,000, and a new report out recently that the average age of a first-time home buyer is 40.

And so my question in lock step with uh Jennifer is, and you don't have to answer this now, we can talk about this later, but does the city plan to build additional affordable housing specifically to target first responders and teachers? Um, from from from our side, recruiting and retention is probably not unlike you. A 24hour a day job. Um, and we're working really hard to recruit the very best teachers,

quality teachers, but we also want them to be able to live in the city in which they work. And so, I'm interested in the toolbox and um and and moving forward with that, too. Thank you.

Okay. Mr. Mayor, if I'm sorry, please, Mr. Mayor, if I may, I just want to um comment on a couple of those questions regarding um what the city is doing as it relates to attainable housing.

Is it okay, mayor? Okay. All right. So, um the city council recently had a housing study done and out of that housing study, there were several recommendations and some of those recommendations required significant outlay of um general fund resources and the city council understanding the limited general fund resource that we have decided to move in a different direction. So the direction that we

moved towards was creating an attainable housing grant program which basically allows developers seeking to build devel um affordable attainable housing to unlock revenues from future development like future property tax revenue and then put that money back into their development to help cover the gap of the project. Recently, city council approved two of those attainable housing grant

program projects that's going to lead to the building of 372 homes in Virginia Beach. Um, there's a misnomer out there that the city is building housing. The city generally does not have the capacity to build housing. We basically facilitate opportunities for developers in the private sector to build attainable housing through either the um the passing on of land or through creating incentive programs like what we

recently um created. It still continues to be a number one priority to council, right? You know, if there's probably priority 1 A, 1 B, 1 C, this is right up there with those as well, you know, but basically right now is as everyone knows, we have limited land, right? So the council did ask us to scrub our books, identify land for development opportunities. We've done that. We're going through the comprehensive plan

process. Everybody anticipates that this is going to be a signaling towards the city moving towards a redevelopment and were appropriate denser development in certain areas and also another look at our zoning code to tie all those things up. So the city is moving demonstrabably in those efforts. Obviously, we can't do it all by ourselves. A lot of it really depends on what the private sector can

bring to bear. A lot of that is complicated as well with the cost of doing business, the cost of debt, the cost of materials, the cost of supply, and in particular as well, the cost of labor and the shortage of labor as well.

So, it's a big problem. It's incredibly bigger than what a city, what a school division can do. And in some cases, a lot of big macroeconomics things that's leading to the lack of affordable housing being built and the pace by which it's very frustrating that it's being built in.

And thank you. If I can uh just address this too, Kim. Um number of uh retreats ago, we named attainable housing our fourth highest priority after stormwater public safety and schools. And there challenges out there because and there are national challenges with housing.

This is not unique to what we're trying to do. And as we do uh run out of land um you know it makes it especially difficult and especially the only way that you're going to get attainable housing is density um you know commitments. And uh once again when that happens you know the neighborhoods you know get up in arms and you know we're in a constant battle for that and the

fact that there is from what I understand it 24 or 25% of regulatory cost goes into building everything right now it just makes everything exh expensive and the other factor since I was sworn in as mayor the cost of building materials has gone up 99%. So we're all in the same boat. We really want attainable housing here in Virginia Beach, you know, because that's the only way we're going to spur

economic growth. Uh we put more uh taxable units on the thing that really helps pay for schools and city's operating budget.

And Mr. Mayor, I want to add one more thing. And I can say from the school modernization committee, I know staff and um the vice mayor, Mr. Cummings as well. We're encouraged to hear that there the school board is thinking about going through a similar process that the city recently did in terms of looking at our inventory of property and our land and some of it may not necessarily be

necessary to stay in the same way that is currently being used and those may create opportunities for other um development inside communities. Right.

Obviously, we all know we're going to be mindful of what the comprehensive plan says, what zoning requires, and also the the flavor to the decorum and the and the cadence of a community when we're making those decisions. But as we kind of look at our demographic trends, we are encouraged that you all are looking in that direction as well to see what makes sense and should we redirect our

efforts to reimagining what some of our old facilities can possibly be for the future.

Okay, thank you. Okay, we're going to go with Worth, Rosemary, and Josh.

