Tag Archives: Henrico meals tax

Hmmm. Tastes Like Chicken.

eating_crowTime to eat crow. The tax assessment numbers are in for Henrico County, and they are disappointing indeed — up only 2.8% from last year. (I blogged about Chesterfield’s assessment results yesterday.) I had suggested that soaring home sales prices would give a much bigger boost to the tax base, obviating the need for a 4% meals tax. The number was slightly higher than the 2% percent that the county administration had budgeted, but not enough to close the county’s perceived long-term budget gap.

So, kudos to the county administration for getting it right.

This still doesn’t change the bigger-picture narrative I advanced about Henrico County — the county cannot continue doing business as usual. I do not buy the false alternative that local governments have no choice but to raise taxes or cut services. The county manager took a small step in the right direction recently when he proposed disposing of excess property, a move that would simultaneously lower operating expenses, increase the tax base and strengthen the county’s balance sheet. But that’s just a start.

Henrico County needs to get serious about exploiting the potential of the “smart city” revolution criss-crossing the globe. The county needs to move more aggressively to urbanize selected parts of the county to bolster its tax base with higher-yielding, lower-costing development. And it needs to take greater advantage of the burgeoning revolution in online learning. In the final analysis, the meals tax is an $18 million blip on a billion-dollar budget. It’s a temporary patch. It’s also over and done. Let’s start thinking about longer-term reforms.

— JAB

How to Get a Meals Tax Passed

Image credit: Henrico Monthly

Image credit: Henrico Monthly

by James A. Bacon

This past April the Richmond Association of Realtors commissioned a poll to assess the views of Henrico County voters toward a proposed 4% meals tax. When CEO Laura Lafayette reviewed the results, she knew the pro-tax forces faced a major challenge in getting the tax enacted. Respondents opposed the idea 67% to 32%.

But on election day, the meals tax passed with a two-point margin of victory. Writing in Henrico Monthly, Greg Weatherford provides the behind-the-scenes story of how the Axis of Taxes got the job done.

The simple explanation is that the taxers out-spent the anti-taxers by 16 to one. Yes 4 Henrico’s Kids, a pro-tax advocacy group backed by the Realtors and other business interests, pumped $197,000 into the campaign. Henrico County spent another $46,000 on a website and mailers. And those numbers under-state the resources invested. County administrators dedicated hundreds, if not thousands, of hours of staff time to delivering the pro-tax sales pitch under the guise of “informational” presentations at dozens of public hearings.

By contrast, Sidney Gunst, the most visible of the anti-tax activists, spent $15,000 of his own money for a website, stickers, Val-Pak inserts and limited advertising.

The really interesting story, though, is the strategy behind the spending. A trio of political consultants active in Democratic Party campaigns — Abbi Easter, Michael Brown and Rhett Walker — formed a brain trust for the Realtors. The “three amigos” came up with one key insight that decided the outcome: While the county’s substantial black population regarded the meals tax as regressive, hitting them disproportionately, they were receptive to the idea that the meals tax would prevent cuts to Henrico County Public Schools, which would impact poor, black-majority schools in the county’s East End the hardest. By framing the issue as one of protecting public schools from cuts, the pro-taxers won decisive support from black voters.

Weatherford describes a meeting in early October in which Varina District Supervisor Tyrone Nelson and about 15 ministers, mostly African-Americans, met with County Manager John Vithoulkas. The Rev. Marcus Martin, writes Weatherford, “came away from the meeting convinced that sharp cuts in the schools budget would fall hardest on poor students, whose parents can’t afford to pay for services not provided through the school.” Without the tax, said Martin, schools faced “catastrophic cuts.”

Gunst and other anti-tax voices (including me) argued that the threat of catastrophic cuts to schools was a scare tactic. First, we noted, property values were booming and the county would enjoy a windfall increase in real estate property tax revenues that had not been anticipated in budget forecasts. Second, we suggested ways the county could find money for schools from general government funding.

But as Weatherford notes, “Opposing voices were drowned out. The well-organized county management and the efficient work of the Richmond Association of Realtors and its team of political consultants were driving home their points.”

The county public relations staff worked all out to line up community meetings, where Vithoulkas, Budget Director Brandon Hinton and other officials could make the case. At the public hearings, county officials refused to debate the opponents on the grounds that they weren’t taking sides, they were simply presenting “the facts,” and therefore there was no one to debate. The format left county officials firmly in control of the hearings. While they did take questions from opponents, administrators could rebut them at length and cut them off at will.

Meanwhile, Yes 4 Henrico’s Kids ramped up its own website, hit the school-disparity issue with a mailer and organized a get-out-the-event drive in which 1,500 school children knocked on doors in the Fairfield district on election day to get out the vote.

It wasn’t easy changing the minds of nearly 20% of voters from opponents from “no” to “yes,” but the pro-taxers pulled it off. They deserve a grudging respect for their political acumen. But the battle is not over. The meals tax is a short-term palliative that will not address Henrico’s long-term fiscal and educational challenges. In the absence of fundamental reform — and there is no evidence that any such reform is contemplated — budget pressures will mount, school performance will continue to underwhelm and the Axis of Taxes will come back for more.

One Battle Ends and Another Begins

goliathby James A. Bacon

Goliath won in Henrico County yesterday. The political class got its 4% meals tax yesterday, squeaking by with a two-point margin of victory. With an extra $18 million in revenue, the Board of Supervisors will be able to meet Henrico’s challenges without altering the way the county does business. The status quo prevailed. But the need for fundamental change remains and the losers aren’t going away.

