Supervisors endorse meals tax referendum

For the second time in eight years, Henrico County voters will be asked to approve a meals tax.

But if the measure fails this time – as it did by 151 votes in 2005 – county officials are warning that they may have no choice but to raise the county's real estate tax by as much as six cents per $100 of assessed value to close an $18-million shortfall in the proposed 2013-14 budget.

During the final day of its four-day budget review meetings, the county's Board of Supervisors Thursday unanimously endorsed County Manager John Vithoulkas' meals tax referendum proposal, informally authorizing Vithoulkas to proceed with plans for a referendum Nov. 5.

A simple majority of votes cast is required to pass the measure. The meals tax is expected to raise about $18 million annually – money that would be dedicated specifically to fund school system needs.

Vithoulkas' formal request for consensus from the board about the meals tax referendum followed four days of budget reviews, during which the board heard from the heads of each county department and, earlier Thursday, from the School Board and Superintendent Pat Russo. A common theme among the agencies: budgets have been trimmed nearly as far as possible, and future cuts will necessitate layoffs or service reductions.

Vithoulkas told supervisors that the county had cut or absorbed more than $115 million in the past four years and pointed out that slightly more than 90 percent of the collective funding allocations for the school system and divisions of police and fire in his budget proposal would be spent on salaries and employee benefits, leaving virtually no room for other cuts.

"I believe based on what you have seen, that this county does not have an expenditure problem," Vithoulkas said. "I think that's been made abundantly clear. There is a need for additional resources going forward."

The county had hoped to win the authority to implement a meals tax without voter approval from the General Assembly during this year's session, but that idea did not enjoy enough support in the Assembly to become reality. Counties must be granted the authority to impose such a tax, but cities and towns can implement it without the Assembly's approval.

Vithoulkas' proposed budget for Fiscal Year 2013-14 assumes about $18 million in funding that currently does not exist. He told the board that there are two options for creating that revenue: passage of the meals tax or a 6-cent increase of the real estate tax.

"What I see right now, I have not seen in my career," Vithoulkas told the board. "We have been able to navigate as a county, collectively, to this point. Going forward, I do believe there are difficult days ahead." He urged supervisors not to raise the real estate tax – which has been lowered six times in the pats 35 years but never raised during that time – because it plays a significant role in attracting economic development projects to Henrico.

Supervisors agreed, though they balked at the proposed wording of the meals tax referendum question Vithoulkas presented to them in draft form today. That wording would have asked voters in part whether they would endorse the meals tax for the purposes of "avoiding a real estate tax increase of six cents per $100 of assessed valuation."

Brookland District Supervisor Dick Glover objected, saying that he didn't want to lead voters to believe that passage of the meals tax would preclude the board from raising the real estate tax at any point this year or in the future, should such a need arise.

"I don't want to tell my citizens that we are going to limit ourselves with how we pay what we have to pay for," he said.

In response, Vithoulkas removed the phrase entirely, and the board expressed its satisfaction.

County officials have estimated that 40 percent of the revenue collected from the meals tax would come from non-Henrico residents. Vithoulkas also pointed to the City of Richmond – which has had a 6-cent meals tax for a number of years – as proof that such a tax does not hinder restaurant growth. The city's restaurant sales grew more than 28 percent between 2006-11 – exceeding such growth in Henrico by nearly 5 percent during that time.

"We have a tool that is available to 203 other localities in the Commonwealth of Virginia that could be available to us," he told the board, citing the number of other state localities that currently impose a meals tax. The 4-cent tax proposed in Henrico is the maximum allowable meals tax for Virginia counties, though there is no restriction on the amount that cities or towns can charge in their localities, Henrico County Attorney Joe Rapisarda said.

Creation of a new recurring revenue source would help fill the gap not only in this year's budget, Vithoulkas said, but also in future years. In Fiscal Year 2014-15, the county is expected to face minimum shortfall of $33 million – including more than $21 million in the school system, which will open a new elementary school this fall. In total, Henrico officials have identified necessary capital improvement projects (land acquisition, construction and renovation work) totaling nearly $1.7 billion in the next five years, but Vithoulkas' budget would fund just $6.8 million of those needs.

The board is expected to vote formally July 9 to authorize the meals tax referendum, which also must earn the approval of Circuit Court Judge L.A. Harris and the U.S. Department of Justice before appearing on the November ballot.

County officials cannot advocate for or against a referendum, but elected officials can. Varina District Supervisor Tyrone Nelson said that he would do so, and he encouraged other board members to do the same.

"If this meals tax referendum is defeated, then we're right back where we started," he said. "We have to do our part."

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