The Ins and Outs of the County Budget, Schools, and Taxes: An Interview with Ernie Reed
What do you find as the most challenging part of developing budgets for Nelson County?
There are three interrelated factors that make the crafting of our county budget very challenging: 1. the budget cycle, 2. the changing nature of Nelson County demographics, and 3. the perception that tax increases are burdens rather than investments.
1. The budget cycle. The county tax rate must be finalized in April (tax bills go out the second week of May), and the budget must be completed by early June. But the state budget, which determines how much money the county will receive for school funding, has become such a political hot potato that the governor can hold it up until much later than that. As of this writing (April 22), no one knows when we will see a final state budget.
Think what it must be like for the school board to have to submit a draft budget to the county at the beginning of April, not knowing how much they will be receiving from the state. The school budget is based on the needs of students, staff, and the school overall. However, the school board would (like any business) ideally like to set its expenses based on both board priorities and the best estimates of its projected revenue. But it can’t. That is the first big problem.
The other big problem is that the county now must set the tax rates long before we know how much state funding our schools will receive. The county has to “set” revenues before we know what our expenses are likely to be. (Note that school funding makes up almost half of the entire county budget!) Because we can’t base tax rates on accurate numbers, at best this absurd cycle leads to a lot of “guess work” in the budgeting process. This confusion and uncertainty tend to feed a basic public distrust of county budgets and taxes. (I must attest that both school and county staff do an exemplary job budgeting in the face of such adversity.)
2. The changing nature of Nelson County demographics and the state funding for schools.
The state’s process for determining funding for schools is complex. The local percentage paid by the state varies with the ability of each locality to pay, which is determined by the Composite Index. The Composite Index is based on the county’s real estate values, adjusted gross income, and taxable retail sales. Nelson County has a significant and rising percentage of retirees with relatively high annual incomes who also own high value real estate in the county. Nelson’s current Composite Index score is .66 having risen from .56 in just two years and is now on par with Fairfax County which has a score of .66, and Albemarle’s with a score of .69, while nearby rural counties we often think of as comparable have much lower scores -- Amherst at .30, Augusta at .38 and Fluvanna at .39.
State funding now covers only about 1/3 of the cost of educating Nelson County students and it is unlikely that state funding for our schools will increase until state funding for all schools increases. In 2024 Virginia is ranked 36th in the nation for funding its schools. Unless we see more state funding for all public schools, we will likely need to find other ways of increasing funding for our schools.
3. The negative view of tax increases. The Board of Supervisors recognizes the importance of raising teachers’ salaries if we are to maintain the quality of our schools. Staff costs are the single largest item in the schools’ budget, so teacher and support staff salary increases have a significant impact on the budget. With this in mind, the Board of Supervisors proposed a modest one cent increase in the real estate tax rate to cover some (less than ¼) of the anticipated state funding shortfall due to the rise in our Composite Index score. What we saw on April 11, was that there was very little support for that approach since many see tax increases as burdens rather than important investments in the future. It is now up to the Board to find other ways to adequately fund the schools, without too negatively impacting funding for other services including county administration, law enforcement, and emergency services etc.
The proposed one cent rise in the real estate tax rate for a $100,000 assessment on land and home, would have amounted to a tax increase of a mere $10, less than the cost of a six-pack of Nelson County beer. But it would have provided $321,000 in revenue which would go a long way towards making it possible for our schools to get an equitable 3% cost of living salary increase for next school year.
The irony is that the real estate tax rate is, in fact, quite equitable; those who have the most, pay the most so a small increase in the real estate tax affects the well-off much more than those who are less well-off economically. Yet our tax rate remains relatively low and, although considered a burden by many in the community, it is very attractive for both out-of-county investors and prospective retirees.
So, what are the next steps for this year’s budget?
The Board plans to have a draft budget in place by the time you read this. There will be a public hearing on a draft budget on June 4th. The Board has voted to not increase the real estate tax, so that will not be included in the budget. We will approve the final budget at the June 11 regular meeting of the Board of Supervisors.
Do you see any of these challenges changing in the future?
As to changes in the budgeting challenges those are unlikely until there are changes in one or more of the factors we just discussed -- the budget cycle, the way the state funds schools and/or there are changes in how tax increases are perceived in the county.
Are there other thoughts about the county budget of finances you would like to share with our readers?
Yes. The overall the financial news in the county is really very good. Our reserves are such that we can finance important large projects like the renovations to the high school and to fund the new Department of Social Services building. However, the more we need to pull from our reserves in our attempt to fully fund our schools, the less is going to be available for the other community services and for important projects that we have been considering and there will be less we have for “a rainy day.” This all requires careful prioritizing by the Board of Supervisors and the School Board of what, when, and how, and on informed and thoughtful input from our citizens.
Ernie Reed, Board of Supervisors, The Central District
If you have questions for Ernie for a future edition of NCDC News, please send us a message at info@bluenelson.org with your questions.
Click here to read about other rural communities with similar school funding issues
For those who want to learn more about state funding of local schools click here