Thank you, Mayor Dyer, and thank all three presenters. Excellent job, all three of you. Thank you. So, I also want to pile on it. This is a great conversation in general for both bodies.

I'm I'm glad to do this. And so, when I see this, you know, what can we do for to raise revenues? What where can we go to cut expenses? I know no one wants to talk about I don't want about cut expenses today but so it's about raising revenues to me and that is what we're talking about but I also want to add in economic development jobs tourism things that raise the sales tax property tax uh

and so my question after that statement is Mr. Shadow, I didn't my notes didn't re um I didn't take down. What's your projection for next year for the uh real estate tax assessment increase? Is it because it's been about 5.4% or so?

Yes, sir. 2.8% is what the real estate assessor currently has it projected at.

So, my question is, so that's down from maybe 5.4 or so the year before.

In terms of year-over-year growth, yes, sir. But if it still be 2.8% 8% if this materializes at this level above the current assessment base.

Thank you.

Okay, Rosemary and Josh.

Um just two quick little questions. One is what is the cost per student?

Um, and the other question that I had while you're walking up is the and I I saw how where the students with disabilities those numbers are really going up and and I can understand English second language, but can you explain why the uh numbers for the students with disabilities is is going up so much?

Well, I will Yeah. Yeah. So, I'm not gonna I don't want to say what the per pupil cost is. We can get that to you and show you what the per pupil cost is that because we do it by federal, state, and local. That's how we need to report it out. So, I don't want to say it off the top of my head, but I can get it for you and provide you that information.

Okay. It's up. It's up there, but we're not the highest.

Yeah. in in terms of um students with disabilities and their needs. Uh there are there's a been a large growth in students with autism which require specialized settings in their classrooms based upon where they are with autism. That's just one example. Um, also included in uh in consideration is a number of students with 504 that get additional accommodations that are required to help

them meet their free and appropriate public education. So those numbers are going up and their needs are more which really impacts us and personnel.

Okay, Josh.

Thank you, Mr. mayor and thank you everybody for um the reports and um it's great to see everybody. I think this is probably the most conversation we've ever had around the table in the last couple years. um one of uh and and in that spirit I just want to acknowledge uh Kathleen the chair and um the school board members because I think over the last several years we've had more regular and routine dialogue and um and

I think I think the public needs to know that um that we're working together both bodies and we have cordial collegial relationships with one another um and that's and that's a really good thing. Um, on the housing issue, I know the manager mentioned something the mayor did as well, but um, you know, one one thing that struck me was to the mayor's point, um, housing wouldn't be a priority if we

didn't say it was. And for a long time, it hasn't been. And um and for a lot a lot of applicants as they go through the planning process, they go through planning commission and they come to city council and then all of a sudden they hear from city council where's the affordable housing at the very last minute. Um and that's not fair to an applicant because they've spent time, years, dollars um to get to a

point and that was because it wasn't made a priority from the get-go. And I can I I know firsthand several instances. Um, one recently in district 4 with uh Councilwoman Ross Hammond, another one in my district at Cypress Point Shopping Center where we started the conversation with the applicant at the very get-go. And importantly, we started the conversation with the community at the very get-go to try and

explain what attainable housing, what workforce housing means. Um, who are the people that are living among us and and in these places? These are these are people we depend on every day. These are these are our teachers, our firefighters, our um you know our our municipal workers. Um and so we were able to without even a program just just emphasize that it's a priority to the developer that that that be a component

of their development. And what what was it Ailio? Maybe 9 10% of the development was it was was uh was was attainable housing or below below market rate housing. And that was because we asked them and um and that's an important thing for all of us to keep doing. Um um I I want to commend the school modernization committee. Um everybody's been working on that because prioritizing Princess Anne means that

every each and every school behind it gets done sooner.

Um and I've got a couple questions if you don't mind Kevin. Slide 21. Oh there slide 21. My colleague over here to the left asked me why the dip in commercial assessments and it kind of caught my eye too and I tried to make up a reason and maybe I'm right. Um was it timing of construction Atlantic Park like big buildings coming online and then all of a sudden kind of here we are

in in terms of the 25 which which data point the 20 24 to 25 the orange line.

