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Virginia Beach projects widening five-year budget gaps for city and schools
Summary
City and school officials presented joint five-year forecasts showing baseline deficits that grow from about $11 million in year one to roughly $72 million by year five, driven by rising personnel costs, health-insurance increases, and the growing impact of tax exemptions and federal funding shifts.
City and school officials in Virginia Beach warned Nov. 18 that baseline projections show growing budget gaps over the next five years, driven mainly by rising personnel costs, higher health-insurance obligations and shrinking taxable revenue.
Kevin Chatelier, a city presenter, said the joint forecast is a planning tool that assumes current tax rates and the existing city–schools revenue-sharing formula remain unchanged. "Year 1 [of the baseline forecast] is anticipating an roughly an $11,000,000 gap, growing to about $72,000,000 over the forecast period," Chatelier said during the presentation.
The city’s largest single local revenue source, real-estate tax, supports roughly 46% of the general fund. The real-estate assessor’s preliminary projection is 2.8% assessment growth in year one; Chatelier said real-estate revenue available to support general-fund services is estimated at about $738,000,000 next year. He warned, however, that the disabled-veterans tax-exemption program is expanding rapidly: staff projected roughly $44.6 million in exemptions for FY27 — a $9.2 million increase — and noted that "each penny of the real-estate tax rate generates about $8,400,000," reducing the taxable base.
Regional economist Nikki Johnson told the joint session that the Hampton Roads economy is showing slower job growth than the state and nation, in part because federal civilian employment is concentrated in the region. "We have seen jobs decline about 0.6 percentage points when we compare January to August 2025," Johnson said, and she flagged tariffs and federal spending shifts as ongoing uncertainties.
Schools Chief Financial Officer Crystal Pate told the meeting the school division’s baseline also projects deficits for each year of the forecast. She cited rising compensation pressures, rapidly increasing health-care costs for the division (a projected 13.5% increase in FY27 and 9% annually thereafter), growing special-education and English-learner needs, and debt-service obligations tied to major capital projects such as the Princess Anne High School replacement.
Both staffs emphasized the forecast’s function as an early warning rather than a final budget. Chatelier said the forecast does not assume use of attrition or vacancy savings; personnel costs are ‘‘fully loaded’’ in the baseline. He also noted a 1.5 percentage-point increase in Virginia Retirement System employer rates is expected in FY27 and that pension-rate changes are a recurring driver.
Officials outlined the near-term procedural timeline: the governor’s budget and the General Assembly’s rebenchmarking process (due after the governor introduces a budget) could materially change state aid assumptions; the city manager will present a balanced proposed operating budget in March 2026, and staff will update forecasts as new data arrive.
The joint presenters recommended continued collaboration between the city and schools to identify sustainable reductions and potential revenue options while reserving final policy choices for the annual budget process.
