While the Virginia Cavaliers closed out its penultimate game before March Madness, the tipoff of an intensive series of public meetings on Charlottesville’s $188.8 million budget began with a presentation at Monday’s City Council meeting.
Interim City Manager Mike Murphy formally unveiled his fiscal year 2020 budget after several business owners spoke against a proposed increase of the meals tax from 5 percent to 6 percent and an increase of the lodging tax from 7 percent to 8 percent.
In the budget presentation, Murphy rejected those claims against the undue burden the meals and lodging taxes would bring to hoteliers and restaurateurs.
Eric Terry, president of the Henrico-based Virginia Restaurant, Lodging & Travel Association, panned both proposed increases during the meeting’s citizen comment period.
“… There’ve been a lot of new investments, over $110 million in new hotel investments, and that is something, I think, should give pause to whether or not you raise that tax,” Terry said.
He also said that the increase in the city’s lodging rate could drive some visitors to Albemarle County hotels, which would have a lower tax rate.
“When people make decisions, especially with group meetings and things they can move around to different places — weddings, other things — the tax can make a big difference.”
On the meals tax, he said it would unfairly affect lower-income people.
Peter Castiglione, owner of Maya restaurant, said he talked to city staff and felt afterward that the proposed budget could be balanced without an increase in the meals or lodging tax due to revenues increasing expectations. He also said that the previous meals tax increase in 2016 led to a stagnation in business in the city.
“The county has opened 39 restaurants and hired 740 new employees while the city is showing no growth in restaurants, lost upwards of 200 jobs in the same time period and in fiscal year 2018 reflected the worst growth performance in recent history.”
Per Murphy’s budget presentation, the city currently has 39,000 jobs, the highest recorded, and the lowest unemployment in the state at 2.6 percent in December.
Thomas Penny III, whose Maryland-based Donohoe Hospitality Services was one of the partners in the creation of the Draftsman hotel on West Main Street cited a decrease in hotel occupancy as a reason to avoid increasing the lodging tax.
“Since we opened our hotel, the hotels we compete against are down 10 percent,” Penny said.
Penny also cited the events surrounding Aug. 12, 2017, as why the city should invest more in the Charlottesville-Albemarle Convention & Visitors Bureau if the lodging tax in increased.
“We believe many of the hotels that opened [have] opened because of what Charlottesville was before 2017. However, what we’ve seen since 2017 is the market is not as strong as was pre-2017, and so we actually think it is a time to strengthen the CACVB, get the right leadership in place, strengthen and support them and invite people back to Charlottesville. We believe Charlottesville can unite the state, can unite the country to the extent that we all come together,” he said.
“But we also have to talk about the job the CACVB is doing,” Mayor Nikuyah Walker said during the council’s response. “Unless there’s a new ad campaign that I haven’t seen, then I don’t know why we would invest in funding them [through the lodging tax] at this time.”
In February, the CACVB adopted “More to C’” as an ad campaign after a previous plan to use a play on C’ville with terms like “C’villeity” and “C’villeization” was widely rejected by city and county officials.
The proposed budget
In his presentation, Murphy addressed the concerns from the business owners and lobbyists in the citizen comment period.
On hotels, Murphy cited the overall increase in hotel rooms in the region for the decrease in occupancy rates.
“I believe most consumer choices in our region are made on proximity to walkability and being able to walk to [the University of Virginia] or walk to the Downtown Mall. And that’s why Charlottesville revenues … have continued to go up.”
Hotel occupancy has gone down because nearly 400 rooms were added last year, he said.
“I didn’t take a whole lot of the economics classes, but I do know about supply and demand, and I do know it had an impact on what they talk about at CACVB a lot, which is RevPAR [revenue per available room].” Murphy said.
Murphy also said that the city’s low commercial vacancy rate, 4.5 percent citywide and 2.5 percent downtown, was the main driver for the lack of change in the number of restaurants in the city since the previous meals tax rate increase.
“By their own presentation to council, there’s exactly the same number of restaurants as there was. And you know why? Because there’s nowhere else to put a restaurant in Charlottesville, and every time one goes away, something else pops in there,” he said. “… Our revenue continues to grow.”
On the decision to increase the meals tax rate instead of real estate, Murphy said that it would affect lower-income people less.
“We think that this is only going to impact them by $1.25 a month. That’s drastically different than if they’re homeowners and we just reassessed them. That’s drastically different that whether they’re renters and their landlord decides to bump up the rent.”
At 6 percent, Murphy said, the city’s meals tax rate would be less than or equal to 27 of Virginia’s 38 cities. The highest rate is 8 percent and the lowest is 4 percent. Among cities in the state with lodging taxes, Charlottesville’s 8 percent would be less than or equal to the rate of 19 cities. The highest rate is 11 percent and the lowest is 2 percent.
The meals tax last was raised in fiscal year 2016, and the lodging tax has been unchanged since fiscal year 2017.
