Council approves FY2019 budget, tentatively approves 1 percent meals tax increase

Council approves FY2019 budget, tentatively approves 1 percent meals tax increase

By Alexa Epitropoulos |

City council approved a $748.4 million FY2019 budget on Thursday, including a tentative 1 percent increase in the restaurant meals tax that will be dedicated to affordable housing.

A public hearing on the tax increase will occur on May 12, at which point council will decide whether or not to adopt the increase, according to a city news release.

The proposal by Councilor Willie Bailey to raise the local restaurant meals tax from four to five percent – creating an estimated $4.75 million in dedicated affordable housing funding – drew ire at council’s final budget work session Monday night from local restaurateurs, many of whom were in attendance. The city last increased the meals tax, from
3 to 4 percent, in 2008.

Council avoided controversy over public safety pay at the add/delete session by working out a prior funding agreement to increase police funding.

The restaurant tax increase would raise the overall dining tax to 11 cents per dollar, of which five cents are local and six cents state taxes. City staff said the additional penny would add 16 cents to a $16 meal, bringing the total tax on an average meal to $1.76.

The weekend before the meeting, community opposition to the meals tax increase bubbled up. First, Del Ray Café owners Margaret and Laurent Janowsky and the Eat Good Food Group, which owns Restaurant Eve, Eamonn’s, Society Fair and runs Hummingbird in the city, penned letters to council in opposition to the proposal. Then, the Del Ray Business Association unanimously voted against the proposed increase on Sunday. The Alexandria Chamber of Commerce, which had previously voiced opposition to the tax in March, reiterated its stance over the weekend. The Chamber said more than 60 percent of its members are opposed to the tax. Many attendees at Monday’s council work session were non-food-industry Alexandria small business owners who turned out to support their restaurant counterparts.

All six members of council, along with Mayor Allison Silberberg, supported increasing the restaurant tax. However, four members, Silberberg, Bailey, John Chapman and Del Pepper, favored dedicating the new revenue to the affordable housing fund – meaning the money can’t be spent on anything else.

The other three councilors – Vice Mayor Justin Wilson and councilors Paul Smedberg and Tim Lovain – supported a plan proposed by Wilson that would have increased the restaurant tax, but not have dedicated the money to the affordable housing fund. Instead, they wanted the money to go into the CIP budget, where it could be spent on affordable housing, or on other projects.

Wilson and Smedberg, who stated they oppose dedicated funding on principle, also supported abolishing the existing .6-cent affordable housing set aside.

Silberberg said the wave of opposition leading up to the meeting was partially due to the process, specifically the lack of a public hearing in between preliminary and final budget add/ delete sessions.

“There has been some outreach, although it seems we have heard from a number of people today who didn’t realize what was coming forward. I think, in part, that’s because of our system, frankly,” Silberberg said. “… I think, in the future, it would behoove us, as I discussed with [City Manager] Mr. [Mark] Jinks earlier today late this afternoon, that we should have, after the preliminary add/delete, a public conversation, a public hearing.
That’s not really the case – we didn’t have a moment since last Tuesday.”

Vice Mayor Justin Wilson agreed reforms need to take place, saying similar ideas about reforming the system had been brought forward in past years. He suggested moving up add/delete sessions and putting a two-tier add/delete process back in place, which would require council members to submit for consideration items that exceeded $50,000 earlier than is currently required.

“It gets a little tricky when it’s something that’s this large, that’s over $100,000 or $50,000 or, in this case, $4.75 million. That’s a real challenge from a process perspective,” Wilson said. “We’ll have, I’m sure, a short, wholesome conversation about the source and
use [of affordable housing funding], but process-wise, I think that’s a reform, when we have a guidance discussion in the fall, we should put in place.”

Councilor Paul Smedberg said he didn’t agree that there was something wrong with the process, but said that, if changes were made, it would be appropriate to move up the add/delete submission deadline. Smedberg said he had previously sponsored a proposal for an item $50,000 or above to have a public hearing.

“It leant a level of seriousness to the process and actually required the sponsors, the council members, to do their work. That’s the integral key to this whole process,” Smedberg said. “If someone does have a proposal, they are supposed to
go out to the community and they are supposed to sell it or do the work they have to do to gain support for it. That is key to the process.”

In response to the level of opposition facing the meals tax increase, Silberberg proposed a compromise that would have shelved the meals tax, while directing the city manager to increase the .6-cent real estate tax dedication for affordable housing by 1.2 cents to 1.8 cents in FY2020.