Um, so there there was still an increase, right, of 2.5% roughly. And so what this is is just a snapshot of the year-to-year annual growth of that. So even though it's not as high as it was the year before, it certainly doesn't mean that there was a decline in the commercial assessment base.

Slowing of the growth.

The the one exception to a decline um would be the FY23.

um this step away that data that data point right there.

Uh so um the real estate assessor uses the incomebased approach when assessing um commercial properties and values. And so coming out of the pandemic, there's a very real chance that the reported earnings for a lot of those businesses could have been um down from the previous year, resulting in a uh a true decline in the assessment base for some of those properties, but again, it it's

minor as that line going across there is zero. So there was certainly some ads during that time frame as well.

Understood. Thank you. Um, my next question is for for Crystal. Um, but but before I get there, u, just one more point in the housing is just anecdotal and I'm sorry, just indulge me for a moment. Um, be especially because we're coming up on a zoning ordinance update.

The comprehensive plan um, is about to be finalized and and hopefully approved.

Um, but ADUs um, I just wanted to say this out loud um, because I've got um, I moved into Thor back in 2020. Um there's a wonderful old lady. She's about 85.

Her name is Gimma. Um and she's she's very strong old woman. She lives right next door to me and she owns a construction company. Um shortly after we moved into the house, her husband passed away. Um and she built she built um an an attached dwelling in the back of her house. You can't even see it from the road. and she moved in to the ADU and that allowed her granddaughter and

their family to come, you know, and occupy the house and and you know, so many of our seniors, it's so important, especially with rising health care and uh advanced care costs, you know, people want to age in place. Um so I just wanted to offer that kind of softer side of an example. um where you know this this enables the housing stock to turn over in a wonderful neighborhood and a

family to come together and my mom is actually in town from Detroit and I would love to have her come down here and do that kind of the same thing but also keep and enshrine you know the the the sanctity and the the character of our of our neighborhoods. So, um I just wanted to offer that anecdote, but um Miss Pate, uh the the one question I had for you was the um the actuarial

reserve, uh do do we talk to one another because I know there's different risk pools between city and school employees and and we have different um employee employer side contributions, but but our our our actuarial people talking to one another to make sure that decisions that we make on how much we want to contribute or don't contribute because it's all at the end of the day coming out of the same pocket.

You know, we use the same third party consultant and we work through the BEC, the benefits executive committee. Um, and we do communicate quite often about healthcare. We just have two different situations.

Um, and that's why I think the funds are now separate even though they're consolidated under the school system. We keep things separate. Um and also because of our recent developments, we have been providing the school board periodic updates on a quarterly basis and trying to walk them through and educate them through how the act the consultant projects cost and recommends trends and what cost drivers there are.

And Kevin and and his team are part of that on the on the back end for the city as well.

Thank you.

Okay. Anyone else? Uh, Hutch.

Hey, it's your turn.

Kev, could you go to slide Kev? Could you go to slide six?

Are you Miss Johnson? Thank you.

So when you said that uh earlier it was you know it was significant that you know our payroll was is where it is um what what could you give a little bit more as to what that means to us as a whole you know when you're talking about that the jobs I mean overall job growth of course is going to be your main contributor to overall economic growth we want to see

healthy job growth there's also a question of when labor force growth is slowing significantly, the break even number of jobs that you need in order to have enough jobs to feed the labor force can also be slowing. So there's that factor as well. Um but overall, yes, it's an important contributor to the economy.

Okay. The uh the next question was with the one with the chart with the you had the federal government and all um the decrease in number 2,000 jobs.

Yes. So, was that um I just maybe I missed it. Was that over just that one year we lost 2,000 jobs?

And was that because of Doge or whatever was going on at the time? So, is that an actual number now? Because I know a lot of those folks were hired back and you may have said that some of those folks are hired back, but it's also a continuing. I mean, the OM right now, they're still looking for cuts. So, we saw a huge impact in the beginning with George. Some of those

workers were definitely hired back, but then you also see ongoing cuts as they move through departments. But yes, this is data as of August 2025. So it's over that year range.

Okay.

All right. So that's I mean the other slide you showed about how we are made up of so much of the DoD workforce.

That's significant for us.

Exactly. And that's really the story of our labor market right now. We were just significantly exposed to those federal cuts, right? Which we've been saying for a long time, but it's hard to do is that we should diversify as much as possible.

