Council mulls restaurant meal tax increase, voluntary contribution to fund affordable housing

Council mulls restaurant meal tax increase, voluntary contribution to fund affordable housing
Friends dine at 219 Restaurant (Photo Credit: K. Summerer for Visit Alexandria)

By Alexa Epitropoulos |

City council discussed options to establish a dedicated funding stream toward affordable housing at a legislative meeting on Tuesday night.

The city’s Director of Housing Helen McIlvaine and budget officials presented five options at the work session on affordable housing, including an additional tax on restaurant meals, a voluntary contribution at restaurants, a real estate tax increase, a personal property tax hike and a higher tax on hotel stays. The debate was docketed upon the request of Councilor Willie Bailey at last week’s budget presentation.

Though a real estate tax increase or personal property tax increase would
have to go through the official FY2019 budget process and be proposed before March 14, the restaurant tax, restaurant voluntary contribution and hotel stay tax aren’t tied to the official budget process.

Members of city council primarily discussed increasing the restaurant tax rate by one percent, which would raise $4.75 million per year and add 16 cents to the average $16 restaurant bill, and the voluntary restaurant contribution, where money generated would depend on the rate of participation. At 50 percent, a voluntary contribution is estimated to raise $7.5 million.

The discussion comes as the office of housing projects a $66 million shortfall toward its goal of adding 2,000 affordable units by 2025, an 880-unit gap. The city has lost 90 percent of its affordable housing stock, or about 16,000 units, since 2000. At the same time, the affordable unit contributions expected to come online as part of the Beauregard Plan have not come to fruition, McIlvaine said at the meeting.

Morgan Properties, a Pennsylvania-based company, acquired the six apartment developments in the Mark Center area in late August. McIlvaine said, as Morgan continues to make improvements at the apartments, rent is expected to increase, making the units less affordable.

Members of city council had differing reactions to the proposed increases. Bailey was in favor of instituting a restaurant meal tax, while Silberberg urged consideration of a voluntary contribution at restaurants.

Vice Mayor Justin Wilson and Councilor Paul Smedberg were against dedicated
funding toward any one issue, saying any issue that needs to be funded should go through the official budget process.

“I think the only thing I would consider personally is anything that’s predictable.
I don’t want to consider anything that’s unpredictable. We’ve lost thousands and thousands of units. We’ve got less than 2,000 units left in the City of Alexandria.
We don’t need the guessing game,” Bailey said.

Silberberg argued that, though it wouldn’t have the same consistency as a potential restaurant meal tax, she thought a voluntary contribution should be considered.

“… the rounding up possibility, perhaps even at 50 percent, it gets us almost 80 percent more [than the estimated funding raised through a meal tax]. Yes, it’s not predictable, but I think it might behoove us to look at that,” Silberberg said.

“If there’s a chance that it can raise even more and achieve our goal even faster, then I think that would be worth exploring and we could help even more and would have more buy-in from [the] community,” Silberberg said.

Bailey said possibility isn’t enough when the city is falling behind on its plan to add 2,000 units before 2025.

“We’re still falling behind according to the master plan by 200 units per year. This is nothing to brag about. We still need a way to bring funding in. … Even if we go to a one percent meal tax, it will not even get us close. It will bring in another project per year,” Bailey said.

Councilor Del Pepper, while not advocating any particular option, said the piecemeal approach to affordable housing isn’t adequate.

“We are inching along and, with each developer that comes in, maybe we get one or two units. … That’s not going to keep things coming. We need to have the big gulp, as I’ve said before,” Pepper said. “ … I don’t know what the answer is, but I’d sure to like to see us move forward in a bigger way.”

Councilor John Chapman said he found drawbacks to the voluntary restaurant contribution, saying it frames the affordable housing issue in Alexandria as a charity.

“We have a foundational need to have housing in our city, and housing that fits the bill for a lot of different economic levels,” Chapman said. “ … We need to remember what type of people are leaving – who those people are and what employment positions they’re filling. Restaurant and bar owners talk about the fact that their staff isn’t necessarily local. Folks are having to move further and further out and take the train or bus into work.”

Smedberg said he disagreed with dedicated funding in concept.

“I’m against dedicated funding as a philosophy. If we have a fundamental need, it should be part of the budget. Other ways of raising that revenue should be put on that table,” Smedberg said. “The tax credit cycle, that whole dynamic is changing.
The more requirements we put on some developers, I think they’re going to shy away from doing projects. Beauregard is an example of that, to some degree. I understand the urgency and I understand the need, but I think looking at funding in different ways is cleaner. If it is that fundamental of a need, I think it should be part of the budget process,” Smedberg said.

Wilson agreed with Smedberg and Chapman’s points.

“If it’s something we should do, it should be part of the budget. We have a budget process where we look at all needs, decide what’s important and then find the
resources and budget it,” Wilson said. “… My view is, regardless of whether it’s affordable housing, open space, schools or whatever else, we should raise the revenue for the services in the community, place that revenue in the general fund and adopt a budget for how we spend that money.”

Wilson said he disagreed with the voluntary restaurant contribution, saying
it would make things more complicated for restaurants and that it would likely be much less profitable than it’s estimated to be.

“Any of these percentages up here are wildly optimistic. Your biggest hurdle is getting participation first of all from the restaurants and assuming you could get that hurdle, then participation is going to be quite a bit lower,” Wilson said. “If it’s a priority to the community and we have priority needs, let’s budget for it and put our money where our mouth is.”

Chapman, though, said dedicated funding should be considered.

“What a couple of our colleagues have done is put something on the table to at least look at. To comments that we should do this as part of the budget process, making changes on how and what we tax is part of the budget process – this is part of the budget process,” Chapman said. “ … My thought is, as I’ve seen it and looked at it, it is a tool for budgeting. Is it the best tool? My colleagues have some points on that, but it is a tool.”

No action was taken on the issue at the meeting, as it was a work session.