Good afternoon and welcome to the Hampton City Council work session.

Um this evening we oh it's afternoon uh clerk is not able to join us today, so uh filling in for hers uh deputy clerk uh Tammy Lee.

And so I'm gonna ask the deputy clerk to call a roll.

Councilman Bowman, present, Vice Mayor Brown, here councilwoman Campbell, present, councilwoman Fairby, present.

Councilwoman Harper, Councilwoman Muggler, Mayor Gray.

All right, here and Councilwoman Muggler and Councilwoman Harper will not be joining us today, both uh taking care of uh business uh that prevents them from being with us for either the meeting.

So with that, I'm going to ask the city manager to uh introduce the first item.

Thank you, Mr.

Mayor.

Um, today is all about budget as we're actively in the budget season.

As council members know, and hopefully the community knows, over the last few weeks we've been conducting our annual I value budget input, giving residents the opportunity to weigh in on their preferences as it relates to uh certain key expenditure items before the community as well as revenue options.

And today we are going to be presenting the results of that uh polling that we did.

I want to stress now, and I'll I'll say at the end of the presentation again that this is preference polling, it's not voting because ultimately it is the uh city council that makes the final decisions on the budget, and the manager makes a recommendation based upon this input, which I very much value, but also other considerations that we must take into account that maybe the public isn't aware of at the time that they're polling.

So this is information, it's very valuable information.

I want to thank all of the people who took time to either come in person or to fill out the online poll and assure you that this input is very much appreciated and will be used in shaping my final budget recommendations, but it does not always equal to an absolute um match because there are some things that I have to take into account.

Um, and we'll talk more about that in two weeks when I present the preview of the actual budget.

Um but for today, we're gonna be sharing first the I value results, and then after that, Mr.

Daughtery will share where we look to be with revenues.

So I'm gonna turn it over to Mary Fugier, who has been heading up our conventions and visitors bureau as well as our marketing and communications office to give you the results.

Good afternoon.

Good afternoon, Mayor Gray, Vice Mayor Brown, members of council, City Manager Bunting, and City Attorney Sid Noor.

I also, as Mary did, I would like to thank everyone who took time to express their opinion and the budget polling process.

Whether they attended in person or online, their input is greatly appreciated.

We conducted a multifaceted campaign with website presence, social media, e-news, and the distribution of approximately 60,000 postcards to Hampton residences.

We combined engagement, the combined engagement included more than 90,000 social media views, more than 3600 uh Thursday, I'm sorry, more than 3600 Thursday, March 5th Facebook live views with more than 125 live comments, 49 in-person participants, and more than 650 online responses.

Excuse me, 12 percent, age 20 to 34, and approximately 30 percent of each age range 35 to 49, 50 to 64, and 65 and over.

Both times the answer no change was the majority response received with a bump of 5% seen at the end of the polling presentation.

We additionally asked whether residents were open to increasing the real estate tax rate to cover the cost of unfunded state mandates in order to maintain current services, and 63% responded no.

Related to stormwater fees, 54% prefer to either continue with previous guidance of increasing the fees by a dollar, or to being more aggressive with fee increases to fund necessary projects.

When polled, 67% support at least a 10% increase in fees.

We saw 32% of those polls supported an 80% city to 20% employee division of cost, and a 52% majority supporting the historical division of cost or higher between city and employees.

Project funding requests that would impact the city operating budget were shared.

We asked participants to rank them in order of importance.

The top ranked operating budget priorities were homeless transition housing for the human services and community services board.

The upgrade of three permanent full-time positions, a full-time lieutenants to captains, and funding for five permanent full-time medic and firefighters for the fire and rescue division.

One permanent full-time paramedic pharmacy technician for the fire and rescue division.

Funding for the sheriff's transition and re-entry program known as STAR Pathway to Success Program, and Small Business Development Center funding for an outside agency.

The projects that ranked highest included improvements to 911 emergency communications platforms.

With the second hearing on May 6th, and the final council vote on May 13th.

Thank you very much for allowing me to present these results.

So, Mr.

Mayor, you know, just to give a concrete example.

Whereas the majority, if you looked at where did you get over 50%, it it really uh took the 50% or more of the population supported two and a half or higher.

This is an example of where I'm not going to be comfortable aligning perfectly with the public input, and that's because we're seeing cities release their budget, Newport News released their budget yesterday as an example with a three and a half percent increase for their employees.

So if we go too much you know lower than what our neighboring localities are, what do you think that does?

I know I'm asking a rhetorical question for council, but for the public, that maybe has our employees look to go to another locality.

