2013-03-06 / News

With no revenue increase, budget crunch looms

News Analysis
By Michael Buettner

Holland Holland Like the cost of living, the cost of running a county government keeps going up. And like a worker who hasn’t gotten a raise for several years, Chesterfield County officials have had to struggle to make ends meet.

With economic growth still sluggish and federal and state lawmakers still looking to cut spending, it’s unlikely that the county can look for much outside help with its financial challenges.

And with the Board of Supervisors’ decision last week to keep the county’s real estate tax rate unchanged this year, one local option for increasing revenue was taken off the table.

One other option for raising revenue remains open – establishing a tax on meals served in restaurants – and Dale District Supervisor Jim Holland last week asked County Administrator Jay Stegmaier to find out what it will take to let residents vote on whether to take that route.

Stegmaier Stegmaier But even with the roughly $6 million a year a 2-cent meals tax could produce, the county government will still be hard-pressed over the next few years to fund the services citizens expect, let alone pay for the ambitious program of revitalization in schools and neighborhoods called for by the comprehensive plan passed last year.

Matt Harris, senior budget analyst for the county’s Budget and Management Department, told the board last week that despite some improvements in the national and local economies, the county faces yet another year of basically flat revenue in the coming fiscal year.

In general, Harris said, the economy is “remarkably fragile. There is a recovery under way, but it will not take much to knock it off balance.”

Locally, he noted, while the real estate market showed signs of improvement in 2012, property assessments have yet to rebound, leaving property tax revenue basically unchanged this year and perhaps rising a slim 1.5 percent the year after.

Meanwhile, another major source of funding, support from state government, has been falling steadily for the past several years and is expected to continue doing so.

Harris noted that in fiscal year 2009, 52 percent of the state budget went to support local governments. In the current fiscal year, which ends in June, that figure has fallen to 45 percent. Next year, it’s expected to fall again to 44 percent.

Overall, Harris said, the county expects to have about 1.7 percent more money to work with in fiscal year 2014, which starts July 1 – “money that’s actually here to support general fund operations,” he said.

However, even that figure comes with a caveat – it doesn’t take into account price inflation or growth in demand.

Gecker Gecker Based on figures that aren’t adjusted for inflation or population growth, Harris said, the county’s budget could return to pre-recession levels by fiscal year 2015 or 2016.

“But that does not buy you the same bundle of services and goods” as the same amount did in 2009, Harris explained. “In terms of the purchasing power of those dollars, it is greatly deflated. Based on our long-term projections … it’s going to be a considerable amount of time before we get to the purchasing power we had in 2009.”

Adding a meals tax would provide a modest boost, although it wouldn’t take effect in time to help the coming year’s budget.

According to state law, any locality can impose a tax on restaurant meals of up to 4 percent, if voters approve the tax in a referendum. Under the law, it would apply to “any place where food is prepared for service to the public on or off the premises, or any place where food is served.”

That includes not only to sit-down restaurants but also fast-food outlets, cafeterias, catering services and even push-cart operations and hot dog stands.

The state already collects the standard 5 percent sales tax on meals, which means it records the dollar volume of total sales of meals in each locality and statewide.

In 2012, sales at “food service and drinking places” in Chesterfield totaled $300.4 million, according to the state Department of Taxation. Ifthecountyhadcollecteda2percentmeals tax last year, it would have brought in an extra $6 million in revenue. The maximum 4 percent meals tax would have generated $12 million.

Like property taxes and general sales taxes, a meals tax would fluctuate with the economy. The 2012 total of $12 million in potential revenue was actually down sharply from 2011, when the county could have received $15.2 million.

Statewide, 82 of Virginia’s 134 localities already impose some tax on meals, including Richmond, which brought in almost $22 million from the tax in fiscal year 2012, according to the state Auditor of Public Accounts.

Holland said he supports holding a referendum on the tax in Chesterfield as a source of funding to help pay for education, in particular the revitalization of schools.

But Midlothian District Supervisor Dan Gecker, who had said he wanted the board to consider a property tax rate increase this year, said he now doesn’t think the county should explore additional funding sources without deciding first how the money will be spent.

“I worry a little bit that we might be putting the cart before the horse in terms of looking for revenue without actually having a plan to spend that revenue,” he said. “Our goal, I think, is still to put revenue where needed expenses are, rather than put expenses where the revenue happens to be.”

Return to top