8 Cent Solution

8 Cent Solution

Mayor tells council that he wants an 8-cent tax rate reduction; tax bills to rise.

If no change were made to the city’s real-estate taxes, the average homeowner would experience a 21 percent increase over last year. But with City Manager James Hartman’s proposed budget, the average homeowner will pay 16 percent more than last year. That’s a reduction of 4 cents per $100 of assessed value, an average residential property tax bill of $595. It would lower the rate from $0.995 to $0.955.

“That’s the cost of doing business,” said Hartman in a Tuesday afternoon press conference announcing the proposed budget for fiscal year 2006, which begins July 1. “It’s about balancing the services provided and maintaining livability in the community.”

When the city manager presented the budget to City Council that evening, Mayor William Euille proposed doubling the rate reduction. Under an 8-cent reduction, the average real-estate tax bill would be $418. Tuesday’s City Council meeting represents the opening volley in a budgeting process between the city manager’s office, the City Council and the public.

“If we can do better than an 8-cent real estate tax rate reduction, we’ll do that,” Euille said. “We’re committed to further reducing the real estate tax rates.”

The dispute among city officials over whether to lower property taxes by 4 cents or 8 cents comes at a time when other counties in the region are in a competition to see which one can cut back tax rates the most. Prince William officials plan to cut real-estate taxes by 15 cents, and Fairfax supervisors plan to cut rates by 10 cents. City officials are quick to point out that Alexandria’s real estate tax rate was lower than rates in Prince William and Fairfax from 1988 to 2004, a trend that they say makes cuts in Prince William and Fairfax less significant.

THE CITY MANAGER’S proposed budget has a general operating fund of $471 million, a 9 percent increase over the current fiscal year’s budget. It includes adding 14 new police officers on the patrol beat and $1 million for a treatment center for abused children. Hartman’s proposed budget is the first to be tied to the goals of the Strategic Plan, which was adopted last year.

“Increased spending is inevitable if we wish to maintain the quality of life in Alexandria, accommodate inflationary costs and implement the Strategic Plan,” Hartman wrote in his introduction to the budget. “Council can, of course, reduce the planned new initiatives, cut services, or reduce other areas of the operating and capital budgets. However, this may affect the achievement of the strategic goals set for the City.”

The city manager’s budget did not fully finance the School Board’s budget, funding the schools at $900,000 less than the School Board’s request. The city’s Office of Management and Budget questioned some of the assumptions that were made about money the school system would save because of unfilled vacancies, an accounting discrepancy that amounted to $620,000. In addition to that, the city factored in $280,000 in state funding that was not available when the School Board finalized its budget.

Hartman’s proposed budget also included a pilot tax-relief program for homeowners with houses assessed as less than the average residential property, which is $441,823. To qualify for the program, participants must have a household income of $62,000 or less.

Another feature of the city manager’s proposed budget is a program to help start-up business, allowing qualifying applicants to pay a $50 gross receipts tax in the first year of operation. In the second year, a business would pay on the first year’s actual gross receipts, and the third year the business would pay on the second year’s actual gross receipts.

“Usually businesses have to estimate their first year’s gross receipts,” said Assistant City Manager Mark Jinks. “This is a change to make the tax simpler and easier to understand for our city’s small business start-ups.”

RISING REAL ESTATE assessments have created increasing potential revenues for the city. In fiscal year 2004, the city collected $210 million. In fiscal year 2005, it will collect $236 million. In fiscal year 2006, the projected revenues for the city are $262 million, a 15 percent increase compared to last year’s approved budget.

The city’s revenues come from a number of sources, the majority of which are collected in property taxes. Residential property taxes account for 33 percent of the city’s revenues while commercial property taxes account for 23 percent of revenues. Other money comes from personal property taxes (7 percent), business licenses (6 percent), local sales taxes (5 percent), restaurant taxes (2 percent) and lodging taxes (2 percent).

The city spends money in a variety of areas. The bulk of the city’s expenditures, 30 percent, go toward education. Police and fire protection account for 16 percent of city spending. Other expenditures include health and welfare (10 percent), city courts (7 percent), public works (8 percent) and parks and recreation (6 percent).

The City Council has six work sessions on the budget scheduled between now and May 2, when the budget will be finalized. A public hearing on the budget is scheduled for April 4.