City of Alexandria, Virginia
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MEMORANDUM
DATE: APRIL 14, 2016
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: MARK B. JINKS, CITY MANAGER /s/
DOCKET TITLE:
TITLE
Public Hearing on an Ordinance on the Proposed Real and Personal Property Tax Rates and Proposed Effective Tax Rate Increase for Calendar Year 2016 (Fiscal Year 2017). (Adoption is Scheduled for Thursday, May 5, 2016.)
BODY
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ISSUE: Consideration of the Real and Personal Property Tax Rates for Calendar Year 2016 (Fiscal Year 2017).
RECOMMENDATION: That City Council will:
(1) Hold a public hearing on Saturday, April 16 and schedule second reading and final passage on Thursday, May 5.
The maximum rates authorized by City Council in the attached ordinance reflect:
1. A base real estate tax rate on residential, commercial and industrial property for
calendar year 2016 of $ per one hundred dollars of assessed valuation. The FY 2017 proposed budget recommends $1.053 to fund the base budget and presents a $1.063 rate to fund an options list;
2. Assumed in this proposed amount is the continued dedication of 0.6 cents for affordable housing and the continued dedication of 0.5 cents for a stormwater infrastructure trust fund account;
3. Assumed in the proposed amount is the continued reservation of 2.2 cents of the real property tax rate for transportation projects;
4. A Special Services District tax is proposed to continue to be levied on all real property located in the Tier I Potomac Yard Metrorail Station Special Services District at the current rate of $0.20 per one hundred dollars of valuation.
5. Tax rates on vehicles and on other classes of personal property are not proposed to change for calendar year 2016.
DISCUSSION: Under the requirements of The Code of Virginia (“The Code”), the City Council annually must establish real property and personal property tax rates for each calendar year. The Code also establishes certain advertising and public hearing requirements prior to the adoption of these property tax rates. One Code requirement mandates that Council advertise the highest rates that could be adopted when it votes on the budget and set the tax rates on May 5.
State Code also requires a separate public hearing (i.e., separate from the budget hearing on March 14th) on the real property tax rate if the taxes levied for the year in which the proposed tax rate applies would increase by more than one percent (after the value of new construction has been deducted). An increase of more than one percent is termed by statute as the “effective tax rate increase.” This would be the case in CY 2016 as taxes levied at the proposed $1.053 rate result in a 3.3 percent increase for all classes of real property (after the value of new construction has been deducted).
It should be noted that the advertised maximum tax rate may be different from the City Manager’s proposed tax rate. The tax rate that would generate the same revenue as FY 2016 is $1.020.
State law also requires that a special “notice of proposed real property tax increase” in a specific format and language be placed in a local newspaper of general circulation if the proposed tax rate results in a tax greater than one percent above the prior year tax levy. A separate hearing on this ordinance and the “effective real property tax increase” will be held on April 16. The special notice of the hearing date, as required by State statute, printed in at least one newspaper prior to that hearing. The advertisement will be placed in Washington Times on March 17th more than 30 days prior to the public hearing. The advertisement was also placed in the Alexandria Gazette on March 17th.
I propose that City Council act on Tuesday, March 15 to establish the maximum real estate tax and personal property tax rates which will be advertised in advance of the April 16th public hearing on the tax ordinance to be considered.
The following is the planned schedule for calendar year 2016 (FY 2017):
Date: Topic:
March 14 Budget Public Hearing
March 15 Council sets maximum real estate tax rates and personal property
tax rate to be advertised
April 16 Public hearing on the real and personal property tax rates and property tax related ordinance
April 16 Public hearing on effective tax rate increase
May 5 Final adoption of the budget and related tax ordinances
The FY 2017 proposed operating budget reflects an increase in the real property tax rate of one cent, from $1.043 to $1.053 per $100. The FY 2017 proposed budget also presents an options list (p. 2.7) which would entail raising the real estate tax rate to $1.063 per $100. The proposed budget and the proposed ordinance assume the continuation of the dedication of 0.6 cents of the base real estate tax rate for affordable housing and the continuation of the dedication of 0.5 cents for the Stormwater Management Infrastructure Trust Fund. The proposed budget and the proposed ordinance also assumes the continuation of the reservation of 2.2 cents for transportation projects. In addition, the proposed budget and the proposed ordinance assume the same Tier I Potomac Yard Metrorail Station Special Services District Tax Rate of 20 cents for all real property located in that District.
Below are the values attributed to dedicated taxes and Council reserved taxes.
Dedicated Taxes:
Affordable Housing: 0.6 cents $2.3 million
Storm Water Management: 0.5 cents $1.9 million
Potomac Yard Special Services: 20 cents $1.1 million
Council Reserved Taxes:
Transportation Improvement: 2.2 cents $8.3 million
Value of one cent (on all taxable real property): $3.8 million
The FY 2017 Proposed Operating budget reflects no change per $100 of assessed value to the current various personal property tax rates:
$5.00 for tangible vehicle personal property,
$4.75 for business personal property,
$3.55 for vehicles with specially designed equipment for use by the physically disabled,
$4.50 for machinery and tools used in machinery and manufacturing business, and certain vehicles for hire, and
$0.01 for privately-owned pleasure boats and watercraft that are used for recreational purposes only.
FISCAL IMPACT: The proposed real estate tax rate of $1.053 in the base real estate tax on each $100 of assessed value for calendar year 2016 is expected to generate $195.6 million in FY 2016 and $199.8 million in FY 2017. The 2016 calendar year tax rate affects the first half tax levy due in June 2016, which falls in FY 2016 and the second half tax levy due in November 2016, which falls in FY 2017.
If the real estate tax rate is raised to $1.063 then an additional $1.9 million would be raised FY 2016, and $3.8 million in FY 2017.
In the FY 2010 Approved Budget, the City reduced its dedication for affordable housing to 0.7 cents. The FY 2012 budget reduced the dedication to 0.6 cents of the real estate tax rate. In FY 2017, this is estimated to generate $2.3 million, of which $1.4 million is needed for debt service. The remaining $0.9 million is available for affordable housing initiatives. If Council chooses to change the affordable housing dedication, a separate ordinance will be required and introduced at the time the budget is approved.
In FY 2011, City Council approved the dedication of 0.5 cents for stormwater management. The half cent is expected to generate an estimated $1.87 million in FY 2016 and $1.92 million in FY 2017 and will be used primarily for capital projects related to maintenance and improvements of the City’s stormwater infrastructure.
The Tier I Potomac Yard Special Services District tax rate of $0.20 per $100 of valuation at Potomac Yard is projected to raise $1.1 million in Calendar Year 2016.
ATTACHMENTS:
Attachment 1 - Ordinance Cover
Attachment 2 - Proposed Ordinance
STAFF:
Kendel Taylor, Director of Finance
Morgan Routt, Budget Director
Martina Alexander, Budget Analyst