So we're gonna need to that's something where I have to keep managerial discretion at least in the manager's recommended budget to be able to say, I understand the public said this, but the public may not have known just as I didn't until they released their budget exactly what every other city was going to do.

But as cities are starting to roll out their budgets, um, some have already released some will be doing over the next two weeks.

I'm hearing that it localities are likely to be in that three and a half percent plus or minus range, and so for us to go to two and a half percent would not be right for our employees.

So I I always want to explain to the public, you know, why we ask.

We really do care, and I think you'll see a lot of alignment, for instance, with those top operating and capital priorities, as well as some of the recommendations we've talked about with fee increases or tax rates, but there will be some areas such as this one where I will just feel compelled to deviate from the public input because I have more knowledge about what's going on than we knew at the time we were asking people to.

So when I do release the budget, we will do a reconciliation of that and show people so that they don't feel like their time or energy is wasted because as we said at the outset, we very much appreciate anyone who takes the time to learn more and to participate.

It helps to give us a stronger community-based budget.

But um, we we will have some changes we need to make along the way.

Okay.

Questions, comments from council members.

Okay.

All right, thank you, Mary.

Oh, sorry, Councilwoman Ferraby.

Oh, thank you.

Uh, thank you, Mr.

Mayor.

Uh, Ms.

Fuzier, I just want to thank you and your team for consolidating all this data uh together, and just to foot stop um with the what the manager just indicated, it's clear that 40% of the population wants to ensure that staff members do receive competitive wages before considering other priorities.

And in the way I look at um the spread of uh the feedback, there it appears to me.

If you look at the somewhere, it looks to me like we the majority, even though it's only 27 percent, do favor a higher um pay increase, and I appreciate you factoring in what the surrounding cities are doing, especially since it is a priority from the uh community as well as our mayor to make sure that our staff is uh compensated and with competitive salary.

So I appreciate your uh your words about that as well.

Thank you.

All right, thank you, Mary.

Appreciate your uh work on the survey, and so uh ask city manager to uh introduce the next item.

So uh now you're gonna get the revenue presentation from our chief financial officer, Carl Daughter.

Um, as he's coming up, I'm sure he'll mention this, but I want to make sure that I echo it up front.

We don't have a state budget right yet, um, which means that there's some holes.

I mean, we know what we got last year, and it's probably pretty safe to assume that we'll get what we got last year.

Um, there's some things that we were tracking that would positively impact us in our budget deliberations.

Um, but the state hasn't finalized their budget yet.

So um we're once again in that awkward position where we don't have perfect revenue estimates for you.

Uh Mr.

Dottry will talk about how he's adjusted for that or not adjusted for it in the budget process.

There's also um some things that we know will happen because of General Assembly action, assuming the governor doesn't veto them, but they're difficult to estimate.

For instance, I'm sure people have been tracking uh marijuana retail sales, and there'll be a sales tax associated with that or skill gaming, and there'll be a sales tax associated with that, but we really have no way of tracking or estimating what we might expect to get from those two revenue sources.

So uh those are also obvious holes right now, and and I think most localities are taking the position that since those are yet to happen, and won't happen in some cases until uh actually calendar year 2027 that we won't be planning for those revenues um at this point in time.

So just wanted to say that up front, given that we are in a place where we don't have the state budget right now.

But Carl Dottry, as you know, does a really good job of projecting what he is able to look and forecast into, and so we're pleased to have him give you a sense of where he believes the revenues will show up this year.

Good afternoon, Mayor Gray, Vice Mayor Brown, City Council members, Mayor Murray, um excuse me, City Manager Bunting, and City Attorney Sid Noor.

I'm glad to be with you today to talk about preliminary revenue projections for fiscal year 2027.

Um the revenue process and development process is a collaboration between many departments.

Um I work with the treasurer's office, the commission of revenue, the parks and recreation, the fire department, and many other departments.

Um but behind the scenes, there's one of my staff members, Sybil Ellsworth that does a lot of work to help me produce this final product.

Uh I want to talk about some factors that we consider in developing the revenue projections.

Um the first one, the revenue budget is built on the real estate tax rate of a dollar fourteen per 100 of assessed value.

Um then moving on, talking about the economy.

While the national state and the Hampton Road economies expect modest economic growth for 2026 and 27, we see that the state is seeing a shift in employment.

While federal and manufacturing jobs have declined, we see growth is pretty strong in health care.

Defense spending remains an anchor for our regional economy with the fiscal year 26 defense appropriation bill, including pay raises for service members and increased shipbuilding investments.

