A group of Charlottesville restaurant owners braved slushy road conditions Thursday morning to oppose a proposed 1 percentage point increase in the city’s meals tax.
“Eight million dollars was brought in last year from this industry,” said Peter Castiglione, one of the owners of Maya on West Main Street. “We collected the money from [customers] and gave it to the city. Now they want $2 million more.”
A majority of City Councilors directed budget staff earlier this month to close a projected $2 million deficit by increasing the meals tax to 5 percent.
The move had been recommended in January 2014 by the Blue Ribbon Commission on Sustainable School Funding as one way to provide more resources for education.
“This tax is one way to capture revenue from people visiting the city who use and enjoy many of the amenities provided by the community but do not pay real estate and property taxes,” read the report. “Charlottesville has one of the lowest meals taxes in the state.”
Charlottesville’s current meals tax of 4 percent is the same Alexandria, Manassas, Fairfax and Falls Church levied in 2013, according to the Weldon Cooper Center at the University of Virginia.
The cities of Covington, Hampton and Newport News had a rate of 7.5 percent that year.
The proposed $156 million operating and capital budget was posted on the city’s website this week and includes the 1 percentage point meals tax increase.
City Manager Maurice Jones said the additional money represents a “significant investment” in schools, public safety and city infrastructure.
“What that $2.1 million is helping to fund is the increase for our schools, eight new police officers for our community and to assist with capital projects,” Jones said. “We have heard loud and clear from a lot of folks in our community that they want to see more sustainable investment in education.”
However, restaurant owners gathered at a news conference organized by Councilor Bob Fenwick to protest the increase and convince Council to reconsider before the budget is adopted in April.
“The meals tax is a regressive tax that really affects low-income people much more harshly than it does to the general populace,” said Laura Galgano, owner of the Blue Moon Diner. “It is often talked about as a way to get tourists and people from out of town to help us cover costs for Charlottesville and it’s simply not true.”
The Blue Ribbon Commission had also recommended increasing the property tax rate, but there was not support from Council to do so. They cannot reconsider that decision in this budget cycle because the existing rate of 95 cents per $100 of assessed value has already been advertised.
Jones said other localities across the state had to raise their property tax rates during the recession, but Charlottesville has been able to keep that rate steady.
“It was up to $1.11 when I came to work for the City of Charlottesville back in 1999, so all we’ve done since then is reduce it,” Jones said.
The property tax rate has not changed since it was lowered to its existing rate in 2008. Even so, this calendar year the rate is an effective tax increase because of rising property values.
Jones said if the meals tax hike is not supported by a Council majority, the city will have to cut significant services.
“There are no other alternatives,” Jones said. “People would probably have to be laid off if we don’t have the support, and the schools will get less money and would have to reduce their budget.”
Castiglione said the budget needs further review.
“We would like the city to go back into the budget and see if they can find some other way to fill this supposed $2 million hole,” Castiglione said.
An owner of one Belmont restaurant also wants a better explanation of how the shortfall came to be.
“One of the things to look at is how we got here and whether this is an equitable tax to justify this increase in revenue,” said Adam Frazier of The Local.
Jones said his staff has researched other communities that have raised meals taxes and do not believe the increase will affect business.
“We’ve not found one example in which a municipality raised the meals tax by 1 percent or a half-percent and it caused any sort of negative impact on the number of restaurants they had or the number of people coming to those restaurants,” Jones said.
Castiglione challenged the city to prove the claim, adding that many people who work in Charlottesville eat at city restaurants.
“All of the counties surrounding us have people that come to town, work here, come to our restaurants, spend money and we collect the tax money from them,” Castiglione said. “We consider that our local population.”
Fenwick said he is hoping Council can make cuts rather than increase taxes.
“At this point I would hope that not everything is set in stone,” Fenwick said. “We have a framework, we have a skeleton, and I would like to look again at the money we are putting into West Main Street.”
The capital budget for next year anticipates spending $500,000 on the new streetscape for West Main, and an additional $6 million though fiscal year 2020. Cutting capital projects, ones financed over long time periods, does not create corresponding savings for the city’s operational budget.
Earlier this month Fenwick suggested cutting the West Main project to $50,000. He said Thursday he does not believe West Main needs as much public investment as previously thought because he says construction has slowed down.
“I’m hoping we can find more find cuts,” said Fenwick.
Mayor Huja, who is not seeking re-election, also said he supports the raise but is willing to consider alternatives.
“It is not final yet,” Huja wrote in an email.
Galvin, who is seeking re-election, said the Blue Ribbon Commission also suggested raising the lodging tax.
“Some have argued that a lodging tax is less regressive than a meals tax because more low and moderate income people go out to eat than travel,” Galvin said. “Certainly more of our local residents go out to eat in our restaurants than stay in our hotels.”
Szakos confirmed in an email Thursday that she still supports the meals tax increase. She is not up for re-election until 2017.
Councilor Dede Smith said she did not know enough about the school system’s funding request to determine whether she could support the meals tax increase.
The association wants Council to enact a “community improvement district” that would levy a 13 cent property tax in the city center. The proceeds would go to a new nonprofit organization that would use the money for marketing and to pay for someone to manage the day-to-day affairs of the mall.
“We haven’t considered that to be part of the budget,” Jones said. “It is an outside group that is approaching the city about this and Council has not weighed in on it yet.”
However, both the community improvement district and the budget will be formally presented to Council March 2. They’ll both have their first public hearing March 16 followed by possible adoption April 6.