Charlottesville plans to advertise a 2-cent increase in its real estate tax rate — the first potential increase in nearly four decades — but the city could seek revenue in other places.
City Council came to the decision in a budget work session on Wednesday.
The increase would be on top of higher bills caused by an average 7.9-percent increase in assessed property values in 2018.
The city is also considering raising meals and lodging tax rates to cover a projected gap of nearly $6 million in its operating budget for the upcoming fiscal year. However, Wednesday’s work session made it clear that a jump in the meals tax may not have the votes needed to pass.
The city is operating on a $179.7 million budget for the current fiscal year.
City staff is working with a $5.9 million gap between revenues and expenditures. Last week, city staff presented a proposal that included 1-percentage-point increases in the meals tax, to 6 percent, and to the lodging tax, to 8 percent.
The gap comes after department requests have already been reduced and the city tries to fund pay increases and affordable housing redevelopment projects.
Those tax increases would have generated about $3.2 million, and staff would cut $2.7 million in department requests.
Councilors requested Wednesday’s work session to see the impact proposed tax rates would have on residents and visitors.
Publishing a public notice with a 2-cent increase allows council to adopt that rate or anything lower. Council cannot adopt a higher rate without another public notice. The change would make the rate 97 cents per $100 of assessed value, the first increase since 1981.
The city also must publish a notice of an effective tax increase because of higher property values under the annual reassessment. Assistant City Manager Leslie Beauregard said the rate would need to be lowered 6 cents to 89 cents per $100 of assessed value to keep tax bills from rising.
The owner of a home with a tax value of $350,000 before the reassessment, the average home price in the city, saw their property value jump by more than $30,000. Without a change in the real estate tax, they would pay an additional $289 a year in real estate taxes.
With the effective rate increase and a 2-cent hike, the owner of an average home would see their bills rise by $365 to $3,690.
A 1-percentage-point increase on the meals tax rate would raise the cost of a $10 meal by 10 cents. A $50 meal would cost 50 cents more and a $100 meal would cost $1 more.
Meals tax revenue would increase about $2.4 million with a 1 percentage point increase.
Raising the lodging tax would increase the cost of a $130 room, the average in the city, by $1.30.
A hotel room in the city would cost $5.40 more than in Albemarle County with the increased rate. Under state law, the county’s lodging tax can’t be raised above 5 percent without General Assembly approval. It is currently at 5 percent.
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Although industry representatives have told the Charlottesville Albemarle Convention and Visitors Bureau that profits are down, Interim City Manager Mike Murphy said increasing the lodging tax doesn’t cut down on visitors.
“There are more and more rooms, and more and more people are staying in them,” he said.
Councilors Mike Signer, Kathy Galvin and Wes Bellamy didn’t support the meals tax increase. Signer also didn’t support the real estate tax hike, while Councilor Heather Hill was hesitant because of the effective tax increase. Bellamy said he’s willing to consider the raised rate.
Signer said he is only in favor of raising lodging and cigarette taxes. The cigarette tax generates $11,182 for each cent it is increased. Mayor Nikuyah Walker pointed out that smokers may just drive outside the city limits to avoid the higher purchase price.
Walker said everything should be an option.
“I don’t think we should be saying that anything is off the table, especially with just the fact that people are going to be upset,” Walker said.
Galvin said meals taxes hit low-income residents more and property taxes weigh heavily on wealthier people.
Walker said the city is considering ways to ease the burden on low-income homeowners.
The proposed budget already includes a $700,000 decrease in the School Board’s planned request for operating expenses.
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Most of the discussion on Wednesday centered on funding $3 million in design work for the division’s reconfiguration of elementary and middle schools.
The school system has been considering adding sixth grade to Buford Middle School and renovating Walker Upper Elementary School into a centralized preschool. Fifth grade would return to the elementary schools.
Construction for the proposal could cost anywhere from $55 million to $80 million, but that would be split across the budgets for fiscal years 2021 and 2022.
Councilors and city staff were hesitant to include the construction cost in the capital improvement plan because it isn’t finalized and it doesn’t include ongoing operating costs.
The city wants to commit to the design phase of the project before determining how to support construction costs.
“We won’t get anywhere unless we get some of that real deep planning design on the project,” Galvin said.
Murphy said the city also couldn’t cover the cost and remain in its debt policy.
“We need to continue on a growth arc in revenue just to cover the things that are already in the CIP,” he said.
Galvin said funding the project needs to be a priority.
“If we don’t begin to tackle the question of the school modernization, we won’t ever do it,” Galvin said. “We have been just routinely pushing that off. … Instead of saying we can’t do things, how do we figure out how to do things?”
Among the other considerations for the spending plan is a $5.3 million proposal to increase salaries across the board by 4.17 percent. Police officers would receive an additional raise for a total of 9 percent, and another priority is contributing to affordable housing redevelopment throughout the city.
The proposed budget for FY2020, which starts July 1, will be presented to the council March 4, followed by four work sessions and a community budget forum. A public hearing on the budget and tax rates is scheduled for the council’s regular meeting March 18.
The council is expected to approve the budget and tax rates April 9.
Murphy said he wasn’t sure if the final proposed budget would include a meals tax increase or cuts to funding in other areas.