County administrator John Vithoulkas and his team deserve enormous credit (or blame, depending on your perspective) for the victory. County management went to the mats over the past three to four months, organizing and attending some 80 public meetings. They pushed every button there was to push, seeking endorsements from the Fraternal Order of Police, the Henrico County Council of PTAs and every other group with a connection, direct or indirect, to county government. They spent more than $60,000 in taxpayer dollars on pro-tax propaganda that came within an inch of violating state law requiring a neutral presentation of the facts. And they recruited business groups who feared property tax increases to kick in $145,000 in a direct mail campaign to voters. In the end the Yes 4 Henrico Kids advocacy group probably proved decisive: Its appeal to East End racial grievances over poor schools showed up in lopsided pro-tax election results in several eastern Henrico precincts.

Arrayed against this imposing force was Sidney Gunst, developer of the Innsbrook office park and Ayn Rand disciple, who donated $10,000 to NoMealsTax.net as well as a handful of individuals who contributed mainly their time and effort. The redoubtable David lost this round. But he will be back, I am fairly certain.

(By contrast, Chesterfield voters rejected a 2% meals tax. Surprisingly, they approved the two bond referenda — one for school rehabs and the other for a new emergency communications system — that the tax would have funded. That will leave county officials scrambling for a new source of revenue, an outcome that they probably did not expect.)

What comes next in Henrico?

“I just hope that the citizens that voted for this tax will hold the county accountable for all that the county has promised,” Gunst told the Times-Dispatch. “Henrico has said that the meals tax is in lieu of a real estate tax increase and that it’s going to right their fiscal ship. I’m not convinced. Henrico’s going to be coming back to the well in my opinion.”

Gunst is absolutely correct to say that Henrico faces long-term fiscal challenges to which the meals tax will apply only a Band-Aid. But it may be a while before supervisors “come back to the well” for another tax increase. If booming house-sales estate prices are reflected in higher property tax assessments, the county could enjoy a double bonanza next year — meals tax revenues plus higher property tax revenues. County officials insist that no gusher in property-tax revenue is forthcoming. We’ll see. If they’re wrong, they’ll have some explaining to do.

While local governments across the United States are experiencing chronic fiscal stress, Henrico stands at the brink of a golden age if only it can jettison its blinkered, Business-As-Usual mentality. I have written extensively about the online revolution in education, the deployment of digital technologies to achieve smart-city efficiencies, and the application of fiscal analytics to foster growth and re-development that pays for itself. With its AAA bond rating and low real estate tax rate, Henrico is far better situated than most local governments to exploit these historic opportunities. The only thing holding back Henrico County is… Henrico County.

Passing the meals tax will leave Henrico supervisors fat and happy. Citizens will have to find other ways to jolt them from their complacency.

Pitching the Meals Tax to Minorities and the Poor

The newly renovated Varina High School.

Disparity: The newly renovated Varina High School.

by James A. Bacon

I guess the “it’s for the sweet little children” mantra isn’t working. Proponents of the Henrico County meals tax have upped the ante. Now a pro-tax advocacy group, Yes 4 Henrico’s Kids, is appealing to class and racial resentments of residents in the east end of the county, who are more likely to be poor and black than in the affluent western end of the county.

According to today’s Times-Dispatch, Yes 4 Henrico’s Kids has distributed a flier with pictures of four school children and text that says, “The side of the county they live on shouldn’t determine how much opportunity they are given,” and, “YES on the meals tax means a few pennies that can improve ALL our schools.”

While the flier does not explicitly say the county is short-changing East End schools and does not make an overt appeal to race, it taps into well-aired complaints over the past year by African Americans in eastern Henrico about disparities in the distribution of school resources and the disciplining of white and black children, as described here and here.

This pitch should be condemned by meals-tax advocates who have refrained from making such irresponsible appeals. It is reckless and wrong in so many ways.

What disparity in resources? There is no evidence that eastern Henrico schools get fewer resources than west end schools. Indeed, a case could just as easily be made that East End schools receive preferential treatment. A May article in the T-D noted the following:

  • The School Board had recently approved the addition of 144 children to the federally funded pre-school program.
  • The school district is using a $16.4 million federal grant to provide incentive pay at eight eastern Henrico schools to help retain teachers.
  • When the school board increased the number of students per class because of budget challenges, 10 eastern Henrico schools were exempt from the belt tightening!
  • At the time the article was written, Varina High School had completed a $28 million renovation; three other East End schools had  recently undergone rehabs as well.

The controversy isn’t that eastern Henrico schools don’t get equal resources, it’s that residents claim they need more than equal resources. As the T-D quoted school board Chairman and Fairfield District representative Lamont Bagby: “We don’t need equal resources because a lot of the schools, especially in the Fairfield District, need more resources because they have more challenges.”

More resources won’t fix all problems. East End residents have complained that black students receive more suspensions than white students. (Blacks comprise 36% of the student population but receive 75% of the suspensions.) Other gripes: Blacks are less likely to be admitted to gifted programs, and blacks suffer from a “culture of low expectations.” Those problems require an administrative remedy, not a monetary remedy.

The meals tax does not address disparities. Henrico school spokesman Andy Jenks told the T-D that county officials have not justified the tax as a way to reduce differences in school performance.  Rather, the county maintains that meals tax revenue would support capital improvements and teacher pensions countywide.

T-D reporter Ted Strong asked Yes 4 Henrico’s Kids spokeperson Kristina Hagen if she thought it accurate to imply that meals tax revenue would be used to reduce the racial performance gap. Her lame response: “Continued and severe cuts to the entire Henrico County school system would do nothing to address disparity.”

