Henrico's Headwinds 

With a big victory behind him, Henrico's John Vithoulkas tackles the challenges of a county in the midst of transformation.

click to enlarge Henrico County Manager John Vithoulkas projects a smooth professionalism. Nearly a year on the job, he's faced a bumpy initiation.

Scott Elmquist

Henrico County Manager John Vithoulkas projects a smooth professionalism. Nearly a year on the job, he's faced a bumpy initiation.

On Oct. 14, three weeks before Election Day, Henrico County Manager John A. Vithoulkas joins a dozen county officials in the slightly threadbare Highland Springs High School in eastern Henrico.

They're all decked out in dark business suits, including Bondy Shay Gibson, assistant school superintendent, and the only woman among them. The group projects a "Men in Black" movie vibe. Vithoulkas insists later there was no dress code, but the image seems to underline the qualities of discipline, service and efficiency that have become the cornerstones of his nearly year-old administration.

The meeting is one of 122 such presentations before Rotary clubs, PTAs and other groups as part of Vithoulkas' extensive outreach campaign to tell the public why county officials think Henrico needs a new 4-percent tax on meals. The money would help plug an $18 million budget hole, he says, and shore up the county's 72 schools, half of which are more than 50 years old.

It's a tough fight, dividing the county like no other issue has in years. The real estate industry, economic development officials and educators square off against restaurant owners, limited government advocates and tea party types.

The criticism of the tax at times grows nasty. One website depicts Vithoulkas in cartoons as an ultra-bland, desk-bound robot speaking in an annoying "South Park" dialect. In truth, the 46-year-old is a somewhat passionate Greek-born, naturalized American who still speaks his native tongue fluently. His English has a distinctive Southern lilt, a product of his Henrico upbringing.

For years the county, named after a 1611 alternative site for Jamestown's English colonists, was a destination for middle-income whites fleeing Richmond. Now it's an entity unto itself with top-notch schools and services — and big imbalances.

Since the real estate crash of 2008, Henrico has seen $4.2 billion of its real estate value evaporate. Federal and state budget cuts have hammered the county, which has struggled to slice services without layoffs. It boasts the lowest real estate tax rate of Virginia's 15 largest localities, and county leaders are determined to keep it that way to maintain an advantage in corporate recruitment.

Vithoulkas also inherited a county that's been undergoing tremendous demographic change marked by rising disparity between its wealthy western half and its less-well-to-do eastern outreaches.

Its western side, which is largely white, boasts some of the toniest shops and restaurants in Greater Richmond. The poorer eastern region, with its large black population, still shows signs of decline. On Nine Mile Road in Highland Springs, one-time neighborhood shops are now store-front churches. Meanwhile, a flux of newcomers is making Henrico far more diverse, changing the equation yet again.

In the run-up to the meals tax vote, history has been against Vithoulkas. In recent years, eight of 12 similar proposed levies failed, including one in Henrico in 2005. "It's your decision," Vithoulkas tells a handful of middle-aged attendees who seem swallowed up by the cavernous auditorium.

On Election Night, a similar but smaller meals tax proposal fails in Chesterfield County — Henrico's doppelganger and competitor.

In Henrico, 102,274 ballots are cast. The meals tax passes by 2,982 votes.

 

click to enlarge Eastern Henrico has struggled to take off economically, faced with such barren retail stretches as the one around Henrico Plaza, which was built in 1970. Schools also lag behind their western counterparts in performance.
  • Eastern Henrico has struggled to take off economically, faced with such barren retail stretches as the one around Henrico Plaza, which was built in 1970. Schools also lag behind their western counterparts in performance.

"I'd never classify a new tax as a victory but we have made commitment to education," Vithoulkas says, pondering the results a few days later. "All of this money is going for the schools and we're not issuing new debt. We're not going into a mode of a spending spree."

In the failed 2005 vote, the results showed a clear-cut division between eastern county blacks in blue-collar jobs and western county whites with white-collar jobs.