And one of the things that we also see is that the retail and tourism sectors have cooled as customers spend more cautiously.

This is a slide that I really demonstrate uh the actual performance of the budget over a 10-year period of time.

That white line represents one if we met 100% of the revenue budget.

So all of the green bars above that 100% budget, meaning that revenues were able to exceed the budget.

So one of the strengths of the city revenue budget processes is that we're conservative.

And as a part of that conservative process, it enabled us to deal with some of the economic risks that we may encounter during the year that we can't predict.

As Ms.

Bunty indicated, the General Assembly adjourned the session without agreeing to a budget for fiscal year 27 and 28.

The Senate wants to eliminate the sales and use tax exemption for data center computer equipment and software.

While the House wants to maintain the exemption.

So the legislative asked the governor to convene a special session on April 23rd to finish the budget.

So we don't have a state budget.

And so what I've done as a part of developing the preliminary revenue estimates, I have adjusted the revenues for public assistant programs.

Those are federal and state revenues related to those public assistance programs.

And also for our Virginia Department of Transportation, urban maintenance funds for our roadways.

So I've adjusted those two road uh revenues.

Um HB 599 funds, um, constitutional officers.

I have not made any adjustments for those.

And hopefully, as a part of the state budget process, we'll have those numbers to make some adjustments uh probably after the city manager submissive budget.

Uh wanted to make you aware that the General Assembly adopted two bills that create new revenues for local governments.

Um is the creation of an adult use cannabis retail market starting January 1st, 2027.

Um cannabis products will be subject to a 6% exercise tax in addition to the Commonwealth's 5.3% retail sales tax, with local governments allowed to impose an additional sales tax of up to 3.5%.

In addition, the law markets also approved legislation creating a statewide regulation system for electronic gaming devices known as Skills Games.

The state is imposing a 25% gaming tax on all gross profits.

We will receive 15% of the revenues described from those gaming taxes.

Both of these bills uh may be changed during the upcoming budget process, and in addition, the governor must sign these bills.

So we don't have enough firm information to provide revenue estimates, but as soon as the bills are firm uh finalized, we will work with the commission revenue office to come up with some estimates.

And before I move on, Mr.

Darth, uh Vice Mayor Brown.

Yeah, thank you, Carl.

Uh, on the on the gaming tax revenues, uh when those funds come back to us, are they restricted?

How they can be used?

They are not restricted.

No, they're not.

What effect do you think you may talk about in your presentation that we'll have to have on us as a locality?

Well, that's the revenues.

That is a great question, Councilmember Brown.

As a part of developing the revenue estimates, I did consider um the potential impact of a war, and uh, but for now I have assumed that the war would be short-lived and have no long-term impact, but we do see some short-term impacts of the war is raising uh fuel prices, uh which impact you know the consumers' ability to spend.

We're hoping that that will not be a long-term trend.

So uh and so for purposes of developing the budget, I've assumed that the war would not be a long-term war.

Okay.

Um this slide really looks at the budget, the revenue budget for 2027.

Um you look at the first line, recurring revenues, these are revenues like general property taxes, uh other local taxes that there occur year after year.

So we're projecting 472.6 million dollars in recurring revenues, which is a 15.9 million increase over fiscal year 26, and a three and a half percent increase.

Um as I go further in the presentation, I'll talk about some of those main drivers of that 15.9 million.

The second line looks at one-time revenues.

These are revenues that we use from our fund balance.

Uh for fiscal year 27, we're planning to use 9.8 million dollars, um, which is about 4.47 million less than 26.

And if you recall, most of the revenues that we use from fund balance is for our capital improvement plan.

Um for fiscal year 26.

Uh, we did use five roughly five million dollars in some for the our equity share in the Western Tidewater regional jail.

We received proceeds from the sale of the Hampton Roads Regional Jail, and we used about five slightly over five million dollars for our equity share in the Western Tidewater.

So we didn't have that recurring uh revenue source in 2027.

So when you look at the 15.99 million increase in recurring revenues, 11.2 million is available for council general appropriation to be used for general purposes.

The other 4.7 million is committed for specific and dedicated purposes.

And let me talk about some of those specific and dedicated purposes.

Uh, one of the commitments that council has made to the school board is that we will share based on the school funding formula 61.83 percent of residential real estate revenues, personal property, and utility taxes with the school based on the funding formula.

We are sharing 2.8 million dollars more for fiscal year 27 with the school system.

In addition, um, we also um for the I I mentioned to you that we were increasing the revenues for the VDA urban maintenance funds, those funds are dedicated by the state to be maintained for our urban roadways.