The meals tax is regressive. The supreme irony is that the meals tax is regressive. County officials justify the tax on the grounds that the alternative would be to raise the real estate property tax. Question: How many poor, East End residents eat out at Hardee’s or McDonalds versus how many own their own homes?

Yes 4 Henrico’s Kids asserts the tax is “only pennies,” says Sidney Gunst, the real estate developer who has spear-headed the opposition. “But the parents only make nickels!” The Richmond Association of Realtors (RAR), the lead supporter of Yes 4 Henrico’s Kids, has the most to gain from blocking a property tax increase, he notes.  It takes unbelievable chutzpah for the West End group to pitch the meals tax over the property tax on the basis that it would help poor, black East End residents.

RAR board members need to rein in their renegade advocacy group or Realtors could suffer major blow back. Disguising raw self interest by pretending to act in the interest of racial minorities and the poor is about as low as you get get.

For the record: County officials may be touting the meals tax but, as far as I know, they have not endorsed or affiliated themselves with this noxious flier.

Neither Kristina Hagen nor Andy Jenks responded to my request for an interview.

The Truth Trickles Out… Henrico Home Sales Still Booming

Henrico housing prices: Up, up and away!

Henrico housing prices: Up, up and away!

by James A. Bacon

Well, well, well. How about that. Home prices are still booming in the Richmond region, according to the latest Richmond Association of Realtors (RAR) data. In Henrico County, where citizens will vote on a 4% meals tax in November, the median sales price increased 11% in the third quarter of 2013.

Faithful readers may recall that I argued back in August that a surge in housing prices — median Henrico sales were up 11.8% as of the second quarter — indicated there was no need to enact a meals tax. Rising assessments would juice residential property tax revenues by roughly $18 million more than budgeted, or the same amount county officials expected to raise from a meals tax.

No, no, no, replied Laura Lafayette, CEO of the RAR in a Richmond Times-Dispatch column. Updated numbers, she said, showed that the rise in median sales prices had slowed to only 7.7%. She was the expert. I deferred to her authority on the subject and dropped that line of argumentation.

So, it comes as quite a surprise to read about the latest market data in the Times-Dispatch. It turns out that sales price increases have barely slowed at all in the latest quarter — dipping from a blistering 11.8% pace to merely sizzling 11% rate. Gee, Henrico might see only $15 million or $16 million more in residential revenue than anticipated instead of the full $18 million I suggested was possible. Waah.

I was willing to concede in August that Lafayette had a point. Is she willing to concede today that she erred? I’m not holding my breath.

That’s not the end of the story, of course. These debates descend into ever-greater levels of complexity. Henrico Budget Director Brandon Hinton argues that one cannot extrapolate from increases in housing sales to increases in assessed value. The houses that are selling on the market are not necessarily representative of all Henrico houses. Housing demand and sales transactions may be surging in more desirable neighborhoods while other neighborhoods are still afflicted by foreclosures. In a recent public hearing, he stuck to the county budget forecast of only a 2% increase in real estate tax revenues next year.

He’s the professional. He may have a point. Assessments may not increase 11% next year. But it’s hard to imagine that they will increase only 2%. The Realtors report the median price, not the average price. The average price can be skewed by a few sales in the million-dollar price range. The median price cannot — by definition, that is the price at which half of all sales are higher and half are lower. In Henrico’s case, the median price increased to $217,000. That means lower- and mid-priced houses are increasing in value as well.

There are two other significant points to take into consideration.

First, when I calculated back in August that increasing sales prices would increase residential real estate taxes by $18 million, I did not include commercial real estate tax revenues. But if commercial valuations are rising at the same rate as residential, that could represent an extra $7 million in revenue for the county.

Second, no one is taking into account how new construction and building renovation can push up the assessed value of property. Through September this year, Henrico County issued $106 million in building permits. If that construction activity gets reflected in higher assessed value, it would add nearly $1 million in revenue.

Tote up $18 million in higher residential property taxes reflecting higher valuations, another $7 million in commercial property taxes due to higher valuations, and another $1 million from new construction and you get $26 million more than budgeted.

Now, I’ll concede that’s a best-case scenario. It is possible that sales prices will collapse in the final quarter of the year. There may be neighborhoods where sales are not occurring and stagnant prices are not reflected in the RAR data. Due to inherent delays in the reappraisal process, there may be a lag between this year’s higher prices and next year’s tax assessments. But I’ll offer a friendly wager to Laura Lafayette, Brandon Hinton, County Manager John Vithoulkas, Supervisor Patricia O’Bannon or anyone else a dinner at a Henrico restaurant of their choice (meals tax included) that real estate property tax revenues will exceed the official county forecast by many millions of dollars.

I doubt I’ll get any takers. But you can count on one thing. If I’m right, I won’t let them forget it.

More Pandering for the Meals Tax

Vote for the meals tax -- or you'll wreck this child's future.

Vote for the meals tax — or you’ll wreck this child’s future.

by James A. Bacon

The Times-Dispatch reports more puke-inducing rhetoric from the pro-meals tax forces in Henrico County. This time, the intelligence-insulting blather comes from Yes 4 Henrico’s Kids, a group that has solicited $145,000 from business groups to tout the tax.

“I think we’re going to win” the referendum in November, said Laura Lafayette, CEO of the Richmond Association of Realtors. “I think the kids in Henrico are going to win.”