This time, the picture is more blurred. In part, the results reveal an alliance of lower-income eastern district residents and the power brokers of western Henrico focused on the issue of school quality.

The county has a reputation to preserve in order to keep attracting middle-class families to its more affluent neighborhoods. And the eastern district residents see the improvement of schools as a path to that middle class. The election results also reveal the more complicated, less-predictable politics of Henrico. Once a safe Republican bet, the county leaned leftward enough in the gubernatorial race to favor Democrat Terry McAuliffe.

"If you compare the 2005 (meals tax)vote to this one, what you saw was, there was a narrowing in the west end between the yeses and the nos," Vithoulkas says. "You had an affirmative vote in the east end that mirrored what we saw in '05."

What this means is that "Henrico County is becoming more of an urban area, more of a city," he adds. "Years ago, you could tell when you came over the county line. Now you feel like you are still in the city."

Part of this represents the demographic shift, he says. "There's an influx of newcomers, with the Asian population having the largest percentage increase. ... One of the things we saw at the informational meetings was a lot of Indian and Pakistani groups requesting information."

The immigrant newcomers place great value on education, and Vithoulkas says he can relate to their personal stories. Born in Athens, Vithoulkas moved to New York and Ohio as a young child before coming to Henrico County in sixth grade.

"When I first came in I was the son of immigrants. I felt very odd, very isolated," he says. "My mom would speak to me in Greek in a grocery store and I was embarrassed. People looked at me. Now my kids speak Greek when they go to the store with their grandmother and I am proud of it."

Indeed, Vithoulkas' story sounds like a Hollywood version of the hard-working immigrant making it in America. After high school in Henrico, he went to Virginia Commonwealth University and graduate school at the University of North Carolina at Charlotte. He worked at early jobs in government at a small Tar Heel town and in Chesterfield. In 1997 he became a Henrico County budget analyst.

Vithoulkas worked his way up the financial side, becoming a protégé of Virgil Hazelett, the superstar county manager for 21 years who earned a national reputation for running a tight fiscal ship while providing high levels of service.

Because of Hazelett and his predecessors, the county boasts a AAA bond rating, a nearly perfect 68-32 percent ratio of residential to industrial real estate, superior police and fire departments, spacious parks, a real-estate tax rate that hasn't increased in 35 years and many excellent schools. Deep Run High School consistently makes best-in-the-country rankings by U.S. News & World Report and Newsweek.

When Hazelett decided to retire last year, he recommended Vithoulkas as his successor. When the Board of Supervisors approved, Hazelett declared himself tickled pink. The two county managers, past and current, meet regularly.

"I have watched John rise for 16 years and I was always impressed with this gentleman," Hazelett says. "His grasp of finance is extremely strong and his grasp of new ideas is fantastic."

Many in the county establishment were equally delighted the supervisors picked the round-faced, bespectacled man.

"John has an excellent, analytical mind," says Laura Lafayette, chief executive officer of the Richmond Association of Realtors, which advocated for the meals tax. "But what impresses me even more is what a huge heart he has both for the people who work for him as well as the citizens he serves."

 

click to enlarge Vithoulkas' predecessor, Virgil Hazelett, ran the county for 21 years, winning accolades along the way. - ASH DANIEL
  • Ash Daniel
  • Vithoulkas' predecessor, Virgil Hazelett, ran the county for 21 years, winning accolades along the way.

But Vithoulkas has had some troubles during his first year in office. "They're doing fine," Hazelett insists, but adds: "It does seem to be a bumpier time. I can tell you that."

In May there was a flap over $17.6 million in school purchases of laptop computers. Vithoulkas overruled the School Board and canceled the order because he thought it hadn't been set up according to purchase rules.

That put him at odds with School Superintendent Pat Russo, who soon became a much bigger headache. The feisty school chief, who was hired in 2009 and paid $216,917 a year, was abruptly put on paid leave earlier this year. The School Board refused to say why he was taken off the job. Russo resigned last week, 98 days after being put on leave and more than a year before his contract was up. The board will pay him a severance package worth $186,434.

