By Taylor Boyd
To address a $5 million shortfall in its proposed fiscal year 2026-27 budget, Martinsville residents could see increases in real estate taxes, electricity rates and refuse disposal fees.
During an April 28 budget presentation, City Manager Rob Fincher said the budget is one of the most challenging financial plans the city has faced in recent years.
“This budget not only reflects rising costs and ongoing service demands, but also the difficult transition created by the expiration of one-time federal relief funds, commonly referred to as the ARPA (American Rescue Plan Act) cliff effect,” he said.
While working through the budget process, Fincher said it became clear that certain prior financial and administrative practices were not properly structured with long-term sustainability in mind.
“As a result, this proposed budget also reflects a necessary course correction, one that ensures greater transparency, stronger fiscal discipline, and alignment between recurring revenues and recurring expenditures. This has required difficult decisions. In many cases, it means reducing or delaying initiatives, re-evaluating service levels, and making cuts and choices that are not easy but necessary to restore a stable financial foundation,” he said.
Fincher said Martinsville City Council will have the opportunity to work through the budget with support and additional information from staff.
The proposed budget’s main objectives, he said, are establishing financial transparency and credibility, implementing conservative revenue forecasting, eliminating structural deficits, prioritizing core services and aligning staffing levels with sustainable funding.
“We had some challenges. One was the lack of a financial audit. We have still yet to receive the official financial audit from Robinson, Farmer, and Cox. They’ve sent us preliminary, but there were delays and we’ve still yet to receive the official report,” he said.
Fincher said the budget is also affected by the loss of ARPA funding that had previously been used to offset shortfalls.
“Prior year anticipated revenues for budgeting were overestimated by approximately $1 million while anticipated expenses were underestimated by $4 million. You can quickly figure it up that is a $5 million deficit that we had to overcome,” he said.
Fincher said inflation has also outpaced revenue growth.
“Since 2020 the average annual inflation rate has increased by 4.46 percent while the average annual tax increases have been only 3.7 percent,” he said. “This is creating a situation where over time we’re losing more and more money to where we can’t operate as well with those lack of funds.”
Additional challenges include rising health insurance costs, staffing shortages, aging infrastructure and unfunded state mandates, Fincher said.
“We’ve got personnel issues. We’ve got the reduction in the number of employees in key positions while at the same time we need to remain competitive with pay and benefits such as matching COLA (Cost of Living Adjustment) wage increases with the state and county employees just so that we can keep our employees,” he said.
Fincher also noted the state has not yet approved its own budget.
“As most of you are aware, the state’s still not given us a budget this year,” he said.
The proposed budget returns the city to a line-item format and uses a zero-based budgeting approach.
“Also we started all budgets at zero. Not simply carrying over values from previous years. We said, ‘listen, we know you need to consider past years expenditures but let’s start at zero and go and prove what it is that we need to spend before we actually start putting these numbers in,’” Fincher said.
He said the city also adopted conservative revenue projections to avoid future shortfalls.
To help close the budget gap, Fincher said phase two of the city’s Employee Compensation Plan has been postponed and some increases in employee health insurance costs will be passed on to workers.
The city also froze nine positions and future vacancies outside of public safety.
“We’re not going to freeze public safety though because that needs to remain in operation, but we’re going to look at each position as they become vacant and evaluate them,” Fincher said. “We are now currently at one of the lowest number of employees in recent times, and if we make further cuts in personnel it’s going to adversely affect operations.”
Fincher also recommended funding for Martinsville City Public Schools remain at last year’s level.
Even after the proposed cuts, Fincher said the city still faced a deficit.
One option to balance the budget is increasing the real estate tax rate.
“The real estate tax rate in Martinsville is 75 cents per $100. Among all the cities in Virginia, Martinsville’s rate is well below the average of $1.03, and below the average cities in our region which is $1. In fact, it is the second-lowest of all cities in the Commonwealth of Virginia,” he said.
Fincher proposed increasing the rate by 9 cents, to 84 cents per $100 of assessed value.
“Martinsville would still remain one of the lowest tax rates in the region and in the state,” he said.
Using the average city home value of $133,032, Fincher said homeowners currently pay $997.74 annually in real estate taxes. Under the proposed increase, that amount would rise to $1,117.46.
“Which is a difference of $119.72. That’s a difference of less than $10 per month. Of course that adjusts accordingly to the property value of the house,” he said.
Fincher said there are no proposed increases to personal property taxes, business taxes, the machinery and tools tax, meals tax or local sales tax.
The proposed FY27 budget totals $121,968,951, an increase of $5,485,101 from FY26’s original budget.
Fincher said the budget prioritizes education, public safety, city facilities and operations, and human services and mandated programs.
Among the notable increases are a 20 percent increase in employee health insurance costs, higher risk management insurance costs and increased city hall operating expenses.
“Information services increase every year. Software costs, they just seem to go up every year, but we’re trying our best to consolidate that to control those numbers,” Fincher said. “What is demanded from just Microsoft was just a huge increase this year.”
He also cited rising Child Services Act costs.
“We also had a sharp rise in mandated services such as the CSA, the Child Services Act, but those costs seem to be growing and we’re ordered by the state to pay it,” he said. “This year we’re looking at about $700,000 in child services whereas in years before it was in the $100,000-$200,000.”
Regarding utilities, Fincher said costs are largely driven by outside factors such as electricity purchases, refuse disposal and chemicals used to treat water.
He said the Water & Sewer Department reduced administrative costs by 25 percent, reservoir operations by 15 percent and line maintenance by 6 percent.
“However, there have been increased operational costs in both fresh and wastewater treatment plants,” he said. “That allowed them to break even, so we’re not asking for any increase in water and sewer.”
Fincher said the Electric Department reduced administrative costs by 3.6 percent, construction costs by 3 percent and general expenses by 4 percent.
“However, the cost of purchasing power, the transmission costs, and the general costs of electrical equipment far outpaced the cuts the department was able to make,” he said.
As a result, the proposed electric rate would increase 6 percent to $0.18678 per kilowatt hour.
“If you look at the average home, which utilizes about 1,000 kWh per month, their bill would change from $176.38 to $186.78, so roughly a $10 increase per month on the average home,” Fincher said.
Fincher also said the city’s Refuse Department has operated at a loss for years.
“If we were to continue with the current rate, refuse would lose over $175,000 this year,” he said. “The current unrestricted net position since its inception is in a deficit of $882,250, so we’ve got to make a change to make refuse be self supporting.”
Fincher recommended increasing refuse rates by $5 across the board along with additional billing changes.