Um we are projecting a $69,000 uh related to that.

And one of the things you'll see in the budget process, we do anticipate an increase in business license tax of roughly $525,000.

Um and we anticipate most of that increase is related to the construction that's going on at Hampton Roads Bridge Tunnel.

So they we did not want to program those revenues as a recurring revenue into a budget process because once the construction is completed, those revenues are likely to decline.

So we are using that revenue source for business license tax as a one-time revenue source in the capital improvement project plan.

So those are some of the commitments, the the main commitments that we are making.

We also have the two plus two mill and lodging tax commitment that we make to the convention center.

Um, and we have the commitment that were the special assessment revenues for the CDAs as well as the bids.

So those are the primary commitments that cover the 4.7 million dollars.

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

Questions from uh council members.

Okay.

The main drivers in growth and revenues is real estate assessments, other general property taxes, the per mutual tax, state and federal revenues, and charges for services drive all overall growth for 2027.

Before I talk about some of the revenues, I wanted to really talk about the revenue categories.

You're see uh me throughout the presentation to talk about general property taxes and other revenue categories.

This slide really gives you a snapshot of the main revenue sources included in each revenue category.

For general property taxes, for existence.

Example, you have current real estate, current personal property, you have delinquent real estate and personal property taxes, you have public service corporations, you have the bid real estate taxes, special assessments for the community development authorities, the Elizabeth Lake Service District, and Machina Tool tax.

Those are some of the more significant items that are covered under general property taxes.

Under other local taxes, we have our business licenses, our sales, mails, lodging, communication, and emissions.

We have our per mutual cigarette tax and bank franchise.

The licensing permit fees, that's primary by building permit fees, our zoning fees, our animal license, and our tax rival permit fees.

And then under fines and forfeitures, we have our traffic penalties, our court fines, our special assessments for the sheriff court security, and the criminal justice trainer academy.

And we also have the school speech zone fines and the red light photo enforcement fines.

And revenues from use of money and property.

This is primarily the interest income that we earn off of interest from investments.

We have rental shelters and from parks, billboard revenue, and rental special event equipment.

Charges for services, this is primary revenues from uh fee-based programs like parks and recreation leisure services.

We have the EMS transport fees, the fees for school age programs, the payment of Lua taxes for Fort Monroe, the host fees for the landfill and fire inspection fees.

Under miscellaneous revenues, we have reimbursement for radio maintenance, uh services provided to the school, and indirect costs that we recover for some of the other funds.

And under state and federal revenues, we have our HB 599 funds, we have recovered costs that we get for the NASA fire station, uh, the jail perim we get from the state, we get shared expenses for the constitutional officers, uh, public assistance for juvenile block grant and public law library books.

I just wanted to give you a flavor of what was under those categories.

The first uh category I want to talk about is general property taxes.

We're projecting a 2062 point four million dollar um revenues for general property tax, which is an increase of about 10 million dollars over 26 over 4.4 percent.

Of course, the main driver for this is real estate taxes.

Uh, real estate taxes based on the tax rate of $1.14 per 100 of assessed value.

The assessor is projecting that total taxable assessments will increase about 4% for 27.

And that's a kind of a weighted average.

Um this 4% increase translates to $7.2 million increase in revenues.

Revenues will go from 184.2 million to about 191.5 million.

This one revenue account makes up 40 percent of our revenue budget.

And and that is pretty typical.

I looked at Newport News and see what their real estate taxes made up, and it was about 40 percent of their budget.

So it seems to be in line with other localities.

Um there's no change in the collection rate, 98.4 percent.

The treasurer's office does a great job in collecting taxes.

Um, and so that rate has been consistent over the years.

Um each penny of our real estate tax rate generates approximately 1.7 million dollars.

And I wanted to just for informational purposes, show you what some of the other localities are experiencing in terms of real estate assessment growth.

Um it ranges from 3.52 percent with the city of Chesapeake all the way to 6.01 percent for Porschman.

So there's a range of increases in assessment values.

And before I move on, want to check and see if there's any questions.

Any questions, comments?

Okay.

Keep on.

Um want to move on to our second largest uh revenue source, personal uh property taxes.

Want to talk about some of the general factors that are impacting 2027.

A new car sales in 2026 are projected to experience a slight decline for forecast pointing to about a two to three percent decline from 2025.

This cooldown is driven by high vehicle prices as well as higher interest rates.

With the overall used car values are expected to remain relatively stable, we do anticipate an influx of uh vehicles ending their lease terms coming into the used car market, which will impact the used car values.

