Virginia Beach City Council and School Board Joint Session on Five-Year Forecast - November 18, 2025

On November 18, 2025, at 12:00 p.m., the Virginia Beach City Council and School Board held a joint special formal session at the Municipal Center to receive the combined city and schools five-year forecast presentation. Mayor Bobby Dyer called the meeting to order, with Vice Mayor Rosemary Wilson and School Board Chair Kathleen Brown also present. Absent were Councilmember Henley, Mr. Bellucci, School Board Vice Chair Weems, Ms. Dwyer, and possibly Mr. Callan. The purpose was to initiate the budget process and foster collaboration between the two bodies.

Economic Outlook (Nikki Johnson, HRPDC Regional Economist)

• The national economy remained resilient despite policy changes, but Hampton Roads faced outsized impacts from federal job cuts. GDP contracted by 0.6% in Q1 2025 due to tariff-driven pre-ordering, then surged 3.8% in Q2. Inflation stood at 3% year-over-year in September 2025, above the Fed's 2% target, with tariff pressures expected to cause a further uptick through 2026.
• Hampton Roads lost 2,000 federal jobs over the past year (likely undercounted), with manufacturing also declining. Job growth in the region slowed, contrasting with positive but slowing growth nationally. The civilian labor force and employment in Hampton Roads contracted, and Virginia Beach's labor force fell below pre-pandemic levels (February 2020).
• Unemployment rate in Virginia Beach was 3.2%, up 0.3 percentage points from a year earlier, but still historically low due to people leaving the labor force.
• Housing: Home sales ticked up slightly but remain below pre-pandemic levels; Virginia Beach median sales price reached $400,000 (up 4.9% year-over-year). Months supply of inventory (2.3 months) remains tight, keeping price growth elevated.
• Bright spots: Defense spending increases in the NDAA and chipbuilding investments. International migration was the largest contributor to population growth in 2024, but future immigration policies could weigh on population.
• Overall, the economy is slowing but stable; no recession expected, but slower growth through first half of 2026.

City Revenue and Expenditure Forecast (Kevin Chatelier, City CFO)

• Real Estate (46% of general fund revenue): Assessor projects assessment growth of 2.8% in FY27, 3% for FY28-29, then 2%; below the historical average of 5%. Revenue is estimated at $738 million for FY27.
• Exemptions: Disabled veterans exemption growing rapidly; FY27 estimate $44.6 million (up $9.2 million from FY26), equivalent to more than one penny of the real estate tax rate ($8.4 million per penny). Elderly/disabled exemption program also growing; recommended to budget on a net basis.
• Personal Property: FY27 estimate $228 million; assumes long-term 3% growth. Challenges in projection due to calendar year collection and market volatility.
• BPOL: FY27 estimate $71.4 million; assumes 2% growth. New businesses may have two-year exemption.
• Sales Tax (1% local share): FY27 estimate $101.2 million; 3% annual growth. Stable and predictable.
• Cigarette Tax: Projected to decline 5% annually due to cessation and shift to vaping (not taxed locally).
• Meals Tax: FY27 estimate $115.4 million; 3-4% growth. Virginia Beach rate (6%) tied lowest in region.
• Hotel Tax: Flat growth expected; citywide rate 8%, Sandbridge 9.5%. Flat tax fee increasing indicates more visitors but softening room rates.
• Expenditure Assumptions: 3% COLA for staff (per STEP plan), 1.5% increase in VRS rates ($6 million), health insurance costs rising 8% per year, operating inflation 3%. No attrition savings assumed.
• Baseline Forecast: General fund deficits projected each year: ~$11 million in FY27, growing to ~$72 million by FY31. Personnel costs (salaries + fringes) are the main driver, outpacing revenue growth in most years.
• Health Insurance Fund: City's self-insured fund is drawing down reserves; cumulative balance declining. Employer/employee contribution ratio (80/20) may need adjustment.
• External Risks: Federal cuts to SNAP administration (potential 25% federal share), HUD Section 8 funding uncertainty, tariff impacts on city procurement costs.
• Balancing Approach: Sustainable reductions (e.g., $11 million in FY27) would improve out-year deficits by the same amount each year.

