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Shuffling Taxes

Thoesen proposes decrease in real estate and BPOL taxes, proposes three new taxes.

Mayor Richard Thoesen wants to overhaul the town's tax structure.

Public debate on the mayor's proposals is scheduled for the Herndon Town Council's March 25 public hearing. In a March 13 memo to the council, Thoesen has called for a four cent reduction in the town's real estate tax. To offset revenue lost from a decrease in the personal property tax, the mayor is recommending the town adopt three new taxes.

"As you will recall, at the Feb. 4 work session, staff presented the results of the tax projection study and preliminary General Fund revenue estimate for Fiscal Year 2004," Thoesen wrote in his memo. "Subsequent to the Feb. 4 discussion, staff learned that a substantial revenue shortfall is projected this year because commercial and retail assessments and business activities continue to decline."

In an interview Monday, the mayor said he was looking to "spread the burden," among the town's taxpayers. He said he was anxious to take his proposal to the "street" in an effort to get as many people involved in the process and to find a "winning package."

In a nod to local restaurant owners, Thoesen called for a slightly lower meals tax than had been previously discussed at the Feb. 25 Town Council public meeting.

Town Manager Stephen F. Owen likes what he sees in the mayor's proposal. "Anytime you can expand your tax base to broaden revenue stream, while at the same time providing much needed tax relief to homeowners, it is a good thing," Owen said. "We will be in a better position financially, if we can broaden our tax base, simple as that."

In his memo, Thoesen agreed. "Depending on the rates adopted, the additional revenues derived could allow full funding of the FY 2004 budget with no reduction in town services to residents and businesses," the mayor wrote. "Restructuring the town's taxes furthers the council's long-term fiscal goal of diversifying our revenue stream and reducing our reliance on real estate taxes as the primary revenue source."

<b>NOT EVERYONE</b> on the council shares Owen's enthusiasm. "Part of [the proposal], I still have an open mind about, but part of it, like the meals tax, I have been pretty consistent for a number of years now," vice mayor Carol Bruce said. "I guess I should never say never, but ..."

Like the mayor, Bruce said she is looking forward to hearing from the Herndon residents about the various proposals. "I think the public hearings are going to be important," the vice mayor said. "I hope we have a lot of public input."

Councilwoman Connie Hutchinson does not buy into the argument that the meals tax is, as some have said, inconsequential. "For the average homeowner in Herndon, the average home is $300,000, the tax that they would be saving is only $120 over a year," the councilwoman said. "I find it difficult to believe that the average family won't spend more than that on a meals tax. I think it worked out to $100 a week that you'd have to spend in order to pay that much in a meals tax and that eating out maybe twice for a family of three or four. I think it's unrealistic to say that it is a wash for the homeowners."

Coming to some sort of consensus on the myriad of tax-related issues could be difficult. While Hutchinson share's Bruce's skepticism about a meals tax, the two disagree on the necessity and timing of a reduction in the real estate taxes.

"I think reducing the real estate tax rate right now is a mistake especially when we are facing this much of a deficit," Hutchinson said. "We've been able to bank some extra funds in the good times, so to reduce by that much, four cents, if God forbid, if something bad happens, then we won't have any funds to do the kinds of things we want to do downtown. So I don't think it is the best time to have tax break. I'm still open, but I am not convinced."

Bruce, on the other hand, said she thought the four cent reduction would be a welcome present for town residents, though she added that she doubted if the council could pass it given the current economy. "I think it would be marvelous if we can do it, but I think Fairfax County really has to step up to the plate because that is where you are going to feel the impact," Bruce said. "We are looking at some major shortfalls that weren't anticipated."

<b>COUNCILMAN MICHAEL O'REILLY</b>, who chaired the ad-hoc finance committee, called the mayor's memo, "interesting." He is on the record as favoring the adoption of a meals tax, applauded the mayor's move to decrease the tax from 3.5 percent to 2.5 percent. "I think 2.5 seems about right," O'Reilly said. "It should be an interesting discussion. Ultimately, these proposals broaden the tax base and I think we all want that. At least, I hope we do."

While remaining skeptical about the meals tax, Bruce did say she was fully in support of the mayor's proposal to raise the cigarette tax by five cents. "I have no problem on increasing taxes on cigarettes," she said. "I have no problem with that, at all," Bruce said.

Currently, the town's cigarette tax is 20 cents per pack, and Thoesen has recommended it be bumped to 25 cents per pack. "It's a very small tax," said Mary Tuohy, the town's finance director. "It brings in $200,000 a year and the five-cent increase would amount to $250,000."

Bruce added that she needed to learn more about the mayor's call for a cellular phone tax and reduction in the small business, professional and occupational license, or BPOL, tax.

In his memo to council, Thoesen said the town could not reduce the real estate tax any further, without also decreasing services, a prospect the mayor said he could not support. "Residential assessments have increased dramatically over the past three years. Last year, the Council recognized this additional burden and reduced the town's real estate tax rate two cents from 32 cents to 30 cents per $100 of assessed valuation."