The other thing that we see is is that used electric vehicles are experiencing the most significant drop in value due to the expiration of the federal tax credits and increased supply.

So uh so and and working with the commissional revenue and the analysis performed by the commission revenue, it shows that our assessed values for the city for calendar year 2026 are expected to be flat when compared to 2025.

Um actually, when I look the Newport News' budget that they released, and they do also expect their values to be pro flat.

So based on that information, we are adjusting the fiscal year 27 personal property taxes to the actual revenue collections for fifth year 25.

That is at 52 million dollars, an increase of 1.00.

Um person property represents about 11 percent of the total revenue budget, and and um so what we see is and expect is that 26 uh revenues will track along with 25 because they're you know pretty much a flat revenue budget.

And so we ended the fiscal year 25 on a positive note with revenues exceeding budget, and so we're making the assumption that we will at least generate the revenues that we generated in 2025.

Um we are projecting the collection rate of 90 percent.

It is lower than uh the real estate tax rate, and traditionally because personal properties uh those uh assets are movable.

Um it takes a little bit more collection effort to do, but that is a great collection rate.

Okay, before I move on, any questions?

Okay, moving on to other local taxes.

The we are projecting 108.6 million dollars in other local taxes, about a 2.5 million increase over 2% overall increase.

The largest five other local taxes are meal tax, sales and use tax, a business license tax, a lodging taxes, and communication sales tax.

These five taxes make up about 78% of the total local taxes projection.

On the next slide, I'll talk about give you some factors that are driving the revenue projections for 2027.

When you the revenue, these revenues are a question back to your previous slide.

I know you say you may cover this.

I my question was related to the uh communication sales tax.

So are we charging the same rate that the state charges, or are we given an opportunity to uh add an additional tax?

I'm not exactly sure how to tax.

We are required to charge the state rate, which is five percent on all telecommunication, and that that rate is set by the state.

Okay.

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

Right.

But like cable, cell phone, telephone, those kinds of things.

Okay, and and the reason for asking was because I've um I'm just kind of wondering what the General Assembly's reluctance is to give us uh bigger cut of that tax now because we're collecting less less tax now on you know hardwire cable, I guess, and and landlines, and uh because you know now we got cell phones, we got streaming services and all of that.

So if it's all still taxed at five percent, I'm just you know, I I just think at some point we got to put a uh greater emphasis on uh giving us more of a the share of those taxes since uh we're losing it elsewhere in the or apply it to the chefs, you know.

So like it one time it was only landline, and then they did out at cell phone as people moved to cell phone, but we haven't the state hasn't made the adjustment for as people move from cable to streaming.

So if they move they put the same tax on streaming that they put on cable, this likely wouldn't be going down.

So we are getting that tax on cell phones.

Okay, so we used to charge these individually as a set of localities.

All localities had a cell phone tax or a cable utility tax or a telephone tax.

The state came in and made this larger uniform state telecommunications tax that we send to the I mean, basically they collect on all the bills and then they divvy it up, and they take their administrative cut off the top and then they send it out to localities.

So there are a couple things that have gone over the years.

One is that we lost the ability to administer it locally, it's done statewide.

Two, they take an administrative cut for their application of the program.

So we lose some of the revenue through that, and then three, what you were talking on the shifts in patterns of usage and and not keeping up with modern technologies.

So all those factors have resulted with where we're at.

Yeah, one of the factors is that we've seen a lot of people uh take out their landlines, and that's you know, that had a definitely impact on the communication sales tax.

Um the state did have a group that they kind of a uh committee to look at the sales tax and make some recommendations, but there was nothing that ever came out of those recommendations.

The General Assembly did not take any actions on the recommendations.

Well, I've been I've been holding on to my call, but I don't know how much longer I'm gonna hold on to my landlines.

Right.

Um the sales lodging, mail emission, and communication sales tax are consumer-driven taxes.

That means they are really sensitive and impacted by the economic climate, the economic conditions.

Um in general, we we have seen a decline in some of the consumer-driven revenues, or we've seen slower growth, and I'll talk about those in detail on the next slide.

Um, as I indicated to you previously, the Hampton Roads Planning District Commission reported a decline in year-to-date retail sales and hotel revenues for the Hampton Roads economy.

This slide really um in this table, I will talk about those individual revenues, but before I do that, I wanted to kind of um talk about one of the big factors that have had an impact on the Hampton Roads economy.

If you recall, we lost about 6,000 federal civilian jobs in two from from 224 to 25 as a part of the government reduction process.

And those 6,000 civilian jobs have definitely had an impact on the Hampton Roads economy.

So that's one of the things that we are seeing.