School Division Five-Year Forecast (Crystal Pate, VBCPS CFO)

• Enrollment & Demographics: Overall gradual decline, but growth in English language learners and special education (especially autism). Students with higher needs increase per-pupil costs.
• Achievement: Preliminary on-time graduation rate 96.9%; dropout rate 2.2%; SOL pass rates lead region; 74% of AP exams scored 3+; 14,540 industry credentials earned; 44,000 work-based learning hours with $550,000 economic impact.
• Revenue Projections: Local contribution projected to increase 1.5% (FY27), 2.8% (FY28-29), 2.2% (FY30-31). State revenue assumed 3% growth; state sales tax flat (0.5% growth). Federal revenue (impact aid, Medicaid) projected 5.1% increase in FY27, then flat. Federal impact aid not forward-funded, risking prorated reductions.
• Expenditure Assumptions: 3% salary placeholder; health insurance costs increasing 13.5% in FY27 and 9% annually thereafter; 3% operating inflation; rising debt service for capital projects (including Princess Anne High School replacement).
• Baseline Forecast: Operating fund deficits each year, widening to $72 million by 2031 (structural gap). No budget-balancing actions included at this stage.
• Budget Pressures: Competitive compensation, rebuilding health fund reserve, Princess Anne High School project, declining enrollment with rising needs, uncertainty in state/federal K-12 funding (end of all-in-Virginia supplemental funding).
• External Factors: State SOQ funding formula changes (JLARC report disparities), benefit rate adjustments, health care cost trends, new mandates, board priorities, inflation, debt service.
• Collaboration: City and schools share a self-insured health plan and work through the Benefits Executive Committee; separate funds are maintained.

Policy Discussion & Council/Board Questions

• Housing Attainability: Multiple council members (Rouse, Worth, Schumann, Wilson) and board members raised concerns about workforce housing affordability, out-migration of employees, and the need for policy tools. City Manager Patrick Duhaney noted the city's Attainable Housing Grant Program (two projects approved, 372 homes) and that land constraints require redevelopment and density. Councilwoman Ross-Hammond and Councilman Schulman cited successful developer negotiations for affordable units. The City Council named attainable housing the fourth priority after stormwater, public safety, and schools.
• State Revenue Options: Councilwoman Jackson Green asked about potential cannabis tax revenue; Kevin Chatelier noted pending legislation (HB 2485) that could provide a local carve-out, but timing and allocation uncertain.
• Health Fund Details: Councilwoman Rouse requested a breakout of city vs. school health fund history; School CFO Crystal Pate confirmed shared consultant and quarterly updates.
• Economic Diversification: Councilman Wilson questioned the impact of federal job losses and labor force decline; Nikki Johnson emphasized the region's high exposure and difficulty diversifying.
• School Funding Formula: Chair Brown and others noted the JLARC report's finding that state funding for at-risk, special education, and English learner populations remains inadequate.
• Military Families: School board member Melinda emphasized that Virginia Beach is one of few cities able to serve students with disabilities from military families, which increases numbers and costs but is a critical service.
• Tolls & Zoning: Councilman Schumann noted the need for early conversation with developers and communities about attainable housing; offered ADU anecdote as a model for aging in place and housing stock turnover.

Key Outcomes

• No formal votes or decisions were taken; the presentation serves as a planning tool to frame upcoming budget discussions.
• The five-year baseline forecasts both city general fund and school operating fund deficits for each year (FY27-31), with personnel costs and health insurance as primary drivers.
• Both bodies emphasized the need for collaboration, sustainable reductions, new revenue sources (including potential cannabis tax and state funding reforms), and continued focus on attainable housing, economic diversification, and maintaining services.
• Next steps: The city manager will present a balanced proposed operating budget in March 2026; the governor's state budget expected in December 2025; continued joint dialogue through the budget process.