Lynchburg City Council eyes reducing real estate tax rate

A motion to lower the City of Lynchburg’s real estate tax rate in the closing minutes of the city council’s Tuesday work session sent the body into an extended discussion as several members wrestled over how to bring forth the reduction.

Ultimately, the council took no action on the tax rate Tuesday despite several motions, votes and attempts to recess the meeting with items still on the agenda.

The discussion on lowering the city’s real estate tax rate from $1.11 per $100 of assessed value to $1.03 per $100 of assessed value started during the roll call portion of the council’s 4 pm work session, which typically is the last item on the agenda before the council ends the work session and prepares for its 7:30 pm regular meeting.

Ward III Councilor Jeff Helgeson, citing an “unprecedented surplus” in city finances, made a move to lower the real estate tax rate on the spot.

Helgeson, referring to when the council voted against equalizing the city’s real estate tax rate in the wake of higher property value assessments in 2021, said the council needs to refund the $4.8 million “tax increase” that it resulted in.

“We said it shouldn’t have been there,” Helgeson said about his and Vice Mayor Chris Faraldi’s vote in 2021. “It was completely unnecessary. At the end of the year, we were proven correct — $43 million surplus.”

At that time, the council voted to keep the rate at $1.11 per $100 of assessed value instead of lowering it to $1.03 per $100 of assessed value. The lower rate would have, on average, canceled out the effect on residents’ tax bills, and the city’s revenue, brought by higher property values.

While a majority on council appeared to have the votes to reduce the city’s real estate tax rate, councilors disagreed Tuesday night over when to bring forth the change.

In total, there were three motions with different timelines: An original motion for Tuesday night made by Helgeson; an amended motion to bring forth an ordinance during the council’s second meeting in February made by Faraldi; and finally, a reamended motion to bring forth an ordinance Jan. 24 made by Helgeson.

None of the three motions were approved.

“What a show,” Faraldi said during the discussion on motions. “I mean, the fact that this was pre-planned by three people in my own party to do this now, today, is complete ballooney.”

Faraldi was referencing the support for Helgeson’s motion from fellow Republicans Martin Misjuns and Larry Taylor, both at-large councilors newly elected in November. Helgeson, Faraldi, Misjuns, Taylor and Mayor Stephanie Reed comprise a 5-2 Republican majority on council, while Ward I Councilor MaryJane Dolan and Ward II Councilor Sterling Wilder identify as independents.

Faraldi continued his support for tax relief but said it wasn’t fair to any councilor to ask them to make a million-dollar decision without taking a look at the numbers.

“Let’s do this. Let’s get it done in the right way,” the vice mayor added.

“This is not how we do it. No public hearing, no understanding about what’s going on. I want to make the best decision I can and align with my conservative principles.”

Carrie Dungan, the city’s director of communications and public engagement, said the council adopted prior to fiscal year 2021 an unassigned general fund balance of about $22.1 million but finished the year with a balance of $49.7 million.

Prior to fiscal year 2022, the council adopted a balance of about $23.1 million but ended the year with $66.4 million.

Both the fiscal year 2021 and 2022 adopted fund balances — $22.1 million and $23.1 million — were 11.8% of the city’s general fund revenues.

According to the city’s policy on unassigned general fund balances, which was adopted by council, a minimum of 10% of the city’s general fund revenues must be maintained to provide “sufficient working capital and a comfortable margin of safety to address emergencies and unexpected declines in revenue without borrowing,” Dungan said.

Additionally, the city reported $9.1 million in revenues beyond what was expected in fiscal year 2021, and $17.3 million in fiscal year 2022.

Those numbers, according to City Manager Wynter Benda in September, are “a result of conservative budgeting during the COVID-19 pandemic, a robust economy, and unprecedented inflation.”

Helgeson’s $43 million “surplus” figure comes from the difference between the city’s final unassigned general fund balance of $66.4 million and the expected balance of $23.1 million.

One of the ways the council can provide tax relief is through real estate tax credits, City Attorney Matthew Freedman said during Tuesday’s work session.

In order to offer this relief, Freedman said, “there has to be a determination … that there is a surplus,” in designated areas surpluses can be returned from: the real estate tax and the personal property tax.

The Council did this on the real estate tax during its fiscal year 2023 budget discussions, when it adopted an ordinance providing a credit equivalent to 2 cents per $100 of assessed value to taxpayers, not to exceed $1.3 million.

The body also adopted a 75% ratio against the assessed value of vehicles according to the National Automobile Dealers Association pricing guide, meaning residents only need to pay the tax on three-quarters of their assessed vehicle value.

City staff determined in fiscal year 2021 the surplus in the real estate tax was limited to about $2.65 million, Dungan said. After using about $1.3 million of that, the council would be required to adopt an ordinance to provide an additional credit with the remaining money.

She added staff determined there was not a surplus in real estate tax revenue for fiscal year 2022.

According to Dungan, one cent on the real estate tax rate equates to roughly $600,000 in revenue to the city, meaning an eight-cent reduction in the city’s tax rate would roughly equal $4.8 million in lower revenue.

Helgeson, who proposed an eight-cent reduction during the meeting, said on social media he wanted to see if “we can lower the current real estate tax rate to $.99.”

A 12-cent reduction in the rate would equate to about $7.2 million in lost revenues.

Benda, during Tuesday’s meeting, offered caution on moving forward with the tax relief in the midst of an already adopted budget year, saying “it’s one of those things you’ve kind of got to think through.”

“I’m always going to say we’re going to be prepared …” Benda said. “The reality is … it would be a remiss of me not to say this as a professional manager … how this would go is you take this up in your budget process, right.”

“But again, you seven are my boss. And I have 1,200 employees that report to me. And I’m going to do my best to meet your expectations about what you want, but I’m always going to make sure you understand some of the procedural impacts, and what that takes.”

Dolan said the fact the tax rate vote was “being crammed and jammed down our throats” is “irresponsible and it’s outrageous.”

“Many of you probably remember 2008 or 2009 when they did lower the real estate taxes and we had to furlough 80 or 90 employees and cut services. And until you’re willing to tell us what services you’re willing to cut, I don’t think I could support that,” Dolan said, looking at Helgeson, adding the tax cut would only be good for the wealthy.

Wilder, apparently baffled at the idea that the council was voting on this during the roll call, said the body needs to know the effects of the decision before voting.

“You can say we can cut taxes down; we can cut this down,” Wilder said. “But do you want the police to be compensated? Do you want to build a police station? Do you want a new fire truck? There are certain consequences, you’ve got to understand that.”