The other thing is that we're seeing someone's to be more cautious and you know, and being more discretionary about how they spend their discretionary funds.

So those are two of the overall big picture impacts that we're seeing.

When you look at mill tax, mill tax, if you look at mill tax from 18 from 2018 to 2020, it grew over six percent annually.

Um in 25, it ended uh the fiscal year of about a growth of 1.6 percent.

And so, based on those trends that we're seeing slow down in mail tax, we are projecting a growth of 1.3 percent of about 400,000 in mail tax.

Um sales and use tax.

Um we you're saying that we are expecting a reduction of 1.5 million or 6% for 2026.

We budgeted a 1.5 million dollar increase in sales tax.

It's not happening.

We're not realizing it.

And so we are basically collecting in 2026 what we collected in 2025, and so that's why we are adjusting sales tax back down to the actual trend.

Um business license tax.

We're projected to collect 17.3 million, which is about 600,000 more than what we uh project to collect for 26.

Most of this is driven by the construction at the Hampton Roads Bridge tunnel.

Um we have not programmed this revenue as a recurring revenue.

We are using this revenue as a one-time source in the capital improvement project plan so that when in the future when this revenue goes down, it won't have an impact on our recurring revenues.

And so that is a conservative move that we decided to do.

Lodging taxes, we are projected to decline by 300,000 or 4.3%.

As I indicated to you, the Hampton Roads Planning District Commission is seeing a year-to-date decline in the hotel revenues in the region.

But also one of the things that Murray Fujirus shares with me is a monthly report by STR.

And it looks at lodging in our region and specifically, it looks at lodging specifically for Hampton.

And one of the metrics that we look at is the average daily rate.

This is a measure of income generated from rooms sold.

When you look at that on a 12-month basis from March 2025 to February 2026, that metric is down three and a half percent.

And communication sales tax.

One of the things that I was surprised about this trend, this tax has gone down every year since I remember.

So overall, we are projecting 85 point zero million, which is a reduction of about 800,000 in these five local taxes compared to 26.

On the on a bright note, um per mutual license tax.

Uh you know, has definitely been affected for the city.

So, but we we have a change that the General Assembly approved.

Starting July 1st, 2026, the distribution model for sharing revenues will change.56% local share of the Peromutual Pool.

We used to previously had to share it with the racetracks localities, New Kent County.

And so for 27, uh our revenues are projected to increase by 3.3 million dollars to 5.9 million dollars.

So our revenues are basically will double for 27.

Um I work with the commission revenue.

They double checked it, triple checked it, and uh and based on their uh calculation, we will receive about 3.3 million dollars more in 27.

The cigarette tax um, we continue to see a decline in revenues due to a decrease in cigarette consumption and the increase of uh use of electronic cigarettes.

Um those electronic cigarettes are not subject to the tax.

So we are projecting revenues to decline by 287,000 or 9.4 percent to 2.7 million.

Um if you're sorry I didn't mean to cut you off.

I thought you were gonna end your slide.

I was just gonna ask Mr.

Mayor if I could clarify for the public since we saw some traffic on this on social media this week.

Electronic cigarettes are not subject to the tax, not because council hasn't chosen to do that, but because the state doesn't allow localities to apply this tax to vape products and electronic cigarettes currently.

Um, this council did include a proposal to be able to charge it on those products in its General Assembly package this year and in past years, and to date, we've been unsuccessful in being able to get the authority for localities to apply it to these other devices that have emerged over time.

So I just wanted to make that clear because I saw a lot of social media traffic over the last week or so of people saying, why aren't we charging vape shops for the same you know, kind of taxes?

But it's not because we've chosen not to, it's because we're not given that right currently by the General Assembly.

Thank you for allowing me to interrupt.

Um there was a bill in the 2026 General Assembly concerning this, but it did not pass.

So license permits and other fees.

Um we are projecting revenues of 1.6 million dollars of a decrease of 283,000 or 15 percent decline.

Um you look at the data from the Hampton Roads Plan District Committee's uh commission's March 2026 economic monthly report, it shows that year-to-date new construction builder permits remain well below last year's pace, down 20.2 percent with compared with the prior year.

So when we look at our uh build of pre rent revenues, we also see a decline in our revenues.

Um therefore, based on this trend, we have reduced the budget by 283,000 for fiscal year 27.

Fines and forfeitures.

We are projecting the same amount that we projected in 26, so there's no increase or decline in this, and the two primary revenues included in this projection is the are the uh red light photo enforcement cameras and the school uh zone school zone safety for photo enforcement cameras.

