Newport News’ operating costs are rising heading into fiscal year 2027, leading city budget planners to consider whether to cut back on certain tax breaks to help balance the city’s checkbook.
Budget and Evaluation Director Lisa Cipriano told City Council at its annual retreat last week the city’s revenues are forecasted to remain consistent this year. However, costs are expected to rise up to $18 million.
Roughly $5 million of the increase stems from debt service payments increasing this year. Another $5 million comes from commitments to meet pension benefit obligations and cover increased pay obligated through the city’s step compensation plan for public safety employees. Other expenses like staffing shifts, wage adjustments and airport funding are forecasted to cost an additional $8 million.
Council has also voiced support for adopting a 3-cent real estate tax reduction, a policy decision that would cost the city an additional $7 million in lost revenue, Cipriano said.
“That would create a gap at the beginning of the budget process of almost $25 million that we would to make up, somehow,” Cipriano said.
She added despite the large deficit, gaps are a normal part of the budget development process.
“Every budget process starts with a gap of some sort,” Cipriano said. “That benefit that we have now is the conversation with City Council to give the city manager guidance on revenue streams so that we can focus this a little bit better.”
Cipriano said the first place to try and make up ground would be to trim the city’s jobs, including library and park positions that have sat vacant for an extended period of time, and reduce funding for some long-term cash capital projects. However, she added it still likely wouldn’t be enough, forcing Newport News to consider a smaller tax break.
That would mean taking a harder look at the desired 3-cent real estate tax break, a reduction that would also cost the city more than $81 million in debt capacity.
The city’s real estate tax has remained at $1.18 per $100 of assessed value since fiscal year 2024, when it was reduced from $1.20 per $100 of assessed value. For nearly a decade prior, the tax was $1.22 per $100 of assessed value.
According to Cipriano, a 2-cent reduction would only cost roughly $4.5 million in lost revenue and roughly $54 million in debt capacity, and a 1-cent reduction would cost more than $2 million in lost revenue and roughly $27 million in debt capacity.
The city is looking at shifting some of its other taxes too, Cipriano said. One consideration is eliminating the boat tax, which currently sits between 90 cents and $1 per $100 of assessed value depending on weight and generates roughly $280,000 for the city. Instead, it could be replaced by a $15 annual boat licensing fee.
Other relief considerations include developing income-based tax relief, and reducing the meals tax from 7.5% to 6.5%. Newport News is currently tied with Hampton and Portsmouth for highest meals tax rate. The reduction would cost the city $4.8 million in revenue and would put the rate on par with Norfolk and Suffolk.
Cipriano said a meals tax reduction would bring relief for a community that doesn’t have the luxury of having tourists generate that tax revenue for them.
“In some of the other localities, in tourist-based localities, a lot of outsiders pay that meals tax as part of their visit,” Cipriano said. “For the city of Newport News, we’re paying for it at our neighborhood restaurant. We don’t have the same volume of tourism that would offset that cost for the individual resident.”
Vice Mayor Curtis Bethany said if the city’s goal is maximizing tax relief for residents, then the city is going to need more creative solutions than a real estate tax reduction to ensure the city can balance its checkbook.
Council member Rob Coleman said as a homeowner, he’d love to see more tax breaks. However, he questioned how widely that relief would be felt in a city where more than half of the homes are rentals.
“If we’re here talking about inflation and cost of living and trying to give some relief to as many citizens as possible, I’m not 100% sure that giving a break to the real estate tax is going to accomplish that,” Coleman said.
Mayor Phillip Jones said for now, the city has to focus on which projects and taxes could be shuffled around to ensure the city’s financial health. In the long-term however, Newport News needs to prioritize generating more revenue through housing and tourism so nothing needs to be cut in future budgets.
“It’s on everyone to ensure we can decrease our loss,” Jones said.
The city is expected to introduce its fiscal year 2027 budget in March.
Devlin Epding, 757-510-4037, [email protected]