Rogers recommends two cent property tax increase for CY22
Charlottesville City Council held a public hearing Monday on the real estate tax rate and personal property tax rate for the fiscal year that begins on July 1. Shortly before, Interim City Manager Michael C. Rogers presented Council with several ways forward on raising funds in the next five years for paying up to $75 million for the renovation of Buford Middle School. (review the presentation)
“For the FY23 budget I recommend that Council should enact a two cent real estate tax and set the money aside within the capital projects fund earmarked as the beginning of an annual funding program to generate funds for school reconfiguration,” Rogers said.
Before Richardson’s recommendation, Council got another lesson from Senior Budget Management Analyst Krisy Hammill about the city’s looming debt crisis.
“We have approximately $85 million that’s currently outstanding,” Hammill said.
Hamill said the city currently pays about $11 million each year for debt service and that amount would drop if no further debt was issued.
“Of this outstanding debt, about 28 percent of that is for school-related projects that have already been completed,” Hammill said.
Hammill presented multiple scenarios, all which assume an annual growth rate of 1.5 percent over the next from the real estate property tax as well as two percent in revenues from meals tax rate.
Hammill said it is the size of the project that is presenting an accounting problem. Without it, the city would expect to have a total five-year CIP of $82.4 million, requiring the sale of $46.9 million in bonds.
“With the other projects that are on the Capital Improvement Plan list, they are of such amounts that we can manage our CIP within our affordability,” Hammill said.
But adding a $75 million project will increase the total CIP to $157.4 million, requiring the sale of $121.9 million. VMDO, the architectural firm hired by the school system for reconfiguration, has suggested splitting those bonds sales over the period with $2.5 million this year, $20 million in FY24, $32.5 million in FY25, and $20 million in FY26.
“Our annual debt service payment is moving from the $11.4 million that we’ve been talking about up to about $22 million in 2032,” Hammill said. “This is roughly equivalent to about a two cent tax increase over the next four years if we were going to that incrementally.”
Other scenarios include a seven cent tax increase in FY23 in order to build up a larger reserve to pay off debt service. Another would be to reduce the city’s cost for reconfiguration to $50 million.
Kevin Rotty, a financial consultant who advises the city on long-term debt, said other options would be to reduce city spending as well as to continue exploring state funding in advance of a special session to resolve the state budget that has not yet been called.
“There’s a couple bills in the General Assembly right now which are talking about school construction,” Rotty said. “Certainly the city is not unique in having some school needs here.”
The exact funding scenario depends on multiple variables, but the main lever Council gets to control is the tax rate.
Rogers weighs in with his recommendation
Rogers reminded Council that the city will have to pick up the tab for paying 15 firefighters after a federal SAFER grant runs out. Collective bargaining will also have a cost as well.
“There are some big opportunities in transit and opportunities to make progress on our climate plan but we’ve got to add money to match the funds that are available from the [federal government and the state,” Rogers said.
Rogers said the two cents this year would allow for funding to be saved up while work is done on a more detailed financial plan.
“The proposed school reconfiguration has not been integrated into the city’s capital improvements program in a manner that will allow City Council to make a coordinated funding plan,” Rogers said.
Nevertheless, he said there was a need to ensure that the city could cover its obligations for past needs as well as future ones.
Rogers recommended delaying a bond issue for reconfiguration for the school in FY23 until after a long-term plan could be developed. He also suggested a rehaul of the entire capital improvement program to be ready for next year’s budget.
“Let’s move forward but not too fast,” Rogers said. “Let’s take a pause and start putting away some money for this project.”
Rogers said that would also give more time to see how the statewide conversation on school construction funding plays out.
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