Um we have three V dot funded red light photo cameras in place.

Um the revenues are tracking to exceed the fiscal year 26 budget projection for the schools uh zones photo enforcement cameras.

We have deployed cameras at 13 locations.

Um we also have a corresponding offsetting appropriation in our non-departmental for the cost of this program.

So basically we're using all the revenues that would from the school uh zone photo enforcement cameras for the direct cost of the program.

These revenues are tracking slightly under the 2026 revenue projections.

Um did want to make you aware there is a bill that passed the general assembling assembly that's restricting the use of these revenues to direct program costs, and any remaining funds out of the direct program costs must be deposited into a dedicated local fund and must address needs and how we work zones, high-risk corridors, and school crossing zones first, and after then you can address traffic safety needs.

So there, you know, as a part of the 26th General Assembly, we these funds will once the governor signed will be restricted and can't be used for general operating budget purposes.

Public works will continue to study the other 10 school zone locations to see if there is a significant speeding in the zone.

And so before I move on, if if you have any questions.

I do have one question if you go back to that slide.

So the 5.4 million that we're getting.

Um is that all from red light cameras?

Well is there other people?

We but we budget 3.1 million for school speed zone cameras.

We budget 1.2 for red light.

So most of this revenue is related to those two items.

Okay.

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

For the school speed zone cameras.

So we're we're not netting any we're not using any of those revenues for general operating budget purposes, and we didn't do that because we we we knew that potentially the general assembly would come back and restrict those revenues.

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

Yes, yes, we are we are budgeting it for direct program costs.

Okay the cost that we have to pay the verbal mobility which operates the cameras on our behalf.

Okay.

So all of the revenue goes back into the program.

Yes.

Okay.

We have not spent all of the revenue that we have taken in because not all of it we have had expenses for, but we didn't want to budget for things because we knew the General Assembly was changing it.

Right.

So this year we identified things that besides the versus uh the verbal mobility cost that would qualify.

So for instance, um things that deal with school safety zones, um, like improving crosswalks, um, improving guardrails, things like that we can use it on.

So we've been carefully looking at the legislation to see how we could align any net revenue to expenses that are approved, but it doesn't go to offset anything in the general fund.

Okay, because the you know the perception that I guess that's portrayed in the in the media is that you know the localities are racking up a lot of money, you know, at the at the expense of those that you know speed or don't pay attention or whatever.

But if it we're not doing that, I I don't know how you counter that, but that seems to be a reason that the General Assembly is given for you know wanting to control how and what we do with the money because they're seeing us getting a lot of revenue that at least here in Hampton we're not getting.

To be clear, the red light photo enforcement money we did use for public safety in a more broad way, not just for the specific zones.

Whereas the school zone camera things, they they're more specific in the legislation, but we could use them for broader public safety purposes.

Uh we cover first all the costs associated with the photo enforcement program, so that's the cost for the cameras, as well as then, for instance, as Carl mentioned here, um, the extra officers' time that we need to review the cameras and things like that.

But to your point, no, we're not using it to just massively subsidize the general fund budget.

Okay.

Okay, revenue from use of money and property.

Um, we are projecting six point five million dollars, about a hundred and eighty-two thousand or three percent increase.

This revenue category is primarily composed of interest income we earn from on our cash balances and investments.

Um, one of the main driving forces for interest income is the Federal Reserve short-term benchmark rate.

We are projecting that the Federal Reserve would cut the their short-term benchmark rate once in 2026 and twice in 2027.

So, based on this assumption, we are projecting an interest income asset of about 6.2 million dollars for fiscal year 27, which is about 156,000 greater than fiscal year 26.

Uh, we had as a part of our conservative budget process, we know that when the interest rate comes up, interest rates will come down.

And so we didn't want interest income to have a major impact on the budget process.

So we have channeled this 156,000 into our Calp improvement program.

So when the when the interest rates come down, we will reduce our Calp improvement program so that doesn't really offset any recurring budget expenditures.

Um charges for services, these are fee-based programs.

Um we are projecting approximately 12 million dollars of 1.1 million increase over 26 of about 10 percent.

The five largest revenues in this category are EMS transport fees, host fees for landfill, um, the fees for school age programs, the payment and lower tax for Fort Monroe, and the park recreation leisure services fees.

Uh, when we look at EMS transport fees, we are projecting about 256,000 increase in revenues.

We do see a somewhat increase in the number of transports.

So, based on those current trends, uh, we are budgeting about 256,000 more.

Host fees for landfill the wheel uh waste management operates the landfill on the behalf of the city.

