PFM warns council: slower growth, lost ARPA funds and rising fixed costs will complicate FY27 budgeting
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Summary
Vienne Leong of PFM told the retreat that national and Virginia economic growth is slowing, one-time ARPA revenue has ended, pensions and collective bargaining reduce spending flexibility, and the city should use multi-pronged strategies rather than one-time funds for recurring services.
Vienne Leong, the city's financial adviser from PFM, told the council that the economic backdrop for the FY27 budget has shifted toward slower growth and ‘‘structural imbalance’’ for local governments. "We all know that economic growth is slowing down," Leong said, and she noted those effects will reduce revenue growth while spending pressures — pensions, health-care funds and costs driven by collective bargaining agreements — continue to rise.
Leong discussed three trends she said will shape the budget process: reduced revenue growth as assessment increases taper; the end of ARPA and other one-time federal funding; and growing inflexibility on the expenditure side driven by personnel and contractual obligations. She said Charlottesville's pension funding ratio had improved to about 76%, up from 69% in the previous actuarial review, but that a large share of annual pension contributions continues to pay down unfunded liabilities.
On fiscal strategy, Leong urged a multi-pronged approach rather than reliance on a single tool. "Do not use one-time revenue to pay for recurring expenses," she said, arguing that reserves and one-time surplus funds should be used first to shore up pension and health-fund shortfalls and to preserve flexibility for service delivery. She also described a commonly recommended reserve benchmark: maintaining roughly 3% of operating budget as a buffer, while acknowledging recent years' larger surpluses were unusual and tied to federal funds.
Councilors asked questions about tax burden and revenue-effort comparisons to neighboring jurisdictions, whether a dedicated local sales tax could change revenue-effort calculations, and how collective bargaining and school contracts would affect operating pressure. Leong said these pressures are widely shared among Virginia localities and recommended staff pursue multiple options — careful use of reserves, efficiency improvements, targeted revenue measures and prioritization — to maintain a sustainable service level.
Finance staff and the adviser will supply follow-up answers to specific technical questions raised at the session; council asked staff to post the PFM slides and provide cost and projection details to inform upcoming budget deliberations.