The it’s-all-for-the-kids cynicism is nauseating. Of the vast sum the group has raised to promote the tax, $57,500 comes from Lafayette’s group, another $17,500 from the National Association of Realtors, and $16,666 more from Highw00ds-Markel LLC and Highwoods Realty Limited Partnership — all of which stand to benefit from deflecting an increase in the property tax to the general citizenry. Oh, yes, it’s all for the kids — but we’ll stick it to the kids’ parents, who will pay the meals tax.

Now, there’s nothing wrong with people pursuing their raw self interest in the political arena, although the practice does become nauseating when people cloak that self interest with puffery about the sweet little children. What’s less forgivable is the fraudulent way in which tax advocates have framed the debate: as a false choice between enacting a meals tax to raise $18 million, hiking the real estate property-tax rate by six cents on the dollar, or running the Henrico County Public Schools budget through the wood chipper.

When I describe the choice as “fraudulent,” I use it as a milder term for “dirty, low-down lying.”

The choice is not between raising taxes and cutting the school budget, it’s between raising taxes and cutting spending across the entire county budget, which is split roughly in half between schools and general governmental expenditures. If it chose, the Board of Supervisors could elect to absorb the entire sum from general government expenditures and transfer $18 million to schools.

Here’s what Yes 4 Henrico’s Kids is saying when it rules out the option of general governmental expenditure savings:

  • Don’t charge insurance companies for ambulance services, a measure that could save $7 million.
  • Don’t pursue smart-cities strategies that could achieve efficiency gains in government utilities and services.
  • Don’t use smart-growth strategies to foster development that pays for itself.
  • Don’t privatize operation or ownership of the Henrico County golf course.
  • Don’t pare extravagances like county-produced programming for the public access channel.

The Yes 4 Henrico Kids website also never mentions how the technological tsunami of online and computerized learning can be harnessed to get more bang for the buck in Henrico’s school system. The website is backed by a group of people who want to raise taxes in order to protect the status quo. They don’t want to change a thing … except your taxes. (Just don’t touch their’s). They, like the board of supervisors, lack the vision to see how Henrico might transform itself into a model for 21st-century governance.

Anyone who wants to see Henrico thrive should vote down the meals tax and demand that its supervisors and county administrators seek out best practices from around the world to create a more efficient, cost-effective and responsive government.

Democracy in Action: Henrico County Style

Henrico hotels bring in visitors whose dining out can be taxed, county officials say.

Henrico hotels bring in visitors whose dining out can be taxed, county officials say.

by James A. Bacon

Henrico County officials doubled down last night on their claim that a 4% meals tax would be paid largely by out-of-state residents. Previously, they had contended that 40% of the tax would be paid by non-resident workers and visitors to the county. Now, in light of new data provided by Richmond Region Tourism, they estimate that 50% of the tax would be paid by outsiders.

Speaking at a public forum hosted by Tuckahoe Supervisor Patricia O’Bannon, county administrators also insisted that, despite surging prices in home sales this year, the assessed value of county real estate will not increase more than 2% this year or for the foreseeable future. The home sales, they said, are concentrated in neighborhoods that do not reflect what is happening across the county, where foreclosures are still a problem. The county still forecasts a $100 million revenue gap over the next five years.

Despite a state law clearly stating that information on referenda provided by local government must be “neutral,” County Manager John Vithoulkas and Budget Director Brandon Hinton made a severely one-sided presentation in support of the proposed meals tax, which citizens will vote on in November. No pros and cons — just pros.

In opening remarks, Hinton said, “We are bound by the law to state the facts. It’s your decision.” But, when pressed by your humble correspondent on the use of cherry picked data to support the county’s position, Vithoulkas justified the administration’s aggressive promotion of the tax on the grounds that Virginia courts had interpreted the law to allow government officials broad latitude to explain how they had reached their decision.

Give the pro-meals tax officials credit for this: After dozens of public hearings, they have refined their pitch. While they still say they will dedicate the estimated $18 million in revenue from the meals tax to schools, they no longer liken the arrangement to a “lockbox.” They also have strengthened their claim that much of the tax would be paid by non-residents.

Sidney Gunst and Mike Mickel, both outspoken critics of the tax, challenged the use of the “lockbox” term last night. While the Board of Supervisors can guarantee that the $18 million in meals-tax revenue will flow into the school budget, they argued, there is no provision to guide the rest of the money the county spends on schools. There is no legal mechanism to stop the Board from adjusting the other half billion dollars it allocates to schools downward, if it pleases.

But Vithoulkas and Hinton had dropped the “lockbox” term from their remarks last night. And Supervisor O’Bannon, who supports the meals tax, made little effort to defend the use of the term. Instead, she vowed that she personally would vote to uphold the promise to the schools. In essence, they beat a tactical retreat from an untenable position.

The county unquestionably scored points with a presentation by Jack Berry, president of Richmond Region Tourism. Henrico does not have a reputation as a major travel destination but it does, in fact, generate the fifth largest number of visitors of any jurisdiction in Virginia — 2.5 million yearly, just behind Virginia Beach and ahead of Williamsburg. Travelers on two Interstates drive through the county, the Richmond regional airport is located in the county and the region’s biggest sports event, NASCAR at the Richmond Raceway, takes place in the county. Henrico also has 9,000 hotel rooms, more than the City of Richmond and Chesterfield County combined.

When 10,000 visitors attended an Amway convention at the downtown Greater Richmond Convention Center last weekend, Berry said, more than half stayed in Henrico hotels. Also, Henrico generates a disproportionate share of the region’s business travel and it brings in thousands of visitors for amateur athletic events. Visitors spent an an average of $45 per day on meals. Right now, he said, those visitors are not paying a tax when they dine in Henrico restaurants.