School board chairman Beverly Cooke, accepting Russo's resignation, declined to explain what led to it. "It's an ongoing personnel matter," she says.

Russo's situation seems linked to the abrupt resignation of former School Board Member Diana D. Winston. Winston left office on Aug. 21 after it was revealed that her husband, Joe Winston, who owns a business selling promotional items, won on a number of school contracts while she was on the board. Russo and his wife took a trip to Italy's Tuscany region with the Winstons this summer just after Russo's contract was considered for an extension.

Highly regarded for his administrative skills, Russo has had troubles before. He served as superintendent of Hampton schools from 2004 to 2009 before he left for the top job in Henrico. The Hampton School Board sued him for $102,220 in retirement money paid to him, saying he broke his contract by leaving his post one year earlier than stipulated. Russo countersued for $300,000 claiming that the school system did not make good on its agreements.

A School Board spokesperson said the matter is resolved and the settlement is confidential.

In 1996, while head of the Savannah-Chatham County school system in Georgia, Russo stirred controversy by forcing the firing of a teacher in a drug matter. And in 1997, according to news reports, Russo withdrew his candidacy for a superintendent job in Florida after word leaked that he had fathered a daughter with a former girlfriend. He was divorced at the time.

Vithoulkas had noted earlier that the School Board is politically separate from his office and that he had nothing further to say on the matter.

 

click to enlarge The western part of the county bustles with retail, such as this stretch along West Broad Street near Hungary Spring Road. Diners at county restaurants also will face a newly passed meals tax. - SCOTT ELMQUIST
  • Scott Elmquist
  • The western part of the county bustles with retail, such as this stretch along West Broad Street near Hungary Spring Road. Diners at county restaurants also will face a newly passed meals tax.

With the meals tax victory in his pocket, Vithoulkas is pressing forward with his managerial vision, which is all about customer service, he says. It follows the mathematical equation that Hazelett and his other county managers pushed. Vithoulkas describes it as "low taxes plus quality schools equal jobs — equal low taxes."

To achieve this, he wants to make sure that Henrico residents feel they're getting the very best service for the lowest possible cost.

"When I come in, I am glad to see that county employees are parking in the back lots, leaving the first two rows open," Vithoulkas says. "Later, those spots will be taken by customers coming to ask about some service."

He adds, "I love it when a citizen comes into the city garage and says, 'Mr. Vithoulkas, why is it so clean in here?'"

Still, Henrico has moments of tension that reveal themselves in conflicts over income and educational disparities and in questions about how efficiently the county handles its money.

At the Highland Springs referendum meeting, critics made clear they believed the meals tax was regressive and would most hurt the people who could least pay for it.

"A meals tax is not a luxury," Bert Zehringer of Varina said. "Sometimes people have to grab dinner at fast-food restaurants because they have to work two jobs in today's economy. You're going to make it harder for them."

A 6-cent property-tax increase could have resulted in the same money as the meals tax and, presumably, help the schools by the same amount. But meals tax proponents didn't bite. Raising real estate taxes would be more harmful to the county, they argued. The West End, mixed in its voting for the referendum, is home to some of the area's highest-priced residential neighborhoods, which are touted in corporate relocation marketing. Short Pump and Innsbrook also are dotted with upscale expense-account restaurants and boast a high-end Nordstrom department store among other top-drawer outlets.

The local real estate industry makes lots of money from these juicy markets and proponents insisted Henrico couldn't afford to lose its promotional advantage and hike the property tax rate. Henrico not only has avoided raising its property tax rate in 35 years, but also has cut the rate six times since 1996.

"The fundamental question is if you want to invest in the quality of life," says Lafayette of the Realtors' association. "People ask, 'How are the schools?' if they are thinking of relocating."

