City manager proposes $2.78 billion FY26 budget; seeks new major-project fund, meals-tax and boat-fee changes

Kevin Chatelier, a city staff member presenting the city manager’s proposed FY26 operating budget and capital improvement program (CIP), told the City Council the proposed operating budget is just under $2.8 billion and would grow about 4.7% from FY25 to FY26.

Chatelier said the plan aims to “maintain promises made in the past, meet the current obligations while sustainably planning for the future” and preserves the proposed real-estate tax rate at $0.97 per $100 of assessed value. He said the proposed budget includes new spending for public safety, staffing and the CIP while trying to limit increases to property taxpayers.

The proposal would: redirect about $11.8 million from three longstanding dedications — the Open Space fund, the Town Center tax-increment finance (TIF) fund and the Agricultural Reserve Program (ARP) — into a newly proposed “major projects fund”; ask council to increase the meals tax from 5.5% to 6% (estimated to generate about $9.2 million annually); and create a new personal-property “pleasure craft” tax of $1.50 per $100 of assessed value on vessels longer than 18 feet, estimated to generate roughly $4.3 million per year and be dedicated to coastal projects.

Chatelier described a $1.3 billion funding gap across planned CIP projects driven by construction inflation and the upcoming, fully issued flood-protection bond program. He said staff balanced the CIP by prioritizing public-safety, transportation and quality-of-life projects, rightsizing or delaying several projects, and redirecting the dedications noted above. The manager’s proposal retains the funding needed to continue paying existing debt obligations, Chatelier said.

Major proposed operating-budget items flagged by staff include a $2.6 million allocation to fund 30 additional firefighter recruits and nearly $600,000 to annualize the Parks After Dark program in two parks. The Department of Emergency Medical Services would create a special revenue fund for a proposed “compassionate billing” initiative, estimated at about $14 million annually, to provide a stable revenue stream to support EMS operations and the onboarding of about 33.5 full-time equivalents (FTEs).

On workforce costs, the budget includes $34 million for compensation adjustments: a 3% general increase for most employees, and targeted market adjustments and step increases for sworn public-safety personnel and classifications at the lowest ranges identified by the market study.

Staff highlighted several enterprise-fund changes: a year-three water and sewer rate adjustment under an adopted five-year plan, and a proposed stormwater ERU increase of 8.9¢ (about $32 annually, or $2.70 per month, for a typical residence), intended to restore purchasing power lost while the ERU fee was previously frozen.

On the CIP side, Chatelier said staff recommends a combination of pay-as-you-go, redirected dedications and limited bond programming so the city does not breach self-imposed debt metrics or risk its AAA rating. Examples of CIP priorities preserved or fully funded in the proposal include Cleveland Street improvements and the Independence Boulevard/Pleasure House Road intersection work; staff also identified additional funding requests for a convention-center maintenance package (about $31 million over the CIP period), a year‑one cash increase for fire apparatus (about $10 million), and a $2.9 million voting-machine replacement project.

The manager’s proposed CIP also includes a set of large future projects with design or further funding requested: a law enforcement training academy, Indian River Road safety improvements, a gap-closing allocation for phase 1 of the Virginia Beach Trail, and a courthouse modernization program. Chatelier said the proposed major-project fund — sourced primarily from redirected dedications plus the proposed 0.5% meals-tax increase — would generate roughly $21 million annually to be used as an ongoing bill payer for those large projects, though he cautioned the fund would not fully finance all of the projects without the meals-tax adjustment.

On schools, staff included the superintendent’s estimate of needs in the documents: a proposed 3% compensation increase, an $8 million proposed contribution to the school health insurance fund, and an average six-year school CIP that staff and school representatives revised downward to keep the city’s debt metrics in range. Chatelier said Princess Anne High School modernization was deferred in the school CIP discussion and that state funding proposals remain under negotiation at the General Assembly.

Chatelier closed with the public timeline: departmental briefings and CIP section presentations through April; a public hearing April 16 at the Convention Center and another public hearing at the April 22 council meeting; a May 6 council reconciliation workshop; and a target vote on the budget May 13, ahead of the May 15 statutory deadline.

Ending: Council members thanked staff for an extensive presentation and said they would review the documents, hear departmental briefings in April and weigh public feedback during the public hearings and May reconciliation sessions.