While county officials gave lip service to wanting a dialogue about the meals tax — “the time is right to have the conversation and decide,” Vithoulkas said — little actual dialogue was permitted. The handful of skeptics were politely cut off after two or three minutes of repartee, while a teacher pleading for more money for schools was allowed to discourse at length. As soon as everyone in attendance who wanted to ask a question had a chance to ask one, the “forum” (dictionary definition, a meeting place for the discussion of questions of public interest) was adjourned a few minutes after 8:00 p.m., having lasted little more than an hour.

Think Henrico Government Has Cut Back? How about Henrico Citizens?

No cherry picking of data on Bacon's Rebellion.

No cherry picking of data on Bacon’s Rebellion!

by James A. Bacon

As Mark Twain famously said, there are lies, damn lies and statistics. Anyone can slant an argument in his favor by cherry picking statistics. I try to avoid that. As proof, I will offer some numbers regarding Henrico County government expenditures over the past decade that make my opposition to the Henrico meals tax a tad more difficult to maintain — but only a tad.

As faithful readers of the Rebellion know, I oppose the 4% meals tax that the Henrico County political establishment wants to impose upon its citizens, making its case with all manner of facts that are literally true but highly deceptive when shorn of context. It is in my partisan interest to suggest that Henrico has been less than parsimonious in its taxing and spending in order to undercut its justification for the tax. I could make my case by citing total government expenditures (which excludes, I believe, state and federal school funding) reported in the county’s Comprehensive Annual Financial Report for 2012:

2003: $514,193,000
2012: $691,000,000
Percentage increase: 34.4%

That sounds pretty profligate. But those numbers are misleading. The county’s population increased 13.6% over the same decade, and inflation was 24.8%. A fairer measure would be to compare county spending per capita adjusted for inflation. Those numbers look like this:

2003: $2,315
2012: $2,194
Percentage decrease: 5.2%

County officials would stand on much firmer ground citing those numbers than the phony-baloney claims that they whacked $115 million from “the budget,” which includes back-tracking on budgeted spending increases, and eliminating 646 positions from “the budget,” which includes deleting positions budgeted but never filled. (The county has a no lay-offs policy.)

Honesty compels me to acknowledge that Henrico County has cut real spending over the past decade. However, that’s not the end of the story.

While Henrico did restrain spending, that achievement has to be seen in the context of what’s been happening to the income of Henrico residents over the same period of time. Unfortunately, I wasn’t able to find the numbers this morning for Henrico residents specifically, but I did find them for residents of the Richmond metropolitan region. Between 2005 and 2012, regional per capita incomes declined on an inflation-adjusted basis from $32,399 to $28,943 — or 12%.

Now, one more adjustment to make sure we compare apples to apples. My source on Richmond regional incomes went back only to 2005, so we need to compare inflation-adjusted expenditure cuts and income cuts since 2005 (not 2003, as I did above).

Decline in Henrico spending: 10.8%
Decline in Richmond regional incomes: 12%

Assuming Henrico incomes fell in line with Richmond regional incomes, that means citizens retrenched more over the past eight years than the county did.

Consider also the state and federal tax increases that citizens have endured — the 2.3% medical device tax and reduced income-tax deduction for medical expenses thanks to Obamacare, Gov. Bob McDonnell’s transportation tax hikes, and the Obama tax hikes on “millionaires and billionaires.” Then throw in the sky-rocketing cost of medical insurance and college tuition, and it’s entirely understandable that ordinary citizens in Henrico (and Chesterfield, which wants a 2% meals tax) feel besieged. The last thing they need is a tax on their catered and restaurant meals. Local governments need to find a way to make do.

Sources:
Population: Weldon Cooper Center for Public Service, here and here.
Inflation: Bureau of Labor Statistics Consumer Price Index calculator.
County expenditures: 2012 Comprehensive Annual Financial Report.
Richmond per capita income: Department of Numbers

Quinby and the Boss Discuss the Henrico Meals Tax

Henrico’s Cynical It’s-All-for-the-Children Gambit

Taxes for the sweet little children.

Taxes for the sweet little children.

by James A. Bacon

It’s all for the children. It’s always for the children!

Here’s how Virgil Hazelett, former Henrico County administrator, justified yesterday slapping a 4% meals tax on Henrico families, most of whom have seen a steady erosion of their take-home income over the past several years thanks to a sluggish economy and a panoply of new state and federal taxes:

I’m here today in support of Henrico’s children and Henrico’s schools, to maintain the excellence we all expect from our students and the successes for our children that they deserve. A meals tax is a small price to pay…. I believe that the citizens of this county will not fail us and the future of the educational system and of the county.

As bad as it was, that treacly nonsense was exceeded by Tammy Gartrell, president of the Henrico County Council of PTAs, who said, “The meals tax will be only pennies to us when we go out to eat. But all those pennies add up to so much for our children.”

This is some of the most cynical posturing I have ever seen in Virginia politics. Two points. First, there is no way to guarantee the money will always go towards education. Second, the real  beneficiaries aren’t teachers and the little children, they are the government programs and policies that county officials are protecting from cuts or alteration in lieu of raising taxes.

To the first point: Current County Manager John Vithoulkas spoke yesterday of putting the money in a “lockbox.” That is farcical. There is no way under Virginia’s Constitution to create a lockbox.

