By Athena Cao
A family that owns an average value home in Lexington might have to pay about $227 more in real estate taxes next year. Lexington City Manager Jon Ellestad presented a proposed city budget for the 2014-2015 fiscal year to the City Council on Friday, which came with a recommendation of a 13 percent increase in property taxes.
Ellestad proposed increasing real estate tax from 83 cents to 94 cents per $100 of valued property.
The proposed total spending adds up to more than $25 million, about a 6 percent increase from this year’s expenses. Debt service costs, or the city’s payments on loans and interest, would increase by a third from this year, directly raising the total expenditure by almost 2 percent.
With the increase in expenditures, the city turned to property taxes to help cover some of the costs. Lexington Finance Director Gary Swink said Lexington citizens might be paying higher taxes for the next few years, with a further increase in the 2015-2016 fiscal year.
“All the future years are going to be tough years,” Swink said. “But the reason fiscal year 16 is a little bit tougher to deal with is because that will be when the taxes will have to be increased. Once the taxes are increased, it will have to stay at that higher tax rate.”
The cost of the construction of a new Waddell Elementary School building and community center is the number one reason for the tax hike, although the exact cost of the project is still unclear.
The budget recommendation assumes the city will take out about $13.2 million in loans for the construction. But on Monday, School Board Chair Leslie Straughan said the best estimation for now is actually $12.5 million. [pullquote]“All the future years are going to be tough years. But the reason fiscal year 16 is a little bit tougher to deal with is because that will be when the taxes will have to be increased. Once the taxes are increased, it will have to stay at that higher tax rate.” -Lexington finance director Gary Swink [/pullquote]
The project’s architect’s cost estimation in January was $11.2 million, but all five contractors made higher bids three weeks ago, ranging from $14.3 million to $16 million.
The school board and the architect, OWPR, Inc. are working with the lowest bidder, Branch & Associates, to find savings in the project. In the school board meeting Monday, Straughan mentioned the option of postponing the project for a year. But material costs go up every year might go up next year by 2 to 3 percent, so the city could have to pay $400,000 more, not including engineering fees or potential interest rate hike.
The school board needs a final estimation by April 11. After that date, the city will not be able to change the value of bonds issued by the Virginia Public School Authority, Swink said. The school board planned to present at the city council meeting on Thursday.
If the city council approves the project this year, it would make the first payment toward the principal costs of the project in July 2015. Assuming a total project cost of $13.2 million, Lexington will pay about $790,000 annually for 25 years.
Regional radio system and landfill
Lexington is also contributing to for the cost of a new regional emergency radio system. Rockbridge County, Buena Vista and Lexington have agreed to share the $8 million cost, each using the same proportion of revenue from real estate tax.
Ellestad projected a $75,000 payment from Lexington on the new radio system next year and $80,000 the year after. But the project is still in the middle of the financing process. Ellestad said Wednesday that a better estimation would be $33,000 next year and $125,000 the year after.
Another increased expenditure for Lexington this year is the jump in the landfill tipping fees; dumping trash will be more expensive next year. The regional landfill in Buena Vista will charge $14 more per ton of garbage, a 58 percent increase from the current rate.
Swink said Lexington citizens produce about 3,100 tons of trash every year. That generated about $74,400 of tipping fees this year, and the fee increase might cost the city about $43,400 more annually.
This year’s tipping fee is kept at $24 per ton because the regional landfill has been using reserves from previous years. But Ellestad said the current unlined landfill is reaching its capacity and the county plans to open a lined landfill in the next two years. The $14 increase would cover both operating expenses of the current landfill and potential designing and financing of the new landfill.
Ellestad also proposed to reduce the special pick-up and brush pick-up frequency from once a week to every other week. If the city council approves that idea, the city might lay off two city employees and save about $70,000 a year.
Increased spending on school employees
One area that the city will not consider cutting is city employees’ wage and benefit increases. Teachers and school staff are even picking up their skipped salary promotions from
City employees are supposed to be paid by salary grades; the longer they work for the city, the more they get paid. For example, a deputy treasurer’s salary is classified in the M grade group: it increases each year from $29,264 in the second year to $43,443 after 16 years.
Teachers and school staff have not had a grade promotion in three years, School Board Clerk Shelby Cash said. In the proposed budget, more than $104,000 in the school fund is appropriated to increase teacher and school staff’s wages and benefits.
Superintendent Dan Lyons said that would allow them to get the same raise as other city employees, about 2 percent.
The real estate tax rate is subject to the result of Lexington’s property reassessment that happens every four years. This year’s reassessment values are not yet available. Ellestad said the proposed tax increase assumes the property value will stay level, but the reassessment result is likely to show a decline. According to Commissioner of Revenue Karen Roundy, the average value of a residential house in Lexington, based on 2010 assessments, is $206,727.
If overall property values decrease, the tax rate will likely rise to adjust for the difference, but a taxpayer’s increase on average-priced home would stay around $227 if council accepts Ellestad’s recommendation.
An estimate from the assessor, Blue Ridge Appraisal, is expected before April 17.
Another missing piece is the state funding. Virginia’s General Assembly is now in special session working on the state budget for the next fiscal year.
Swink said it is still unclear when a state budget will be approved. A special legislative session convened Tuesday.
“Now watching the daily news and stuff, I haven’t been able to get any clear understanding of that,” he said.
The City Council should approve a budget and make the final call on how much tax rates will be set on May 15. Before then, the council will have five work sessions and two public hearings on the budget.
The public hearings will be in the county building at 8 p.m. on April 17 and May 1.