There’s a refrain in Richmond during springtime budget discussions that you’ve undoubtedly heard before. It echoes in cities across the country that are wrestling with the rising cost of staffing police and fire departments, educating children and maintaining aging infrastructure. Mayor Levar Stoney, in his first budget presentation to Richmond City Council in March, called it a “stark reality.” The refrain? We simply don’t have enough resources for (insert core city service here).
In recent years, this cold, hard truth put Stoney’s predecessor, Mayor Dwight C. Jones, at odds with the Richmond Public Schools administration and the School Board. Seeking to avoid a similar spat, Stoney pledged $6.1 million in additional funding for schools as a show of good faith. That was before the board’s February vote approving a budget that asks for a $20 million increase.
As the fresh-faced mayor said during his remarks to council, local governments don’t have the luxury of passing unbalanced budgets like the federal government does. Or, as he put it, “We can’t just print money.” That got us thinking: What can city leaders do to increase Richmond’s revenue in the short-term, grow its tax base in the long run and have cordial (read as: boring) budget deliberations, like their neighbors in the counties do?
How does the city get its money?
Richmond relies on a bevy of taxes to cover the lion’s share of its $681 million general fund budget. All local taxes combined are expected to bring in about $478 million, according to the mayor’s proposed budget. The remaining 30 percent of the general fund comes from the state and from city licensing and permitting fees and charges for goods and services such as sanitation and waste removal.
37%: Real estate taxes comprise more than a third of the total proposed budget for 2018.
As is the case with most localities, property tax bills account for the largest chunk of the city’s tax base. Real estate taxes alone account for nearly $263 million, or about 52 percent of local tax revenue, Stoney’s budget proposal shows. At $1.20 per $100 of assessed value, city real estate taxes are the highest in the region and among the highest in the state. For context, Chesterfield County taxes real estate at 96 cents per $100 of assessed value. Henrico County taxes real estate at 87 cents per $100. Behind real property, the next largest revenue source is personal property tax, also called the car tax. It accounts for $41.5 million, just below 10 percent of the city’s tax revenue.
Other local taxes are projected to raise an additional $152 million next year, according to the mayor’s proposed budget. These include the city’s fastest-growing revenue source, according to finance officials: the meals tax. The 6 percent charge added to each check at your favorite bar or restaurant is expected to gross $36.6 million in the upcoming fiscal year. Other consumer taxes include the 5 percent sales tax on goods and services ($34.1 million), the hotel tax ($8 million) and the admissions tax for tickets to shows at venues such as the National or Altria Theater($3.2 million).
For a full breakdown of local tax sources, see the graphic below.
How can the city make more money — without raising taxes across the board?
1. Collect what it’s owed.
Richmond’s real estate tax collection rate is 96 percent. This sounds high, but it is slightly lower than other localities around the state. One percent equals $2.4 million, finance officials say, meaning that the4 percent the city leaves on the table adds up quickly. Stoney has pledged to increase the city’s collection rate to 97 percent in the upcoming fiscal year in an effort to ensure everyone is paying their “fair share,” he told City Council. He also has proposed a grace period at the start of the upcoming fiscal year for delinquent taxpayers to pony up their overdue balances without paying requisite penalties and interest they technically owe. “Everyone needs to do their part,” the mayor said. “And if you don’t, well, you can’t say you haven’t been warned.”
2. Retail. Retail. Retail.
The city’s retail base is, in a word, anemic. Although its local sales and use tax revenue has increased incrementally over the last three fiscal years to a projected $34.1 million, the figure is dwarfed by that of neighboring counties. Chesterfield made $45 million from local sales tax during the last fiscal year, according to its 2016 comprehensive annual financial report. Henrico made $58 million, its report shows. Yes, both counties have larger, more affluent populations with disposable incomes than the city does. But leaders, including Council President Chris Hilbert, have long lamented that Richmonders must drive across county lines to do their shopping. Reversing the trend is critical. Where to begin? “The piece of [city-owned] property over on the Boulevard is just begging to be developed,” says Kim Scheeler, president of ChamberRVA. “If you could get any kind of commercial or residential [development] built there, it would add to the tax rolls.”
3. Negotiate a new payment in lieu of taxes with the state and VCU.
There is $29.8 billion worth of real property in the city, according to the assessor’s office. However, about a quarter of that sum — $7.3 billion — is tax-exempt, meaning more than 3,700 property owners throughout the city do not receive a real estate tax bill annually. Nonprofits, churches and disabled veterans can apply for and receive tax-exempt status. Also exempt are public entities, such as state government and Virginia Commonwealth University. Currently, the state makes what is called a payment in lieu of taxes, or PILOT, to the city each year for services the city provides. For the upcoming fiscal year, the state’s payment will be about $3.9 million. VCU, with its ever-growing footprint, doesn’t pay one at all, a university spokesman says.
73,800: Property tax bills issued annually
It’s a delicate question cities across the country are facing: How do you squeeze money out of an anchor institution that isn’t required to pay a dime for valuable downtown real estate? “There are incredible hurdles because [tax-exempt entities] look at it and think ‘Hmmm, if I make a payment in lieu of taxes, am I on my way to a slippery slope?’ ” says Daphne Kenyon, a fellow at the Lincoln Institute of Land Policy. In spite of this, cities such as Boston and Providence, Rhode Island, have hammered out agreements, she adds.
4. Get blighted and tax-delinquent properties back on the books.
At last count, there were nearly 1,000 vacant properties within city limits. These structures are typically blighted. Many are also tax-delinquent. Consider the average property assessment is about $201,000. At $1.20 per $100 of assessed value, that means the average property tax bill is about $2,400. Returning vacant and tax-delinquent properties to the rolls, as the city has sought to do in recent years, at a faster clip — say 100 each year — would, over a decade, generate millions in additional revenue. And that’s not counting the effect it would have on the assessments of surrounding real properties bogged down by blight.
5. Incentivize development of under-improved parcels.
Is there a vacant lot you walk by and wonder, why hasn’t someone built something on this yet? Some cities are nudging owners of under-developed properties by taxing them at a higher rate. It’s called a “land-value” tax. The benefit is twofold: If they choose to hold on to the property, the city makes more money on it. If they decide to part with the parcel, which is what the tax is effectively designed to do, the land can be developed. Hartford, Connecticut, is weighing a land-value tax proposal as a means of revitalizing its downtown. Washington, D.C., also adopted a similar measure in 2011.