Vithoulkas said that after the meals tax passes, the board of supervisors can pass an ordinance spelling out that the new tax revenue will go to the schools. Reporter Graham Moomaw had the wits about him to ask how that would work. The fact is, under the Virginia Constitution, no board can bind a future board to its decisions; any ordinance can be amended or repealed. Vithoulkas’ lame response: “They would have to unwind the ordinance and hold a public hearing. … When we say we’re going to do something, we do it.”

In other words, the lockbox is as safe as Fort Knox — until this board of supervisors or some future board decides to unlock it.

In any case, Sidney Gunst, the real estate developer who has led the opposition to the meals tax, termed the lockbox an illusion. “Henrico County has guaranteed nothing, whether there is an ordinance or not. The only number that means anything is the overall school budget — and that’s what the board will still vote on every year. Annually, the school budget can go up or down.”

Henrico does need to allocate more money to schools in order to cover an estimated $10 million next year in additional teacher pension payments. (Henrico also needs another $4.5 million to cover pension payments for non-governmental employees.) Of course, the county must honor its pension obligations to the teachers. But please spare us the rhetoric that it’s all for the sweet little children.

To the second point: The real beneficiaries of the tax are those governmental programs that the Board of Supervisors chooses to maintain instead of cutting them and using the savings to pay for teacher pensions. Just to pick some obvious examples: Why does the county need a publicly owned golf course? Why does the county fund programming for the Henrico public access channel? Why doesn’t the county charge insurance companies for county-provided ambulance service?

If county officials and their pet-sheep allies in the PTA were being honest, they would level with Henrico voters: We want to tax your food so we can keep the public golf course, put obscure documentaries on public-access TV and let insurance companies off the hook for ambulance rides. That’s the real truth. Sadly, Henrico’s elected officials are doing everything they can to hide it.

Now You See It, Now You Don’t

hocus_pocusby James A. Bacon

Henrico County government officials, who have campaigned in support of a 4% meals tax referendum in every way conceivable short of actually saying, “Vote for the meals tax,” have released a list of “expenditure cuts, absorptions and efficiency savings” to document their claim that the county has “cut $115 million and 646 positions from its budget.”

In a previous post, I criticized that claim on the basis that it reflected not  real-world cuts to spending but mainly cuts to budgeted spending. Backtracking on a budgeted spending increase is not the same as an actual cut. The reduction in real-world spending was more like $22 million.

We now have more data to appraise the objectivity of the county’s claim in light of the fact that state law prohibits local governments from advocating positions on citizen referenda. On its Henrico Meals Tax Facts website, county officials have detailed 19 specific savings. It appears that the county did institute some genuine cost-saving efficiencies. But it is also evident that there is a lot less to that $115 million number than meets the eye.

The first example of hocus pocus is a $16.5 million line item described as “utilization of one-time funds for schools to avoid layoffs.” Similarly, there is a $13.4 million line item for “replacement police, fire, & school vehicles with one-time funds.”

The county is equating the expenditure of $30 million in one-time funds to  budget cuts! Since when are “one-time” funds not real money? Someone please explain to me how spending real money equates to a cut!

In another instance of abracadabra, $20 million in savings came from “eliminating/unfunding” employee positions in general government and schools and another $11.5 million from “freezing” positions. What the document does not tell us is how many of those positions had been budgeted but never filled — eliminating phantom positions. What we also don’t know is how many of those positions were eliminated permanently due to the restructuring or re-engineering of operations, and how many will be refilled as soon as the county gets the money to do so.

There do appear to be some genuine savings: more than $28 million in “across the board reductions” to government and school spending, plus cuts for conference travel, cuts to tuition reimbursement and a reduction in technology replacement funds. But it’s hard to know how much of that savings is phantom cuts from the “budget,” how much was permanently stripped out of the budget due to restructuring and re-engineering, and how much will reappear as soon as more money is available.

The county did achieve a reduction of $9 million by refinancing its debt. That is laudable, and it does constitute a “savings.” But it did not affect county school operations and is hardly indicative of hardship or self-sacrifice. The only evidence of restructuring/re-engineering the cost structure of government appears to be telecommunications efficiency savings ($1.3 million), vehicle-fleet downsizing ($1.1 million) and lower utility bills from energy savings ($480,000). Woo hoo! Three million dollars in costs permanently engineered out of the county’s $1.3 billion in government and school expenditures.

Bacon’s bottom line: Two conclusions: First, the $115 million number is a sleight of hand: at a minimum, $30 million (expenditure of one-time funds) should not have been included. Another $30 million in personnel savings, much of it consisting of phantom cuts, is arguable. Such prestidigitation encourages voters to distrust their county leaders.

Second, when Henrico County has restrained spending, it has repressed expenditures mainly through short-term palliatives. It has not restructured or re-engineered operations to permanently lower costs. When revenues rise, spending will ineluctably rise as well. If voters approve the 4% meals tax, the $18 million will fund business-as-usual operation of government and schools.

No more pulling rabbits out of hats. Henrico County needs to adopt a new approach that re-thinks government from top to bottom, stem to stern, that lowers the cost of government: online learning for schools, implementation of smart-city technologies and the application of fiscal analytics to planning and land-use decisions.

Compare and Contrast: Chesterfield and Henrico on the Meals Tax

Jay Stegmaier

Jay Stegmaier

by James A. Bacon

Henrico County isn’t the only Virginia jurisdiction where citizens will vote on a meals-tax referendum this fall. Chesterfield County leaders also are seeking a meals tax. But the approach taken by the two localities is very different, which may explain why Henrico residents are restive while their neighbors south of the James River are not.

