Henrico’s Imploding Case for the Meals Tax

Oh, yeah, your house sold for 10% more than your asking price… we just forgot to tell you.

by James A. Bacon

Henrico County’s governing class justifies a proposed 4% meals tax, expected to raise $18 million a year, as necessary to ward off calamitous budget cuts. The revenues are needed, county officials say, because stagnant tax revenues aren’t sufficient to pay for rising pension liabilities and environmental mandates.

There may have been a basis to that logic a year or so ago when the county administration began pushing the idea of a tax increase. But it doesn’t withstand scrutiny today.

I refer readers to Henrico’s FY 2014 budget. On pages 47 and 48, you will find the following graph and commentary:


Assessment information for January 2013 indicates real estate assessments total $30.8 billion, reflecting an increase of approximately $109 million, or 0.36 percent from the January 2012 assessed values. The real estate market appears to have become relatively stable with a slight decrease in residential values offset by an increase in commercial values. …

Out-year projects on movements in countywide assessments are based on a forecast model factoring in changes in both residential and commercial values as well as the addition of new residential and commercial construction. The FY2015 and FY2016 projections assume increases to the County’s real property tax collections of 2.0 percent in each year respectively.

I’m all in favor of governments using cautious economic forecasts for budgeting purposes. Better to be safe than sorry. But I also expect administrators and elected officials to acknowledge reality when it clobbers them on the head. Indeed, the reality of property values in Henrico County has diverged so far from the budget forecast that it causes one to question the good faith of meals tax proponents by failing to acknowledge it.

Property values are surging this year. States a July 18 article in the Henrico Citizen: “The average sale price of Henrico single-family homes in 2013 is $243,608, according to data compiled by the Richmond Association of Realtors. This is almost $19,000 higher than the average sale price to date in May 2012.”

“The market overall in Central Virginia is trending upward,” Laura Lafayette, CEO of the Richmond Association of Realtors, told the publication. “Henrico is certainly one of the brightest spots.” Lafayette, it is worth noting, has defended the meals-tax proposal in numerous public forums.

Let me do the math for you: Between May 2012 and 2013, the average sale price of Henrico houses increased 11.8%. Not 2%… 11.8%. (It is possible that commercial property values, which account for a bit more than 30% of the county tax base, increased by a similar amount, although we cannot know that from the Realtor data.)

Let me do some more math for you. Henrico County’s FY 2014 budget forecasts real property tax revenue of $269 million this year. Because we don’t have any data demonstrating otherwise, we’ll assume that commercial real estate revenues increase only 2% next year, as forecast. But let’s assume that residential real estate revenues increase 11.8% in line with higher housing prices. That results in a $23.2 million increase in revenue. That’s $17.8 million more than forecast –– a sum, coincidentally enough, almost exactly equal to the revenues anticipated from the meals tax.

If anything, my assumptions are extremely conservative. Housing prices are expected to continue climbing across the Richmond region. Reports the Richmond Times-Dispatch today: “Richmond-area home prices are projected to rise 3.3 percent through the first quarter of 2014, according to a quarterly CoreLogic Case-Shiller Home Price Indexes report released Thursday.”

In other words, the gap between forecast revenue and actual revenue could be even higher next year.

There are two conclusions to be drawn from this data. First, there is no longer a justification for the meals tax. Second, Henrico officials aren’t leveling with Henrico County taxpayers.

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6 responses to “Henrico’s Imploding Case for the Meals Tax”

  1. reed fawell III Avatar
    reed fawell III

    “First, there is no longer a justification for the meals tax. Second, why haven’t sales tax proponents leveled with Henrico County taxpayers?”

    Answer: I suspect when you want to take $millions more of other people’s money, the truth hurts so much, you can’t force yourself to tell the truth.

  2. thebyurokrat Avatar

    Comparing fair market value (as expressed as sales prices) to the assessed value of real estate (for tax purposes) is a pretty weak case. An increase in sales prices does not necessarily mean assessed values will increase, and even if assessed values do increase it will likely be by a different amount. And it’s also the case the assessed values very rarely reflect market value. For example, when I purchased my home last year, the price I paid was over 10% lower than its county-assessed value.

    I view the meals tax more as a way for the county to diversify its tax base than a simple money-grab, and to spread some of the costs of providing infrastructure (Henrico is responsible for roads, after all) to individuals that do not reside in the County. For example, the investments in infrastructure around our regional commercial hub at Short Pump have been staggering, but county residents have been left holding the bag for costs incurred to serve the broader metropolitan area. It’s about time we have those out-of-county visitors pay for a portion of the costs we’ve incurred to serve them.

  3. Byurokrat, you may be right that assessed values are generally below fair market values. But that is meaningless. Assessed values were below fair market values last year, and they’ll be below fair market values next year. What matters in this context is the trajectory. If market values are up 12%, then assessed values likely will increase by a comparable amount — unless you want to argue that they will fall *ever farther* behind fair market value.

  4. I agree with thebyurokrat. A “conservative” budget would NOT count on assessed values “trajectory” in this day and time – at least not until the trend is confirmed.

    but the other point – diversifying the tax base – and move some of it towards consumption and away from home ownership is a valid policy focus IMHO.

    finally – in this day and time of Detroit – hammering a county that says it wants to shore up the unfunded liability pension issue is what?

    what happened to Detroit – it’s revenues were too much based on properties and at the same time they neglected to deal with their pension threats.

    Henrico is one of the top 4 or 5 counties in Va with a AAA rating.

    I think that counts for a lot in terms of fiscal responsibility and judgement.

    the opponents are Tea-Party driven IMHO and that includes Bacon !

  5. wait a minute. all these years, taxpayers trusted Henrico to be fiscally conservative and maintain a very-hard-to-earn AAA credit rating

    and NOW.. they don’t TRUST them?

    this is not a “bug” with the anti-govt types… it’s a “feature”.

    why in the world would a county that has some of the lowest tax rates in the Commonwealth as well as some of the best services including schools AND is responsible for it’s OWN roads be suspected of irresponsible spending?

    it’s just don’t add up. this is like Revenge of the Tea Pots …..

  6. Brian Glass Avatar
    Brian Glass

    Why won’t the County just raise the real estate tax rate by six cents per $100? That would raise the same amount of money as the Meals tax. It would also be tax deductible for federal and state income tax, whereas a meals tax isn’t.

    For the County’s argument that we need to keep the real estate tax low, so that we can compete with other localities is fictitious. Even with a 6 cents increase in the real estate tax there isn’t a County in northern Virginia (NOVA) that would be within 5 cents of a higher Henrico tax. By the way NOVA is the “target” for henrico Economic development.

    AS for the roads, the County got an extra 10 million from the Commonwealth this year.

    Here is a better idea. Raise the real estate tax rate now, and if more money is needed later ask for the meals tax. Once the meals tax is in place it will NEVER go away, while the County has shown in the past that when times are better the real estate taxhas been adjusted downward.

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