Also in the budget is a decrease in funds from Albemarle in the revenue-sharing agreement. The upcoming payment of about $14.2 million, down from about $15.7 million in the current fiscal year, is made annually through a deal forged in 1982 to give the city a share of the county’s revenue in exchange for the termination of plans to annex portions of the county. The contentious agreement, signed before the General Assembly’s moratorium on annexation, cannot be discontinued unless the city and county merge, the state terminates the concept of independent cities or the city and county both agree to cancel or change the agreement.
“The formula is based in part on the total real estate assessments of both localities. Since the city’s total assessed value grew substantially in that year, much more so than the county’s, the city’s ‘contribution’ grew, resulting in a reduction in the transfer to the city,” the budget proposal states.
“Some of the big buildings on West Main Street went from being evaluated in the $30 [million] to $40 million range into the 70s, so those big jumps like that really had a big impact,” Murphy said Friday during a preview of the budget.
The $88 million budget for Charlottesville City Schools, also presented to councilors on Monday, has $3.37 million in new operational funding. The city budget allocates $1.25 million in the Capital Improvement Program to continue school improvement initiatives; more than $1.9 million for general capital improvements for city schools and heating, ventilation and air conditioning replacement; and $3 million in preconstruction funds for a proposed reconfiguration of Walker Upper Elementary School into a prekindergarten facility, the transfer of fifth grade into the city’s elementary schools and the conversion of Buford Middle School into a sixth- through eighth-grade facility.
The overall city budget is a 5.05 percent increase over the current fiscal year and holds the real estate tax at 95 cents per $100 of assessed value. There will be increased revenue from real estate because of a jump in residential assessments by an average of 8.1 percent, commercial by 3.8 percent and also new construction.
“Council advertised the potential for a real estate tax increase from 95 to 97 cents [per $100 of assessed value],” Murphy said Friday. “The proposed budget does not include those revenues, and in so keeps the real estate tax the same. Obviously, the council can elect to change the budget anytime between now and April 8, and there will be many budget work sessions where they’re consider the alternatives.”
Virginia law does not allow localities to raise rates above what is advertised, but they can go below.
Also included in the budget is a dedicated $10.3 million for affordable housing plans, such as $3 million for the redevelopment of Charlottesville Redevelopment and Housing properties and $5.9 million for the first phase of redeveloping Friendship Court. The proposed budget includes $285,500 in additional funding for the Charlottesville Housing Affordability Program, which will provide relieve for residents whose income is below $65,000 a year, and it also increases the tax relief threshold for elderly and disabled persons to $65,000.
Additionally, the budget includes an increase of the living wage from $14.40 to $15 an hour and a 4.17 percent cost of living adjustment for all employees “based on in part that living wage to address some compression issues, to address some areas where we’re kinda falling behind market,” Murphy said.
On top of the upcoming wage increase, on March 1, the sworn police staff also received a 4.83 percent wage increase. Police Chief RaShall Brackney has cited pay as one of the factors for issues in recruitment and retention in the department.
There are several work sessions and public hearings scheduled before the April 8 final vote on the budget. They are:
- a work session from 6 to 8 p.m. Thursday in CitySpace, 100 Fifth St. NE;
- a work session form 6 to 8 p.m. March 14 in CitySpace;
- a community budget form from 1 to 3 p.m. March 16 in the Key Recreation Center, 800 E. Market St.;
- a public hearing at the March 18 City Council meeting;
- a work session from 6 to 8 p.m. in the Water Street Center, 407 E. Water St.;
- a tentative work session from 6 to 8 p.m. March 27 in CitySpace; and
- the second public hearing and first reading of the budget and tax rates at the April 1 City Council meeting.
The fiscal year begins July 1.
More information on the fiscal year 2020 budget can be found at www.charlottesville.org/budget.
Sublease for City Market location extended to December
In the consent agenda of Monday’s meeting, the City Council approved the extension of the Charlottesville City Market’s sublease on the parking lot bounded by East Water Street, East South Street, South First Street and Second Street Southeast. The lease will run from April to December.
In 2015, the City Market moved across the street from the city owned parking lot at 200 Second St. SW to 100 E. Water St. in anticipation of the construction of West2nd, which would have provided space for the market upon completion. In Fall 2018, the project was terminated after several delays and requests for changes from city officials. Meanwhile, in the larger lot on East Water Street, the market expanded from 100 vendors to 120.
“Approval of this sub-lease for the 2019 [season] will provide the City time to secure either a renewable sub-lease or determine a different long-range plan for the City Market location,” the staff report states.
According to city GIS data, Charlottesville Parking Center LLC owns the lot at 100 E. Water St., and it currently is assessed at $3.26 million. The primary tenant of the lot is Skyview Parking LLC.
The lease will cost $47,500 in total. The rent from April to June, $16,250, will be paid out of the current parks and recreation budget, and the remainder is in the department’s general fund budget request.