Charlottesville City Council discusses how $12 million a year from sales tax increase might be used for financing school construction

All across Virginia, elected officials who serve as local legislatures are deciding whether to hold a referendum this year to ask voters if they want to increase the local sales and use tax to provide additional funding for school construction.

So far in our area, Fluvanna County’s Board of Supervisors voted on July 1 to move forward with the process while the Louisa County Board of Supervisors declined to take up the item at their meeting on July 6.

Chair Duane Adams of the Mineral District told this newsletter in an email this is “due to the General Assembly creating such a tight timeline to get the measure on the ballot an action of this importance shouldn’t be rushed.”

Albemarle, Greene, and Nelson have moved ahead.

The Charlottesville City Council has been anticipating the possibility of additional funding for several years as legislators in the General Assembly kept trying to pass a bill to allow localities the possibility of a referendum. On July 8, they held a two hour work session to discuss their new power.

“The recently enacted state budget includes authorization for the city to conduct a referendum that would impose a local general retail sales tax at a rate not to exceed one percent,” said James Freas, Charlottesville’s Deputy City Manager.

The funding can only be used for school construction but that does include paying off debt service and other costs of financing bonds.

City Council will vote on a resolution on July 20 to ask the Circuit Court to put the question on the ballot.

“That referendum must be ordered by the court at least 81 days before the date for which the referendum election is called,” Freas said “So November 3rd is the election date and so we’re looking at August 14th as the deadline by which the court must act.”

If a majority of Charlottesville’s voters decide to proceed, Council would then have to adopt an ordinance. Revenue from the tax cannot be collected until 120 days after it goes into effect.

The possibility of additional funding comes at a time when Charlottesville City Schools are preparing for sixth grade students to return to what used to be called Buford Middle School this August. The school has been renovated and expanded at a cost of about $91 million.

Mike Goddard, Deputy Director of Public Works, is part of a working group on school facilities that consists of members of his department, the Office of Sustainability, the budget office, and representatives from Charlottesville City Schools.

“This project is finished [and] it’s got a Certificate of Occupancy now, so it is substantially complete in our parlance,” Goddard said. “It was a $94 million commitment, more or less. And so that’s of the big, big items in our funding picture.”

Goddard said that leaves about $3 million in approved funding that can be transferred to another project. One of those projects might be the Early Learning Center proposed at the former Walker Upper Elementary School, a $55 million project Council learned about on June 10. Council has so far allocated $30 million towards that project, funding that will come from a future sale of revenue bonds.

Elementary or high?

Upfront, Goddard asked Council their position on whether a $150 million renovation of Charlottesville High School should be first in the queue for the additional sales tax revenue.

“Is that the first thing we tackle, it being the biggest fish, or do we get to that at a later time?” Goddard asked.

Goddard estimated the cost of a new high school would be about $300 million in today’s market. The current idea is to add on to the existing CHS for $150 million for a project to add some vocational training space for students who would not otherwise attend the Charlottesville Area Technical Education Center.

“The other thing it does for us is it frees up each of the parts of the high school so that we can do an occupied renovation,” Goddard said. “”So if we’re, if we wanted to just go into Charlottesville High School as it sits today, and renovate the entire school, we would have to break that project into so many tiny parts that it would take the rest of our lives. A better way to do it would be to take a third of the school, for instance, and renovate that while school continues.”

Goddard then went through a list of the elementary schools with higher priority items going first.

• Jackson Via was built in 1968 and is slated to be replaced at a cost of $75 million. The school lacks a cafeteria and a kitchen.
• Greenbrier was built in 1962 and the idea is to make major interior upgrades with a new entryway at a cost estimate of $50 million.
• Summit (formerly Clark) was originally built in 1930 and the plan is to do interior upgrades with a cost estimate of $35 million.
• Trailblazer (formerly Venable) was originally built in 1925 and the idea here is to build on what Goddard called “the best set of bones in the city” with a cost estimate of $25 million.
• Sunrise (formerly Burnley-Moran) was constructed in 1958 and the idea is once again to do an interior upfit at a cost estimate of $25 million.
• Tall Oaks (formerly Johnson) was built in 1955 and a future interior upgrade is estimated at $25 million.
• There are $10 million in upgrades at CATEC for an interior modernization.

Tallying up the estimates

The total price tag for all of these projects is currently at $395 million.

The current sales tax rate in Charlottesville is 5.3 percent with the state government taking in the first 4.3 percent. The city gets one percent currently.

“Over the last decade, if you average out the city sales tax revenue, we’ve averaged annual growth of just under 3 percent,” said Krisy Hammill, the city’s budget director. “In FY25, we collected a little over 14 million. FY26, our last projection was 15.6 million. And our budget for 27 is projecting $16 million.”

However, you can’t double that amount because the new sales tax would not apply to food or personal hygiene products. For now, she is assuming the additional revenue would be about $12 million a year. That could be leveraged for as much as $125 million dollars in new debt but that would quickly cause the city to hit a wall if it issued it all at once.

In the current fiscal year, the city will pay debt service of $18.6 million to pay off a current general obligation of $148.6 million. That is 6.7 percent of the total general fund and the city’s continued AAA bond ratings depends on that percentage not exceeding ten percent. Nine percent is the optimal maximum target.

In FY28, the debt service payment will increase to $26.4 million and the ratio will increase to 8.4 percent.

After discussing the finer points of loan amortization, Hammill announced a figure for the city to aim for in the short-term .

“Tight now based on just these projected numbers, $35 million would be about the number that we would want to leverage for debt to keep at our target,” Hammill said. “And that would help us maintain our policy as well as our credit.”

This approach would use some of the annual proceeds from the sales tax revenue to be used as cash to pay for some projects.

“If we’re using more cash to pay for projects, that also says that we’re going to, implies that we’re going to focus more on kind of annualized, the annualized set of funds and kind of multiple projects over time, as opposed to one or two larger projects,” Freas said.

“If we’re bonding more, that means we’re probably going to go towards an approach of a fewer number of larger projects,” Freas continued.

No decisions were made at the meeting.

Councilor Natalie Oschrin said the elected officials may have to consider whether the additional revenue might give the opportunity to lower another tax rate.

“That’s a question that the public is going to ask and has been asking already is ‘we’re already spending this much’ [or] ‘it cost me this much to go out to eat and now we have to add in more’ when we do have the capacity, we have the ability to reduce a lever somewhere else.”

Councilor Michael Payne said he wants to move forward with the sales tax referendum but said the city can’t afford to build the entire $395 million wish list.

“We’ve increased taxes multiple times,” Payne said. “We have among the highest meals tax and lodging tax rates in the state. We’re still not among the highest on real estate tax but that comes with legitimate trade offs. We still haven’t incorporated the full costs of collective bargaining on the city or school into our budget.”

Payne said he would support funding the elementary school projects first while further conversations are had about the needs for a renovated high school.

Council will hold a work session on August 12 with the School Board to further discuss the prioritization.

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