During the referendum battle, a pro-tax group, Yes 4 Henrico's Kids, directly played up the differences between west Henrico, with its high-performing schools, and east Henrico, with its struggling schools.

A 2012 study showed that Henrico had the largest disparity between suspensions of black and white students of any school district in the state. The study was prepared by the Center for Civil Rights Remedies at the University of California at Los Angeles. Reports show that 75 percent of the school suspensions in the county involved black students, who are only 36 percent of the student population. A recent Henrico schools report showed that from the 2008-09 school year to the present, suspensions for all races were down 38 percent but that African-Amerian students still were being suspended disproportionately. The report called the progress "significant."

More recently, 16 of the 17 Henrico County public schools that failed to earn full accreditation from the state are in eastern Henrico.

"The side of the county [students] live on shouldn't determine how much opportunity they are given," says a flier from Yes 4 Henrico's Kids.

click to enlarge Joey Mirabile of Joey's Hot Dogs was a vocal and visible critic of the meals tax measure. For a while, his meals came with "no meals tax" fliers. - SCOTT ELMQUIST
  • Scott Elmquist
  • Joey Mirabile of Joey's Hot Dogs was a vocal and visible critic of the meals tax measure. For a while, his meals came with "no meals tax" fliers.

One solution would be to spread the wealth that western Henrico has enjoyed eastward. "That was the intention," Hazelett says. The county has been planning for more development in eastern Henrico for decades, albeit with limited success.

Developing eastern Henrico was the reason such mega-highways as Interstate 295 and the 895 Pocahontas Parkway were built. They were intended to funnel new residents and businesses to the cornfields and piney woods around the eastern side of the county.

But a series of setbacks shattered that vision. In the 1990s, the hope was that the manufacturing of computer chips would drive growth in the area. But chipmaker Qimonda, a spinoff of German-based giant Siemens, grew in fits and starts before going bust in 2008. Roughly 1,200 jobs went with it.

The crash in the real estate market and recession stopped dead major subdivisions such as Tree Hill Farm with 2,700 houses, Wilton on the James with 3,200 houses and Ridings, with 600 units.

While housing stagnated, highways were hurt. The Pocahontas Parkway, built under the state's pioneering public-private partnership law, became a white elephant from day one. The toll road attracted so few motorists that Australian company TransUrban saved the state's credit rating by agreeing to take it over in a long-term lease. Now TransUrban is out, the highway is bankrupt and a consortium of European banks is trying to find a new operator for it.

Vithoulkas says he plans to maintain focus on developing the eastern portion of the county. White Oak Technology Park holds some of the most desirable commercial land available in Henrico, he says.

"Jobs, jobs, jobs and our ability to attract new jobs is key for our local economy," he says.

Another issue that came up in the meals tax campaign is whether Henrico is really as well managed as Vithoulkas and others claim. Critics of the tax were quick to ask why the county can't make more financial cuts or manage the revenue it has more efficiently.

Drive-through customers at some Arby's and McDonald's found "no meal tax" fliers along with their purchases. Joey Mirabile, owner of Joey's Hot Dogs on Cox Road, became a local celebrity by appearing on NBC-12 and Jimmy Barrett's morning show on Newsradio 1140-WRVA. "This is absolutely the wrong way to go," he said, noting that the county could do more to keep expenses in check. He stuck anti-levy labels on customers' packages. The tea party was out with opposing street signs.

click to enlarge Innsbrook developer Sidney Gunst emerged as the fiercest critics of the meals tax. - SCOTT ELMQUIST
  • Scott Elmquist
  • Innsbrook developer Sidney Gunst emerged as the fiercest critics of the meals tax.

Vithoulkas' most powerful critic is Sidney Gunst, who talks fast while he spins idea after idea. He grew up in Henrico County and later became a real estate developer who defined much of the county's growth. Gunst orchestrated the Innsbrook development of commercial real estate with some mixed use at Cox Road and West Broad Street.

