How to Survive Raising Taxes

The three incumbents running for Williamsburg City Council were all re-elected Tuesday, despite the fact that next Thursday they will almost certainly approve a budget that increases taxes, possibly multiple taxes.

When City Manager Jack Tuttle proposed a budget two months ago that included increases in the real estate tax rate, personal property tax rate, cigarette tax and in EMS fees, I wrote that he’d “thrown the three incumbents up for re-election a live hand grenade.”

When it became apparent that only one challenger would run, with three seats up for grabs, there seemed to be a good chance that Mayor Clyde Haulman, Vice Mayor Paul Freiling and City Councilwoman Judy Knudson would end up in a game of hot potato with that grenade, with whoever got caught holding it getting an unpleasant surprise.

Challenger Ginger Crapse, though in her own words “a rank amateur” as a politician, latched on to the tax increase issue with laser-like focus and showed message discipline worthy of Jim “No Car Tax” Gilmore or George “Liberal, Lenient, Parole System” Allen.

Crapse even got some odd “good luck” on the campaign’s final weekend. She was out campaigning door to door when she saw a house on fire and ran into it to alert the residents. While Crapse may have dramatized her role in the incident a little — some published reports had her “kicking in the door,” which didn’t happen, and the residents said they already knew there was a fire — the fact remains that Crapse saw a burning building and ran into it to try to help people. She ran to the sound of the guns. A lot of people would not have done that.

But neither anti-tax fervor nor firefighting helped Crapse much on Election Day. In a very low turnout election, she finished nearly 300 votes behind Knudson, 400 behind Haulman and Freiling.

And it wasn’t really a surprise.

As the campaign played out, two things were obvious — that Williamsburg didn’t care too much about this election and that Crapse had failed to spark a tax revolt.

The lack of enthusiasm for the election was likely because for the first time in five election cycles there was no candidate from the College of William & Mary. The presence of student candidates had boosted participation in Council elections by students (who wanted to elect one of their own) and by townies (who, by and large, wanted to prevent that from happening). When then-student Scott Foster broke through in 2010, leading the ticket and amassing more votes for Council than anyone has in the last ten years, the urgency went out of that effort.

So turnout dropped to under 15%. That could have helped Crapse. But it ended up making no difference.

Why didn’t her anti-tax message resonate more with Williamsburg voters?

Some of the reasons are peculiar to Williamsburg. The city has a very low 54 cents per $100 real estate tax rate. It’s lower than either of the adjacent counties. That may be a situation that’s unique in Virginia. The reason Williamsburg has such a low rate is that it relies much less on the real estate tax to fund government than other Virginia localities. For years, tourism-related taxes, principally the hotel room tax and the meals tax, have provided more than half of the city’s budget. That percentage has fallen some during the Great Recession, but Williamsburg still depends less on the real estate tax than most localities.

A second uniquely Williamsburg factor is that city voters are spoiled. For their Yugo level of real estate taxes they’ve enjoyed a Cadillac level of government services over the years, with tourists footing the bill. They don’t want to lose those services.

As an example, in most localities in Virginia, and probably in most in the United States, garbage pickup is once a week. You pay a fee for it and you have to pull your can out to the street. Until two years ago, Williamsburg had two garbage pickups a week, for no fee and the garbage men would go around to the side or the back of your house to get the trash and then take the empty cans back.

When the city cut back to one pickup a week two years ago, still with no fee and still without requiring residents to pull the cans to the street, many residents reacted as if the world would end. It didn’t and the city saved about $800,000.

So, I think it’s fair to note that Williamsburg voters are more predisposed to favor increased taxes to reduced services than most across the state.

Still there are some lessons from Williamsburg that could be applicable to other local government or even the state when tax increases are needed. And, yes, sometimes they are needed.

1. Don’t make a tax increase the first option – It certainly wasn’t in Williamsburg, which last raised taxes more than 20 years ago. City Council has cut the budget in four of the past five years to deal with the recession. They’ve cut services. They’ve cut personnel. They’ve cut back on employee benefits. As a result the proposed Fiscal Year 2013 budget, even with the tax increase, is smaller than the FY 2009 budget.

2. Explain why it’s necessary — In Williamsburg a tax increase was needed because the city got hit with a perfect storm of forced expenditures and reduced revenues at the same time. State-mandated increases in VRS contributions from city employees and for school teachers hit the same year that the city’s percentage of children in the Williamsburg-James City County school system went up for the first time in 20 years, likely because the recession left some folks who would have bought houses in one of the counties renting in the city. The city’s cost for employee healthcare were also up. In addition the city’s real estate revenues were off because of reduced assessments. And the room, sales and meals taxes, while recovering, have yet to regain pre-recession levels. The end result was a hole in the budget of about $900,000, which the tax increases and further cuts in expenditures would fill.

3. If you have to raise taxes make it as little as possible – Taking a page out of the General Assembly’s book, the current Council asked Tuttle and Finance Director Phil Serra to come back with more optimistic projections for room and meals tax revenue, which would cut about $300,000 out of the hole to be filled. That’s possible because, as Crapse rightly noted in the campaign, for years Tuttle and Serra have lowballed those revenue estimates. That’s a conservative form of budgeting that has led to the city generally outperforming the budget and guaranteed that any end-of-the-fiscal-year surprises were good ones. Council may yet regret this decision.

4.  All taxes are not created equal – The proposed budget included a 3-cent increases in the real estate tax, a 50-cent hike in the personal property tax and a nickel increase in the current 25-cents per pack city cigarette tax. To the extent that any organized opposition has been raised to the increases, the jumps on the personal property tax and the cigarette tax have been most strongly opposed. Businesses in the city feel that the personal property tax hike hits them disproportionately because they pay the tax on more categories of property than private citizens. Freiling, at least, has publicly agreed with this and might favor a larger real estate increase and smaller personal property tax increase. One city convenience store has said the cigarette tax already put them at a competitive disadvantage to stores in the counties, which can’t levy such a tax. They fear an increase would put them at a bigger disadvantage. As a smoker who spends a lot of time in the area, I’d be surprised if people are price shopping for cigarettes. Especially since it’s almost impossible to remember exactly where the city stops and the counties start. Look at Williamsburg on a map some time; it’s shaped like an amoeba.

5. Play your cards close to the vest – Although all three incumbents made it clear they “weren’t necessarily opposed to a tax increase,” none of them exactly jumped out in front and led the parade for it. Haulman at one point said, “This isn’t our budget, it’s the city manager’s budget.” All three said it was “too early to tell” about the tax increase because of lingering uncertainty about the state budget and the school system’s budget. Freiling probably came the closest to advocating the tax increase when he said the hole in the budget was so large that he couldn’t see how the city could fill it “without some increases in revenue.”
The bottom line was that the three incumbents knew the election was on May 1 and they didn’t have to go on the record voting for a tax increase until May 10.