Column: Williamsburg has a revenue problem

Last summer, the Williamsburg City Council took aim at tourists, passing a series of tax increases and new fees that will collect more money to help fund tourism-related projects.

This year, expect the city’s property owners to be the council’s next target. Why raise taxes on real estate owners? Because City Council is not talking about taking any drastic measures that would reverse an incoming tide of growing expenses in the upcoming fiscal year.

The city began its annual budget talks at a Jan. 27 retreat that made a few things clear: Expenses will surely increase, and the city’s largest sources of revenue will remain stagnant for another year. That means someone will need to pay more — and soon.

Here’s why: The amount of money generated by three big sources of revenue — charges to hotel/motel rooms, prepared meals and sales — are all projected to decline in the waning months of the 2018 fiscal year (which ends June 30). Those projections continue into next fiscal year as well. Combined, they contribute about $14 million (40 percent) of the city’s entire revenue.

Meals taxes are forecast to fall 2.5 percent ($175,000) short of last year’s figures. Rooms taxes are likewise forecast to fall 1.3 percent ($343,000), and local sales tax revenues are forecast to fall 1.5 percent ($122,000) short. That’s a collective $640,000 decline, which is a significant deal for a locality with a roughly $36 million operating budget.

The assessed value of taxable properties in the city also will decline for the first time since 2013. In fact, the value of the city’s taxable base has not recovered from the 2008 economic downturn. In 2009, the city’s taxable real estate peaked at $1.895 billion just before the recession’s impact took hold. For the 2019 fiscal year, the city’s taxable real estate will be valued at $1.851 billion. This is important because real estate taxes are the city’s single-largest source of revenue, bringing in $10.6 million (29 percent) in the current budget.

The big issue the city must face this spring is growing the stagnant revenue the taxable real estate base creates. Particularly damning is that the value of taxable commercial properties will decrease by $7.8 million, according to the most recent assessment figures. While plans in Midtown to renovate two existing shopping centers over the next two years are promising because they would generate real estate, meals and sales taxes, the city needs to do more to usher in new investment in commercial development. The undeveloped land near High Street and Quarterpath Crossing seem like good candidates.

Without new significant taxable development, I’m afraid existing real estate owners will be the next to carry the burden of the city’s increased expenses. Williamsburg’s real estate tax rate is low compared to neighboring localities. And the city dueled with businesses, restaurants and Colonial Williamsburg last summer when it increased taxes and created fees to supply the Tourism Development Fund.

That yoke will not be easy to shoulder.

The city’s current real estate tax rate is 57 cents per $100 of assessed value. It’s a modest rate compared to neighboring localities: James City County (84 cents per $100), York County (79.5 cents per $100) and Newport News ($1.22 per $100). Williamsburg has held onto its tax rate since the 2013 fiscal year.

At the Jan. 27 retreat, City Council discussed options to raise the real estate tax rate to as high as 66 cents per $100, which would add another $180 to a homeowner’s bill whose property is assessed at $200,000.

Why raise taxes at all?

Even though the city’s real estate base hasn’t recovered from the Great Recession, it’s spending has. Williamsburg’s operating budget was on the rise in the early 2000s. Spending peaked at $32.9 million before the recession took hold and the city cut expenses in 2011 to $29.9 million. Figures discussed Jan. 27 show the city projecting $36.7 million in spending.

A part of that budget is an additional $294,964 for Williamsburg-James City Council Public Schools because the new James Blair Middle School will open in the fall. This is a large expense, although it should come as no surprise to city leaders — the schools have planned this expansion for years.

The city’s public safety departments are also chomping at the bit for more staff. The fire department says it is responding to more calls and requests for mutual aid. Fire officials are also citing “new development” as a reason for more staff. The department appears to be planning for Broad Street’s expected 2020 opening of the Midtown shopping centers.

Police want to venture into more task force work and increase neighborhood patrols, which would require more staff. Task forces tend to be grant-driven and are typically multi-jurisdictional. Crime statistics on the city’s website show police charged people with fewer crimes in 2016 (158) than in 2015 (176). More officers on the streets will hopefully allow police to prevent crimes, rather than react to them.

I look forward to hearing more information from those departments during the upcoming budget process.

Remember, the Tourism Development Fund approved in 2017 is supposed to be used for tourism-specific projects. The city has been short on details about whether any of the money collected could be used to supplement the parks and recreation budget, or whether it would absorb any capital budget expenses.

The budget process is months-long and tedious. Council will meet on March 8 to discuss the budget again.

City Manager Marvin Collins and his finance team will need to perform some Herculean labors this spring to make next year’s budget work. I wish him luck.

To see the Jan. 27 presentation staff made to City Council, visit bit.ly/williamsburgmeetings.

For prior years budgets, visit bit.ly/williamsburgbudgets.

Brauchle is deputy editor of the Virginia Gazette. As a reporter, he spent more than a decade covering local government for various newspapers. He can be reached by email at rbrauchle@vagazette.com.

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