With its winding roads, walkways and man-made lakes with fountains, Innsbrook represented the best of the 1980s style of urban design, although Gunst acknowledges he'd do something less car-focused and more new urbanist now.

Because he's a developer, it might seem odd that Gunst would have opposed the meals tax. But he's staunchly fiscally conservative and suspicious of government. Gunst used to occasionally fly his own airplane cross-country to the Ayn Rand Institute in Irvine, Calif., for courses and events.

Gunst says the county hasn't been straight with its residents about what its true needs really are. "This is the tip of the iceberg," he says. "They have huge unfunded liabilities and pension levels. The way they are operating can't be sustained. They need to come out and explain this to the people."

Gunst says the county did some fancy footwork to get the meals tax railroaded through at the General Assembly, but failed. Then it complained there was a dire need to find money for roads. Henrico is one of two localities in the state that maintains its own streets. Federal and state cutbacks to Henrico's $1 billion budget and huge revenue losses from the real estate crash were squeezing the county. Somehow, Gov. Robert F. McDonnell came up with $10 million for roads.

So according to the Gunst critique, the county had to come up with another way to sell a tax to plug its budget gaps. Schools were a natural, so county leaders used education as the sales point, he says. But he says there's no guarantee that all of the money raised by the levy will go to schools as Vithoulkas has pledged.

click to enlarge During the campaign Sidney Gunst paid for an animated website which lampooned the tax and Vithoulkas, whom Gunst says he likes.
  • During the campaign Sidney Gunst paid for an animated website which lampooned the tax and Vithoulkas, whom Gunst says he likes.

Vithoulkas wouldn't respond directly to Gunst's criticism, saying that he considers Gunst a personal friend. The county manager did point out, however, that the meals tax referendum spelled out clearly how the funds would be used — all to education, 50 percent of which will go to school maintenance and 50 percent for operating costs.

"Further," Vithoulkas says, "the local ordinance the Board of Supervisors will be asked to adopt will for the first time in the county's history dedicate a local tax entirely to our school system."

It was Gunst who funded the satirical cartoons on the no meals tax website that singled out Vithoulkas for criticism, but, he says: "I really like John."

 

Now that the referendum's passed, what's next? The county still faces $507 million in liabilities to the Virginia Retirement System, the public employee pension fund that is short $15.2 billion statewide. No resolution has been proposed.

Vithoulkas says that Henrico County was one of the first local governments to point out to key legislators that underfunding the state's share of money for the retirement system created a significant liability for all localities.

"It seems that more folks now acknowledge this liability is not something that can be put off indefinitely and this is a liability the state must fund its share of," he says.

The county also needs to keep improving its roads, schools, libraries, parks and other services. Expensive new federal and state mandates to stem water pollution and storm water runoff into the Chesapeake Bay are due.

The meals tax dust-up has revealed other issues, including that the county doesn't charge residents directly if they need an ambulance. It bills a patient's insurance company but doesn't directly charge the patient if insurance doesn't come through. Gunst says not billing for ambulances means the county loses $7 million a year. County Finance Director Hinton says that the administrative cost of such billing isn't worth it financially.

Pushing development in the east is important, but a bigger question is how quickly Henrico's real estate sector will rebound. Lafayette of the Realtors association says that the average sales price for a house in this year's third quarter was $268,017 — 9 percent more than it was in the third quarter of 2012.

If, by chance, there's a much faster rebound, residents might start asking themselves what the meals tax levy was really all about. It might affect who's on the Board of Supervisors. Members don't stand for re-election for a couple years.

The county routinely works its budget around no more than a 2-percent hike in home values and tax flows, but what would happen if a huge rebound starts revenues flowing at much greater rates?

"You really might want to look at how you do management," Gunst suggests. "Vithoulkas didn't cause this stuff. It was in the pipeline. It's how he and the board handled it."

For Vithoulkas, the answer lies in sticking to the mathematical equation: Low taxes plus good education equal jobs — equal low taxes.

"It's a circle that works," he says. S

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