That's certainly easier said than done, isn't it? Okay. The next one was um the unemployment rate, that slide when you showed the 3.2. So So we're showing all the job losses, but then we're still at a low 3.2%.

How it's how do you make that work?

So the gap between these two lines reflects your unemployment rate. Okay?

Right? Because your civilian labor force or people who are either looking for work or employed, right? And so if they're both going down at the same trend, your unemployment rate is going to stay low. People are dropping out of the labor force. They're not looking for work, right? And at the same time, people are becoming unemployed. So the unemployment rate isn't going to shoot up because both of those factors are

falling at the same time.

Okay, I think I understand. Thank you.

Um, one just a last comment and it really goes to what a lot of folks in now said. uh school board member Melanick and and Councilwoman Rouse and Councilman Schuman. there was all of y'all were hitting all around it and I I know with us um we've had a few we've had a you know referendum and uh a lot of it pitted us against some of us against the developers and I think that

we need to show that this does show how important um workforce housing and that's the mayor and I kind of came up with that a couple months ago is what we're calling is because that's really what we need and to take another chapter out of Councilman Schman's book a little anecdote Um, I was working out at the fire training center the other day and one of the young gentlemen that I hired

um, six or seven years ago came up to me all excited and said, "Chief, I just bought a house." And I was like, "Oh, buddy, that's so great. You know, I'm glad you could afford it, you know, and get that done." And he goes, "Yeah, it's an aisle of white." And, you know, my just like that, it's a little bit of my heart drops, you know, because we need

those folks to be here in the city. So, that's why the grant program, Mr.

manager and everybody that worked on that, Kevin, and all everybody. I think that's such a huge program. Um, we need to support it as best we can and we need the developers to help us build that workforce housing so that our folks do stay here because he literally said, "I got more house in Isa White than I could ever get here." So, that that that bothers me. You know, we we need those

folks here. Anyway, thank you for a great presentation and answering my questions. Thank you, sir.

Okay. Anybody else at this point?

Before you leave, Nikki, I have something to ask you on page um 17 where you talk about the economy stable.

Uh 17.

Oh, yes.

Yes. where you're mentioning to kind of expound on a little bit more about the tariff for example for people to be aware that we haven't seen the full impact yet. If you can talk a little bit more about that.

So as I mentioned before uh the latest inflation rate is around 3%. That's not that far off from where we were even a year ago. We've been hovering around that two and a half three% not hitting 2% yet. And so that full impact of tariffs we think is going to take some time. You also have businesses who are competing against each other. If you're Walmart or your Target, you're going to

try to keep prices low because you have competitors, but that can only be sustainable for so long. So, we think it's going to take time for those tariffs to fully work their way through to prices. We are seeing some initial impact on the most import exposed type of goods. So, furniture and appliance, you are seeing an increase on those goods. uh but we haven't seen a broadbased impact on prices yet and that will take

some time and there's still some question I mean this is very new territory we are at tariff levels that we haven't seen in since the 1930s so there is some question about how prices overall on the broad um range will be affected moving forward okay so we need to brace ourselves for that and then you mentioned about the international migration what group are you talking about.

So these when we think of population growth it's domestic migration, international migration or the natural change that birth minus death. Natural change has slowly declined over decades now. International migration in Virginia Beach and in Hampton Roads has been the largest contributor. I'm sure many of you know that we have consistently face net domestic out migration over time. So

when we think about the immigration policies that are happening, a lot of it is focused on illegal immigration, but there is definitely talk about legal immigration. And so if we do see an overall decline, it will be an outsiz impact for our region relative to other areas. It depends on where it's focused of course. So there is a question, but it is important to consider.

Okay. Thank you. And I also wanted to mention about attainable housing. As an example, I'm district four and right now we have uh 180 affordable housing that's going to be coming in right off the U Simon outlet mall along Burton Station.

We also have um 345 market rate, but between Councilman Schumman and myself were able to get down, convince the developers for a certain percentage to be affordable. And one thing we noticed, they listened to us, they went back to the table and came up with a solution. So sometimes it's a matter of bringing this forward, sitting with them one on one, letting them know how important this is for us. Thank you.

And then I wanted to ask to do with the schools.

