GUEST COMMENTARY: More Debt vs. Economic Uncertainty
Williamsburg must separate 'wants' from 'needs' as budget tightens
(Editor’s Note: This piece contains guest commentary. The opinions expressed below are the authors and not necessarily those of the Williamsburg Independent.)
At the end of Fiscal 2022, the City’s Debt stood at $18 million, or roughly $2,600 per non-student resident of the City. The City’s preliminary FY2026 Budget proposal projects that the City’s Debt will be $79 million, or over $11,000 per non-student resident, by the end of Fiscal Year 2026 (although the actual borrowing for 2026 may slip to FY2027).
The growth in debt has brought recent criticism from both a prior mayor and planning director, as reported by the Williamsburg Independent. As the the City’s prior director of planning said, it’s time for the City to do the hard work of separating wants from needs.
Making up the bulk of the $33.M in additional debt is $20 million for a new library, $6.84 million for water system upgrades, and $6.75 million for a new children’s park. However, in the City Council’s Work Session on April 7th, they requested the City Manager to remove the borrowing for the children’s park from the budget. Additionally, funding for the library is uncertain due to recent statements from James City County and York County who are questioning the terms of the current joint library agreement with the City.
In the recent past, the City also decided to borrow $34.7M in 2023 and 2024, primarily to fund the new fire and police stations. The City’s rationale was to spread the cost over future years rather than absorbing the entire cost in the current year’s budgets; however, this also increases the City’s debt service, which is the costs associated with interest payments and other costs. The debt service planned for future years must be paid irrespective of revenue levels in those years. The City estimates that its Debt Service for FY2026 will be $3.65 million.
Much of this growth was spurred by an exuberance watching tax assessments increase by double digit rates annually. This led to property tax revenues increasing from $15,562,00 in 2022 to a projected $24,542,000 in 2026. Previously flush with cash, governmental activities expenditures in the General Fund are projected to increase from $37.8 million in FY2023 to $52.1 million in FY2026. Nevertheless, with the prospects of a recession seemingly increasing by the day, many residents are concerned about the City’s increasing debt burden. They argue that revenues would be negatively impacted by a recession necessitating sizable increases in the City’s real estate tax rate whose median real estate tax bill already ranks in the top 21% among all Virginia jurisdictions. Though the City doesn’t plan to increase the current tax property tax rate in the next budget, they are considering raising taxes on meals by 2% and by 3% on hotels, as well as implementing a new 10% tax on event and attraction admission.
The budget timeline provides for residents’ comments on the budget and capital projects during a City Council meeting on Thursday, April 10th. Residents are also encouraged to provide input either during the public comment period during the City Council meetings or by emailing your City Council members council@williamsburgva.com. A vote on the budget by the City Council is slated for May 8th.
Historical Triangle Recreational Authority (“HTRFA”) Debt
The City together with James City County and York County established the Historic Triangle Recreational Facilities Authority (HTRFA) as a separate political subdivision to build recreational facilities adjacent to the Colonial Williamsburg Visitor’s Center. The HTRFA issued $64 million in Revenue bonds in August 2024, with an additional $15 million being contributed by the three jurisdictions for the construction and equipping of a regional sports and recreational facility. The approving Resolution 24-11, provides “…City Council providing its moral obligation in support of the payment of the Bonds, (b) secure the Bonds by a Support Agreement between the Authority and the City pursuant to which the City agrees to make payments to or on behalf of the Authority sufficient to pay principal and interest on the Bonds when due, subject to annual appropriation by City Council and after crediting certain payments from James City County and York County…”.
Although the City provided its Moral Obligation to backstop this Bond Issue, its legal obligation is contained in a Support Agreement which limits its annual contribution to $2.5 million, and therefore this Debt is not included in the City’s figures.
While the Revenue bonds are expected to be repaid by a 1% sales and use tax, they are ultimately backed by an appropriation pledge from all legally available funds of the City (Standard & Poor’s Credit Report). The Support Agreement provides that the City will provide up to 64% of the debt service, or up to $2.5 million annually, with another $1.4 million to be contributed by the other two jurisdictions. The City’s S&P Credit Report states, “If revenue received by the Authority from the participating members is insufficient for full debt service payments, Williamsburg has agreed to consider a supplemental appropriation to satisfy the deficiency…Therefore, we rate these obligations as an appropriation pledge of the City of Williamsburg.”
The total Debt Service on the HTRFA bonds is interest only in 2026 and 2027, with the full debt service of $3,998,725 beginning in 2028. While consultant reports projected an almost $500,000 annual operating deficit, it is hoped that the Sports Facility gets near break-even before debt service and that the increased hotel and meals tax revenues generated by guests to the Facility will help to defray a portion of the City’s annual contribution.
The City’s financial advisor, Davenport Public Finance, reported that “The City enjoys ‘Aa1’ and ‘AAA’ credit ratings from both Moody’s and S&P, respectively.” In the Moody Ratings report, it discussed its rationale as follows:
“The City’s Aa1 issuer rating reflects a growing local economy, sizable financial reserves and manageable debt burden. The City benefits from tourist activity associated with the Colonial Williamsburg Foundation, which also accounts for 13% of the City’s tax base. Several residential and commercial development projects across the City have led to 16% growth in the tax base over the past year. Resident incomes are below average partly reflecting the large student population enrolled at the College of William and Mary….”
“We have assigned an A1 rating to the Historic Triangle Recreational Facility Authority’s approximately $64 million Recreational Facilities Revenue Bonds….The A1 rating on the Series 2024 bonds is three notches below the issuer rating and reflects the contingent nature of the City’s obligation, including an appropriation obligation to cover 64% of debt service and a moral obligation to support the remaining debt service (36%) if statutorily dedicated sales taxes allocated from the two other participating localities …are insufficient.”
Read previous posts in the budget series below:
PART 1 - Rising Residential Real Estate Property Assessments & Increased Spending
PART 2 - Troubling Issues Loom over Williamsburg Budget
PART 3 - Cooling Property Assessments, Increased Costs Push Williamsburg Budget
PART 4 - City Pushes Forward with Ambitious Building Plan
About the Writer: During a 45-year career, Robert Wilson worked with senior leadership teams to develop and implement innovative strategic and business plans that have fostered growth and profitability. His background includes direct profit and loss responsibility, forging effective multi-functional leadership teams, restoring organizations to sound financial footing, and implementation of best practices initiatives. He has demonstrated a mastery of turnarounds and troubled companies in a variety of business sectors.
Prior to retiring in 2021, Dr. Wilson was Co-COO of a $2 billion operating division of a Fortune 500 Company. He has held the positions of CEO, President, COO, and CFO in several regional and national organizations during his career. Since retiring from corporate life, Mr. Wilson has served as an adjunct instructor in the business school at Christopher Newport University.
Dr. Wilson holds a BBA degree from the College of William & Mary, a MS in Finance degree from the University of Arizona, and a Doctorate in Management from the University of Maryland Global Campus. He is a member of the Beta Gamma Sigma honorary business fraternity. Since 1979, he has held a Certified Public Accounting license in the Commonwealth of Virginia (currently inactive) and is a member of the American Institute of Certified Public Accountants and an original member as a Chartered Global Management Accountant.
Dr. Wilson resides in the City of Williamsburg and may be contacted at wilstar2001@gmail.com.
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