How Should A City Spend $19 Million? Richmond Council Divides Up Projected Surplus

By Dogwood Staff

October 28, 2020

Staff members caution until audited numbers arrive in November, these dollars can change.

RICHMOND-When you discover an extra $19 million, what do you spend it on? Also, should you spend it at all if the money’s not guaranteed? Richmond City Council members considered those questions over the last week, when they learned a projected $13.75 million surplus had actually grown to $19 million. But while council members gathered Tuesday to vote on how to spend the money, there’s still a question if it will actually arrive in November.

The news came as a surprise in September. Richmond Mayor Levar Stoney announced city staff projected a $13.75 million surplus at the end of the fiscal year. Even though the fiscal year ended June 30, it takes months to determine if the city finished with a deficit or surplus. This is due to the annual audit, which goes over all the data to give the most accurate picture possible. It is a lengthy process, however. This year’s audit, for example, won’t be finished until early to mid-November.

That’s why news of a projected surplus in September caught people off guard. Stoney and city staff said the money came as a result of being fiscally responsible and scaling back during the months spent in lockdown earlier this year.

Then on Oct. 12, council members received another surprise during their 4 p.m. meeting.

“The surplus has increased significantly,” City Clerk Candace Reid told the council.

Now instead of $13.75 million, the city had a $19 million surplus on its hands. Understandably, some council members had a hard time believing it.

“I find this very suspect,” Councilwoman Kim Gray said in the Oct. 12 meeting. “This is funny math. Five million just surfaced within the last week? Maybe next week we’ll have another $5 to $6 million. Where is this money coming from?”

Where is the money coming from?

Originally, Richmond finance officials warned of a possible budget deficit at the start of the COVID-19 pandemic. They urged council to consider putting aside $6.6 million in preparation. The city also restricted all spending and put a halt to new hires during this time. In August, because of those measures, finance officials changed projections from a deficit to a $4.7 million surplus. Then the number kept growing.

But that surplus comes with a question mark, as Reid and City Director of Finance John Wack cautioned in that Oct. 12 meeting.

“It is a moving target until we give audited numbers,” Reid told the council. “These are not sound dollars. They remain unaudited.”

Wack reinforced that argument, saying these were the staff’s unaudited estimates.

“Numbers will change until mid-November,” Wack explained.

Beyond that came another warning. Richmond’s retirement system has been underfunded since 2015, Wack said in that Oct. 12 meeting. Underfunded by anywhere from $5 to $6.3 million annually. In order to cover future expenses in that area, the city will need to set aside an extra $15 million annually, starting in fiscal year 2022. That’s $10 million a year extra for retiree healthcare liability and $4.75 million related to the pension fund.

Should we spend it now?

With all that in mind, council members spent two weeks debating if they should spend the $19 million. Some members wanted to hold off until audited numbers arrive in November. Part of the decision is automatic. By city ordinance, half of the surplus goes into the rainy day fund. Another 40% goes into the capital maintenance fund, leaving 10%. Council members met Tuesday to deal with that final 10%.

In that Oct. 12 meeting, Wack proposed taking $5.7 million off the top and putting it toward the city’s retirement debt. Richmond council members agreed. After rainy day and capital maintenance funds were removed as well, that left $1.4 million of the projected $19 million for the group to spend. They rejected a proposal from Stoney to set aside $500,000 for a variety of health related issues. He had proposed funding for a doula training and services program to address racial disparities in maternal and infant health outcomes, and a gun violence prevention program.

Council members didn’t want to use a one-time surplus, however, to fund what would be ongoing programs.

A final decision for Richmond

So with that in mind, council members met last week to determine how to spend that $1.4 million. First, they created the 2020 Unfunded Other Post-Employment Benefits Liability Reserve. It would provide retirement benefits to individuals who have terminated their service to the city and to their beneficiaries. They came up with the concept, but as per city rules, gave people a chance to weigh in during a public hearing Tuesday.

No one showed up to speak on Tuesday afternoon, however, so city council met briefly and voted in favor of the proposed resolution. The resolution will award $780,000 of the 10% remaining in the surplus to the OPEB reserve. The council placed another $110,000 into a special reserve for future appropriation of an equity study and training. Lastly, $500,000, or what is remaining of the 10%, will go to a reserve fund to help with COVID-19 expenses.

This all depends on if there is a surplus, and if so, how much, when the audit gets presented in November. An exact date for that presentation has not been set.

Brandon Carwile is a freelance reporter with Dogwood. You can reach him at [email protected].

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