Unlike Henrico, which proposes to implement the full 4% tax allowed by state law, Chesterfield seeks only a 2% increase. County leaders originally sought the full 4%, but after taking a closer look at county finances decided that they could live for now with a 2% tax yielding approximately $8 million in new revenue. (Henrico’s tax would net about $18 million.)

Chesterfield leaders also did a shrewder job of packaging. I got some insight into Chesterfield’s thinking from County Manager Jay Stegmaier, whom I interviewed Wednesday over the phone.

Henrico’s referendum asks citizens to approve a meals tax to raise $18 million for unspecified operational needs and capital projects of the county school system. The county does not say how the money will be spent. Instead, the county’s meals-tax advocacy website makes the disputable assertion that “without new revenue, Henrico will have to consider significant cuts to its public schools and other critical services.” Henrico officials do not say what they might cut, or by how much.

By contrast, Chesterfield will put three referenda before the people. The first will seek approval to issue $304 million in bonds to pay for extensive school renovations, while a second would issue $49 million in bonds to replace the county’s emergency communication system. The third referendum then asks voters to approve  the meals tax “for the sole purposes of funding capital projects which further the public safety and public education needs” of the county. Chesterfield residents can review the list of 10 public schools, two of which were built before World War II, that will be rehabilitated thanks to the tax. Bottom line: Chesterfield residents will know exactly what the tax money will be spent on.

Chesterfield officials did another smart thing: They didn’t underestimate the intelligence of voters. While meals tax money might be dedicated to capital projects, notes Stegmaier, who’s to say that other money previously allocated to capital projects wouldn’t be  pulled out and spent on something else — just like the state does with lottery profits supposedly dedicated to education? Another wrinkle: Even if the current board makes good on its promise, it cannot bind future boards to spending the money the same way.

Chesterfield took a two-tier approach to creating a lock box for the new tax revenue. First, the referendum specifically states that the tax is for “the sole purpose” of funding capital projects. Second, the annual cost of the capital projects is matched to the expected revenue stream from the sales tax, about $8 million. Once the county issues bonds, it will be committed to spending that money. The arrangement is not air tight, Stegmaier acknowledges, but there’s less room for hanky panky.

Henrico officials swear on the graves of their ancestors that the $18 million raised from the meals tax will be dedicated to public schools. But the statement is meaningless. The tax revenues will flow into the General Fund, from which the Board of Supervisors will allocate monies for the school system. Every year, the school allocation will come up for a vote. The current board may live up to its stated intention, but there is no guarantee that future boards will.

Finally, there is the issue of advocacy. Chesterfield officials have adopted a less strident tone in their official communications. The county website, Your Voice First Choice, explains the logic behind the meals tax but does not predict dire consequences, as Henrico’s website does, should voters reject the tax. Chesterfield notes simply that a negative vote would “draw away resources from other projects and county services.” Stegmaier does not appear in a video, as does his counterpart John Vithoulkas in the Henrico website, portraying the situation as a gun-to-the-head choice of raising the property tax or cutting services.

While Chesterfield’s approach seems far more taxpayer-friendly than Henrico’s, Stegmaier acknowledges that the county faces the same challenges as Henrico in dealing with swelling pension obligations and onerous Environmental Protection Agency regulations. The county’s pension liability could be $257 million and the Chesapeake Bay clean-up could cost another $200 million. “It could be $30 million a year for those two items,” he says.

Chesterfield has adopted a wait-and-see attitude before jacking up taxes to deal with those problems. As Stegmaier observes, the state has a plan to ramp up contributions, which could whittle down local liabilities. A post-Obama administration in Washington, D.C., could back off on the more onerous EPA regulations. And a revival of housing prices could bolster real-estate property tax revenues. Says Stegmaier: “We know the liabilities but there are still some unknowns out there.”

If I were a Chesterfield resident, I would make the same argument that I do about Henrico: The county should more aggressively apply online learning to K-12 education, adopt smart-city technologies and encourage more tax-efficient human settlement patterns as long-term strategies for driving down costs and bolstering the tax base. Don’t ask me to pay higher taxes until you have delved into those alternatives and found them lacking. That said, Chesterfield has handled the referendum issue far better than Henrico has. I’d still oppose the tax, but I wouldn’t be nearly as adamant about it.

Update: A modified version of this post has been published in Style Weekly.

Boilerplate, Hocus Pocus and a False Choice

Boilerplate

Boilerplate

by James A. Bacon

So, Laura Lafayette, CEO of the Richmond Association of Realtors, has responded to my recent column in the Times-Dispatch regarding the Henrico County meals tax. Much of the column consists of boilerplate pro-tax talking points that you can find on the Henrico County’s supposedly non-advocacy “informational” meals-tax website. But she does raise a couple of points, one legitimate and one totally bogus, that must be addressed.

Fiscal prestidigitation. First, the bogus point. Lafayette argues that Henrico cannot cut costs without sacrificing the quality of education and public services. “In the past four years, ” she writes, “Henrico government has eliminated almost 650 positions and cut $115 million in expenditures.”

As I blogged previously, those numbers are illusory. Henrico has not cut “spending” by $115 million. Most of those supposed cuts consist of backtracking on budgeted spending increases. Actual spending peaked at $790.7 million in Fiscal 2009. Actual spending in Fiscal 2012 fell to $768.9 million — a real-world cut of only $21.8 million. As for those 650 positions it supposedly has eliminated, Henrico has a no-layoff policy! In the real world, the county reduced its workforce by about one-fifth of that number through attrition.