“We will be tripling the dedicated funding for the affordable housing fund at a time when our city really needs it,” Silberberg said. “I think it’s a good opportunity. I think we’d go a long way.”

The move would have entailed waiting another year to increase funding for affordable housing and ultimately her colleagues on the dais didn’t support the proposal.

“Madam Mayor, this was just sprung on me 15, 20 minutes before walking in here. It’s tough for me right now to say that,” Bailey said. “We’ve been talking about this meals tax since December. Agree or disagree, it’s been in discussion. I don’t think it’s fair for staff to work on this proposal in the last minute. Either we’re going to support something or we’re not.”

Councilor Tim Lovain expressed concern that Silberberg’s proposal would bind
future councils and prevent them from making decisions based on the biggest fiscal concerns at the time.

“I seriously question to what extent we could bind a council on tax rate. That’s one issue. You’re talking about deferred gratification here, about a one-year delay, in substantial funding for affordable housing, which I think is questionable,” Lovain said.

Silberberg’s proposal also sparked a heated response from Wilson, who said he was “baffled” by her proposal due to her opposition to the FY18 budget.

“I am getting whiplash here. Last year, during our budget process, Madam Mayor, quite honestly, you were very eloquent in opposing the budget in saying we should not raise the tax rate to put in the [capital improvement program] to fund an unspecified list of school capital projects,” Wilson said. “Now here we are, a year later, saying that we should raise the tax rate next year to put money in the CIP for an unspecified list of affordable housing projects.”

Wilson, Smedberg and Lovain argued that demand for affordable housing projects could be uneven and that dedicated funding for affordable housing could, ultimately, be unfair to other city needs.

“For one area to have two dedicated funding streams is fundamentally unfair to a lot of other programs that could make strong cases,” Smedberg said.

Lovain suggested another alternative: maintaining the .6-cent real estate dedication and approving the 1 percent restaurant meals tax, but not dedicating that revenue for affordable housing.

“This could have a real, serious impact on the operations of restaurants in this
town. If that shows up in the next year, then the next council could change that, roll that tax back,” Lovain said, attracting derisive laughter from many in the audience.

Pepper and Chapman, along with Silberberg, ultimately supported Bailey’s
proposal. Chapman said the need for affordable housing wasn’t uneven.

“We’ve had lined-up projects probably for a couple years now and we’ve never taken, even though I’ve mentioned this, never taken the opportunity to line up the resources around it. We have some of the projects lined up; we don’t want to commit,” Chapman said. “ … There’s no lumpiness in the need, we’ll say that. We do have folks who are coming to our housing department, looking for opportunities to do the projects. We have nonprofits, we have churches. … What is lumpy is the developer [affordable housing] contributions.
That’s not a question.”

Pepper said, while the solution isn’t ideal, what’s most important is taking action on affordable housing.

“I agree that dedicated funding is bad budgeting. However, because affordable housing is so terribly important [it] is a higher priority in my mind than a policy like dedicated or non-dedicated funding,” Pepper said. “Dedicated funding is what I feel we need to do at this time, but not forever.”

Restaurant owners at the meeting expressed dismay at the outcome.

“Everyone is really disappointed,” Bill Blackburn, co-owner of Pork Barrel BBQ, Holy Cow, The Sushi Bar, Sweet Fire Donna’s and the soon-to-open Whiskey & Oyster, said following the meeting. “The process was confusing and there wasn’t transparency. This was rushed forward.”

Blackburn said he had met with Bailey as part of the councilor’s community outreach process. While Blackburn was in favor of increased funding for affordable housing, he said the tax increase would be deeply felt by restaurateurs.

“I disagree with that – the market will bear a certain rate for a hamburger. It’s another one percent we’re not able to capture,” Blackburn said. “It will change the dynamics.
This is a tax paid by the consumer – we feel most of that burden.”

Trae Lamond, the owner of Chadwicks in Old Town, said restaurant owners weren’t given enough time to organize against the proposal.

“It’s what we all expected. It doesn’t make sense,” Lamond said. “Many of the people who [Bailey] mentioned – kitchen workers – work for us. We’re on board. We just think the process is odd. … This process appeared in February. Many of us hadn’t heard a thing about it.”

Other additions to the budget are a $2.1 million increase in public safety recruitment and retention contingency, bringing that total increase to $3.6 million, a $41,000 part-time employment and training specialist for experienced workers and an $81,000 increase in renewable energy credits.