They pay us a host fee.

That host fees has been increasing over the last couple years because of the tonnage that's been deposited at the landfill.

So we based on those trends from the past two years, we are increasing this revenue source by almost six hundred and seventy thousand dollars.

Um so that is the largest increase in this uh uh charges for services, and finally the fees for school age programs.

This revenue, um, as you recall, we are uh programming a 10% increase in fees, and that 10 uh percent increase in fees results in about 161,000 increase in revenues, and so um, and that is programmed as a part of 27 budget.

The pavement and lure taxes, Fort Monroe is staying at the same level of 26, which is 983,960, and the park recreation leisure service fees are also at the same level of 1.1 million for as 26.

So those are the primary drivers for charges for services.

Increase or 1% increase over 26.

One of the two main revenues in this category is reimbursements for Hampton City schools.

They reimburse us 50% for the cost of operating a procurement office.

And they also provide us reimbursement for school resource officers.

So their cost is increasing roughly almost $30,000 for fiscal year 27.

And the other part of the increase is related to administrative fees for delinquent taxes and charges.

When you have a delinquent fee or tax bill, there is added on to that bill a $30 administrative fee.

And so we are seeing a slight increase in the trends for that revenue source.

State and federal revenues.

So we've only really adjusted two revenues.

We adjusted state and federal revenues for public assistance.

So that's about 1.5 million adjustment, and that's based on historical trends.

The VDI urban maintenance, we've adjusted that about $700,000, and that's based on what we are collecting for 2026.

As the General Assembly adopts the budget for 2027, we will make adjustments to those other revenues like HB 599, state constitutional officers.

Now you do see a 31,000 adjustment in here for recovered costs.

That is for the NASA fire services.

We have a contract with NASA, and they and that's the increase that we expect for 27.

And this is the last slide before we get back to the summary slide.

This slide looks at transfers and the use of fund balance.

As I mentioned to you previously, we had programmed in the 26 budget $5 million for the Western Tide our equity share in West Entidewater.

We don't have that same cost in 2027.

Excuse me, it should be 2027 CIP.

We also use 354,000 for the PC replacement program.

We have a program where we refresh our PCs and laptops on a periodic basis so that they they don't get old and and so that program has worked really well.

4.7 million is committed and for specific and dedicated purposes.

And we also set aside $525,000 from business license tax for the uh capital improvement plan.

And we indicated to you that the major growth in revenues was from real estate assessments and other general property taxes, the perimutual tax, state and federal revenues, charges for services, really drive the overall revenue growth for 27.

With that, um I'm available for any questions that you may have called me.

Are there any questions from council members?

Okay.

Okay, I guess you've explained it as clearly as you can possibly do.

Good job.

Thank you for that.

Okay.

All right.

Carl, I just wanted to clarify because um I've gotten a question for one of our council people who was out of town.

If we could get on record, what each penny on the real estate tax rate is worth, and what we would lose if we lowered the tax rate.

Now, again, the the majority of the public, as we talked about earlier, about 54 to 58 percent, depending upon which question you used, supported keeping the tax rate the same.

But just to put in context for people who ask, how much would we lose if we lowered the real estate tax rate by one penny?

And if you remember, and I don't know if you remember how much of an impact it is for the city versus the schools.

Um I do not have that in front of me this split.

Um but each penny is roughly 1 million six seventy-nine five oh three.

Um I do not have, but I can get that information for you.

Okay, okay.

And so we would have to cut off of whatever we do, that roughly 1.7 million.

7 million dollars.

7 million dollars.

And then the schools would you know take a share of that also?

And they may take the majority share of this, and so it will probably have a bigger impact on the school system.

Okay, all right, thank you.

Okay, all right.

No other comments, questions from council.

Um City Manager, you have any closing remarks?

That concludes our um budget workshop items for this afternoon.

In our next meeting on April 8th, I'll preview the expenditure side of the budget that will align with this revenue side, realizing again that with the state not having adopted their budgets, there may have to be some shifts.

And then we will have the official release of the budget document on April 15th.

Uh that's when it will be available online, and then libraries and things like that for residents to pour through all the details they'd like to pour through.

And then we'll have our first public hearing.

Um I'm forgetting the date now, I think it was the 22nd of April.

Yes, April 22nd.

Um, so uh we look forward to an active season uh with the budget and hearing from the public not only on the before I release it, but the after I release it and answering any questions that you and council members may have during that process.

Okay.

All right, so we do not have any closed session items this afternoon.

Uh are there any regional issues?

Uh any new business?

All right.

So with that, we are adjourned until 6 p.m.