Lafayette may count wished-for job and spending increases as actual spending but I don’t. And I don’t think most Henrico citizens do either. There’s only one way to describe the numbers used by Henrico’s numbers, which Lafayette repeats uncritically: deceptive.

A temporary cash flow issue. But Lafayette does raise a legitimate point. In my column, I had argued that housing sales prices in Henrico had increased 11.8% and that rising assessments would raise roughly $18 million in new revenue — the same amount expected from the meals tax. Updated numbers, she writes, indicate that average sales prices have increased only 7.7%. She’s the expert; I’ll take her word for that.

She then argues that higher housing prices will not lead to an immediate surge in tax revenue.

Eventually, we will see an increase in property values. Eventually, higher property values will lead to increased assessments which will equal greater equity for homeowners and increased tax revenue for the county — eventually, not overnight.

Fair enough. The next property reassessment may not bring in as much revenue as I had expected, based on May 2013 numbers, and it may take longer for the higher housing-sales numbers to work their way through the system in the form of higher tax revenue.

How, then, should the Henrico County Board of Supervisors deal with a temporary cash flow problem? Institute a permanent 4% meals tax that that likely never will be revisited and never will be repealed? Or enact a temporary increase in the real estate property tax that can be revisited as assessments rise, and readjust the tax rate downward when tax revenues do come in? The board has lowered the tax rate before, and it can do so again. Evidently, Lafayette prefers a permanent tax increase.

False choice. One last point: Lafayette frames the entire tax issue in Business As Usual terms, proffering the false choice of higher taxes or reduced services. Here’s how I frame the choice: Henrico can continue doing business as usual, or it can get serious about prioritizing spending, reinventing K-12 education, deploying smart-city technologies and fostering more tax-efficient human settlement patterns.

Approving the meals tax will signal county official officials that the status quo is just fine and that nothing fundamental needs to change. A vote for the meals tax is a vote for lethargy and stasis.

County Speak with Forked Tongue

tonto

Where is Tonto when you really need him?

by James A. Bacon

To justify a proposed 4% meals tax, Henrico County officials have repeatedly invoked the fact that county government has cut $115 million from its budget (set at $785 million this fiscal year), and it just can’t cut no more.

The county’s meals-tax advocacy website, Henrico County Meals Tax, frames the issue this way:

Over the past four years, Henrico has cut $115 million and 646 positions from its budget – balancing it without raising the real estate tax rate, making significant service reductions or laying off employees.

Even though I oppose the meals tax, I’ve always been impressed by that fact — $115 million in spending cuts! Gosh, I thought, even if you don’t like the meals tax, you really do have to give county leadership credit for all those cuts. Henrico must be one lean, mean organization!

Of course, that’s precisely what the meals tax backers would like Henrico citizens to think. But foolish me. As I dug into the numbers, I found that the county has not cut “spending” by $115 million. It has cut $115 million “from its budget,” which is a very different thing. If the county budgeted a spending increase one year but rolled the increase back to zero, it’s counting that as a “cut from its budget.”

Actual county spending peaked at $790.7 million in Fiscal 2009, according to the 2012 Comprehensive Annual Financial Report (CAFR). Actual spending in Fiscal 2012 fell to $768.9 million. According to my calculator, that’s a real-world spending cut of $21.8 million…. not exactly the $115 million the county website trumpets.

How about those 646 positions? County payroll stood at a 10,587 in 2009. In 2012 head count had fallen to 10,491. Again, my calculator tells me that’s a cut of 91 employees…. less than one percent of the county workforce, and only a fraction of the number county officials are citing.

(Important caveat: Spending for the FY 2013 just ended was originally budgeted for $765.7 million, about $3 million less than the year before, and it’s possible that actual expenditures came in below that figure due to board actions and administrative measures. Unfortunately, the 2013 CAFR has not been published yet so it is impossible to compare apples to apples. Still, while it is possible that marginal reductions in spending and head count occurred in FY 2013, those cuts would close only a tiny portion of the gap between the $115 million perception and $21 million reality.)

So, back to the question I’ve been raising the past couple of weeks. The Henrico County website purports to be “informational,” providing citizens the objective information they need to make an informed decision in this fall’s meals-tax referendum. Yet it paints a deceptive picture of the sacrifices that county government has endured since the recession. The website chooses numbers that put the meals tax in the best possible light and omits the numbers — actual spending levels — that citizens would deem most relevant.

The $20,250 website is a work of advocacy and, thus, it violates state law prohibiting the expenditure of public funds to sway voters. In a recent column, I noted that the website didn’t mention the surge in property values that will create a gusher of real-estate property values in coming years. The selective use of budget data is a second glaring example. What else is the county not telling us? Frankly, citizens need to ask themselves if county officials be trusted on this issue at all.

Growing Skepticism of Proposed Henrico Meals Tax

Speaking of the Henrico meals tax… WTVR ran this piece asking whether Henrico County’s meals tax website was breaking the state law against spending state dollars on advocacy promotion. I’ll forgive the TV station for failing to credit Bacon’s Rebellion for raising this issue — I’m just happy the matter is getting some attention.

Clearly, the meals tax is not yet a hot-topic issue with Henrico voters. The story has generated only five comments, and 130 votes on the station’s poll question, “Do you think Henrico County’s meals tax website is breaking the law?”

What I find encouraging is that all the comments were negative, and 58% of the poll respondents agreed that the website was a violation of the law. While the level of interest in the tax remains shallow, those who are paying attention tend to be skeptical of the county’s case.

— JAB