CHESAPEAKE — A new elementary school in Chesapeake will be $15 million more expensive than previously projected. The cost to widen George Washington Highway has increased by $12 million.
Those are two capital projects Chesapeake city leaders say are being affected by high inflation rates that have been felt widely among consumers across the nation. As Hampton Roads cities finalize budgets that will guide spending over the next year, local governments are feeling the pinch, too.
In Chesapeake, it’s prompted city leaders to reprioritize capital projects as the cost of providing services and bidding for projects has increased with inflation.
Chesapeake Budget Director Jonathan Hobbs told city council members in March that though the rate of growth is down, overall inflation is still up. A graphic he presented shows inflation rose by 3.9% between January 2023 and January 2024, down from the 6.6% rate of growth in the prior year.
Those rates are based on the consumer price index measurement of inflation which tracks price changes of core goods and services, but excludes food and energy costs as they can be more volatile, according to Vinod Agarwal, an economist at Old Dominion University.
The latest data from the U.S. Bureau of Labor Statistics show the cost of all items excluding food and energy was up 3.8% in March over the last year — a 0.4% increase from the month prior.
The effects of inflation means the city will have to pursue grants or delay some projects, including some that had previously been fully funded. The city will now need additional funding in future years to cover the costs of the George Washington Highway (U.S. Route 17) widening project, which was estimated at $47.8 million but has risen to $60.1 million.
Improvements at the Mt. Pleasant Road at Great Bridge Bypass Interchange were funded at $6.6 million, but now cost $9.4 million. And a new nearly $56 million elementary school at the Culpepper Landing site is now estimated at $71.3 million.
With more money now required to pay for these capital projects, that leaves less to spend on others. City officials said other projects may need to be postponed or scaled back, including an emergency vehicle storage facility and police academy gym replacement.
The city’s proposed total capital improvement program is valued at $861.12 million over five fiscal years, with $367.52 million of that earmarked for fiscal 2025.
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Chesapeake City Manager Chris Price said at the March meeting that the takeaway message from the proposed CIP is that though the city will be doing fewer projects than planned, they will be completed more quickly.
“I’ll just be very candid: we’re not at all confident in the fundamentals of the economy,” Price said. “The rate of inflation that we’ve had over the past several years is unsustainable.”
Agarwal said economists anticipate inflation to continue declining, despite some fluctuations, and arrive at a better level toward the end of next year. He said a rate hovering around 2% is the goal.
“We expect inflation to decrease,” Agarwal said. “It will take some time.”
Some of the city’s operating expenses most affected include the cost of synthetic motor oil for vehicle fleets, cooperative agreements with the health department, the cost of renting a portable toilet by the Parks, Recreation and Tourism Department, library resources and body armor for police officers. All of those rose by more than 20%, Hobbs said.
“So without additional resources, that means we’re seeing a reduction in buying power,” Hobbs said.
Hobbs said the city has about $1 million in reserve for increased fuel costs for its fleets. And pursuing bond financing for the new public safety training academy frees up money in the city’s fund balances to help cover some capital priorities. The proposed fiscal budget also includes the use of $153.9 million in one-time funding and other fund balances over a five-year period to cover most capital projects.
Agarwal said high inflation rates will be less of an issue moving forward as they continue to come down, but that rates may be more of a factor in project plans made two or three years ago. Additionally, labor costs are up as the availability of workers is down compared with pre-pandemic levels.
The city council is expected to adopt the budget, including the proposed CIP, this month and it will span from July 1 to June 30, 2025.
“We are a consumer just like an individual is,” Hobbs said. “So when we go out and consume, we are impacted by the same market forces.”
Natalie Anderson, 757-732-1133, natalie.anderson@virginiamedia.com