I'm a little puzzled on I know you mentioned about u the percentage 90 95% of the students 90 I think it's 96.9 our graduation rate it's preliminary right now right and how does that weigh with what's going on as you've mentioned to do with those that are disabled those how do they fit into this um whole conversation? Thank you.

So the overall graduation rate includes all the students that we serve, English language learners, students with disabilities etc.

Okay. And that is that 96%.

That's the overall percentage rate. Um our students with disabilities have all of our subgroups have a higher graduation rate than the state mean in every single category.

Yeah, that's excellent. That's why I wanted to just make sure I heard what I heard right. Congratulations to the schools.

Thank you, Melinda.

Thank you.

Thank you so much. U Mr. Dehaney, you talked about the housing study that was done. Is that available?

A schoolboard member? Yes, it is available. If if possible, we can send it over to Dr. Robinson and he can share it with the school board. It was done um probably in 2024.

Okay. I'm just curious.

Yep. Okay. And then thank you so much.

Um and I also wanted to thank you um mayor for hosting us here today. It's awesome that we are able to get together. I wanted to make one comment that um Vice Mayor Wilson made about our military. Um I don't know if it's ever been brought up here, but Virginia Beach is one of the cities that military families can come to if they have a student with disabilities. There are

very few cities in the country that can service students with disabilities which then does impact our numbers. But it is important to um understand that because we can provide services and we want to maintain our our connection to the military and maintain those services for our members that they can come to us that that's going to increase our numbers and our cost but it's also going

to service the people that are here.

Uh very well stated. Very well stated.

Okay. Anybody else?

Okay, Kathleen, you got any uh closing statement?

Closing thoughts here? I just want to once again thank everybody for, you know, coming to the table. I think this is great and I would encourage um city council and schoolboard members alike to reach out and make sure that we maintain our relationship with our city council members. Um you know, we have 86 school buildings. Um you know, we're working on the Jericho Road um now. So, we have

found some creative solutions and we continue to work on that. Much like you guys have competing needs, we do too.

And what's good for our city is good for our schools and vice versa. So, I appreciate um the partnership and collaboration.

Thank you. And I just want to thank everybody for coming. Collaboration is going to be the key going forward. I think it's going to be obvious that we're going to have a lot of shared challenges and a lot of shared pain together, but I'm pretty sure that every city and municipality in this great nation of yours is going to be having, you know, the same conversation. You know, we're still reeling in a lot of

way from the uh effects of CO both in terms of uh inflation and, you know, certainly impacted uh education across this great nation. And but once again we can get through it but we got to get through it together. But the way we get through it we have to confront the realities. And the reality is that you know life is very expensive right now.

And a matter of fact that we have to confront that we did a little study and out of our 97.5 cents approximately 30 cents of that between our city and schools is unfunded or underfunded mandates.

and you know, kind of uh Hutch and a few other folks hit on it. We're an aging city both in terms of infrastructure and especially folks myself who are at the peak of the silver tsunami uh that's coming here. All of us baby boomers are uh you know growing on and they have needs you know our sewers are deteriorating and you know need repair.

Kathleen mentioned you got 86 school buildings. You know, that's quite a few uh buildings and the city owns a number of buildings that need repair. And the thing is, and I think Hutch, I really appreciate you bringing it up. You know, we're going to have to find new revenue sources to you know, frontront the future if we're going to be successful confronting the future. And the way we

do that is with collaboration. So, you know, let me just, you know, along the line what Kathleen said. You know, I think we need a new sense of partnership not only with city and schools, but, you know, with our delegation in Richmond going forward because they're going to be very uh proactive in, you know, helping to determine and shape, you know, the future that we're going to be going. And we do that by civility,

mutual respect, and, you know, sometimes things we're not seeing uh these days.

But we're different here in Virginia Beach. I really do that. You know, we got a council to get us along. We get along with the school uh uh board and everything. And it's the idea is about building those relationships and, you know, putting our personal needs aside and partisanship aside. you know, let's get together and figure out what we have in common, not what we have dividing us, and let's go ahead and move

forward and, you know, show the rest of the folks how we get it done and they can get it done, too. So, once again, thank you all for coming.

We're uh plan to get together again sometime around budget