PETERSBURG — Members of Petersburg City Council approved a 10 percent pay cut for the city’s 593 full-time employees at a special meeting Monday after learning that the city’s budget deficit, originally believed to be $7.5 million, actually is $17 million.
Last week, the council unanimously approved a 20 percent reduction in personnel costs. The council directed interim City Manager Dironna Moore Belton to develop strategies to achieve the reduction while avoiding layoffs. On Monday, they stopped short of implementing furloughs.
“What is at stake here is the sustainability of the city of Petersburg,” Vice Mayor Samuel Parham said minutes before the council voted.
“This is a problem that has been compounded over many years, so the balloon has blown up and it has popped here on us. And we are faced with this difficult task which is not going to sink us, but it is actually going to make us stronger in the long term,” Parham said.
The pay cuts will take effect July 23, at the beginning of a bimonthly pay period.
The salaries of City Council members and the city’s two appointed officials — Belton and interim City Attorney Mark Flynn — will not be affected by the cuts. However, Councilwoman Treska Wilson-Smith said she asked the city to suspend her $6,500 salary.
Instead of pay cuts, the city’s 188 part-time employees will see a potential 50 percent reduction in work hours. The salaries of school system employees will not be affected under the plan.
Belton stressed that the measure is only a temporary fix, until Petersburg makes progress in its deficit-reduction efforts. The cuts are expected to save the city about $1.8 million during the next six months — a small step that allows for more liquid cash in the city’s weekly operations.
“The issue is the cash flow,” Belton said. “Every week, I collect $500,000 (in revenue), then the next week I collect $900,000. My (biweekly) payroll is currently $1.2 million, so I only have $200,000 left. The reality is, some of these payments are due.”
Last month, the City Council approved a $70.5 million general fund budget for fiscal 2017. Council members seemed surprised when Belton revealed that the budget deficit going into the new fiscal year is $9.5 million higher than the $7.5 million she had estimated last week.
“I had no idea. I’m like, wow, where is this coming from?” Mayor W. Howard Myers said in an interview after the meeting.
“But a lot of this is historic — we’re finding things out that we knew nothing about,” Myers added.
Belton said a team of state auditors under the leadership of Sheryl D. Bailey, a former Chesterfield County deputy county administrator, were instrumental in discovering that the budget gap was much larger than anticipated.
The auditors were dispatched by the governor’s office at Belton’s request to help the financially troubled city sort out its books.
“One of their main goals was to shore up our liabilities and obligations,” Belton said, adding that the auditors found that about $4.5 million had been depleted from “some internal accounts” without the city’s knowledge.
Belton would not elaborate on the missing funds until the auditors had completed their work.
Other obligations stem from $2 million owed to Petersburg’s school system and larger amounts due to several vendors, including Riverside Regional Jail and the Virginia Retirement System. A total of $2.5 million was carried over from the last fiscal year, which ended June 30.
“When you have a deficit, it just keeps rolling forward,” Belton said. “We are working very diligently to do long-term finance restructuring, and we’re still trying to break down exactly the causation (for the deficit), but we do know the number of delinquent accounts that we have.”
Beyond the 10 percent salary cut, Belton and her team had developed three additional proposals to accommodate the council’s request to reduce personnel costs.
A 20 percent reduction in base salary for full-time employees would have been what Belton called “the most drastic” solution. It would have saved a little more than $3 million during the next six months.
The proposal to reduce the current 40-hour work week to 32 hours would have had the greatest impact on employees, Belton said. The furloughs would have produced the least amount of savings and would have required changing the city’s business hours.
Belton also proposed a complex tier-based salary reduction system. High earners with an income of more than $90,000 would have been subjected to a 20 percent cut; incomes between $60,000 and $89,000 would have been cut by 15 percent; and $30,000 to $59,000 by 10 percent.
The lowest income group, with earnings of $29,000 or less, would have seen a 5 percent cut.
Myers said the council opted for minimum salary reductions because it is the “least invasive way” to start closing the budget gap.
“I know that every dollar counts, and at least we are taking the right approach to help shore up our city to maintain its survival,” Myers said.
Petersburg’s financial woes escalated early this year when an audit found overspending of the total general fund budget by $1.8 million and a total budget shortfall of nearly $6 million for fiscal 2016, which ended June 30.
After much public pressure calling for his termination, the City Council fired City Manager William E. Johnson III in March. City Attorney Brian K. Telfair stepped down the same day, followed by Finance Director Irvin Carter, who left in April.
“This is the crisis that’s been dealt us, and we have to rise to this occasion,” Parham, the vice mayor, said.