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Lynchburg reports unprecedented surplus closing out fiscal year

Lynchburg city staff reported an unprecedented surplus closing out the fourth quarter of 2021, one attributed to COVID-19 uncertainties as well as significant vacancies across multiple city departments.

According to a general fund quarterly report presented Tuesday to the finance committee, the city ended fiscal year 2021 with an unassigned fund balance of $49.7 million compared to a projected balance of $22.1 million.

The unassigned fund balance represents the difference between actual revenues and expenditures at the end of the fiscal year. It contains all spendable amounts not already dedicated to other budgetary uses.

The city’s fund balance policy for its general fund requires maintaining an unassigned fund balance equal to a minimum of 10% of general fund revenues, with a goal of 15%. Lynchburg ended its fiscal year 2021 quarter June 30 with a projected fund balance ratio of 23.9%.

Chief Financial Officer Donna Witt said in her 22 years with the city, she has never seen it that high, though she has seen the ratio hit 17% or 18% in the past.

But to that point, she said, there has never been a year with so many unknowns. The fiscal year 2021 budget, which was rebuilt and approved at the onset of the COVID-19 pandemic in spring 2020, was created amid staggering uncertainty, said Witt, with no blueprint for what coming months would bring.

“We did a budget based on nothing,” Witt said. “You couldn’t look at history. There was no way to guess.”

Since funding in the unassigned balance represents one-time money, it cannot be dedicated to recurring costs and will be used to fund capital projects in fiscal year 2023.

The finance committee, made up of four members of council, three of whom were in attendance, reacted with some shock to the report. Though he was pleased it was a positive surplus, At-large Councilman Randy Nelson said the $27.6 million disparity was “astonishing” and wondered why, if these were known factors, they didn’t come into play during fiscal year 2022 budget talks.

The committee also questioned if these vacancies were known, why council could not have proceeded knowing that extra revenues may be available, citing council’s decision earlier this year to maintain its current real estate tax rate rather than to equalize, and other concessions made while building a budget.

Ward III Councilman Jeff Helgeson said council needs to have that information to make good assessments.

“It seems like that story was missing when it was that big of a disparity within a short period of time,” Helgeson said.

Witt stressed this surplus has no connection to this year’s conversation surrounding tax rates, and the bulk of the surplus was due to the staffing vacancies that have affected multiple city departments, chief among them public works and police.

Currently, Lynchburg Police Department has 28 vacancies and public works has 34.

Despite these vacancies, they budget for a full staff, and the savings accrued fall to the fund balance. To budget otherwise would mean essentially cutting those positions.

“We do need to fill these positions to provide services,” Witt said. “We are struggling to provide excellent service to our citizens with this many vacancies.”

While expenditures were much less than budgeted due to understaffing, revenues also came in stronger than anticipated. Sales tax remained strong, in part due to recent state regulations aimed at ensuring localities receive the online sales tax revenue due to them.

Real estate tax also came in stronger than expected. In fiscal year 2021, staff budgeted 5% for some residents potentially underpaying real estate tax, instead of its usual 2.5%, due to uncertainty about how COVID-19 would affect payments. However, people paid at their usual rates, generating $2.6 million more than was budgeted.

Due to the pandemic, there also was less spent on staff training and on medical visits, as people were less likely to go to the doctor for routine checkups, and most elective surgeries were canceled or delayed.

“The whole thing was different,” Witt said, there were no prior trends to rely on when accounting for the closures that overtook the city, shutting city hall’s doors as well.

Vice Mayor Beau Wright requested a “breakdown” from staff outlining, more specifically, what is “driving” the unassigned fund balance’s increase. Witt said she would prepare the report in the coming days.

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