THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Sunday, December 18, 1994 TAG: 9412160204
SECTION: PORTSMOUTH CURRENTS PAGE: 07 EDITION: FINAL
LENGTH: Long : 155 lines
The following comments were delivered by City Manager V. Wayne Orton to the City Council on Tuesday.
This evening I will begin my remarks as I concluded my previous discussion on the Capital Improvement Plan: ``The time is now to do something courageous, to take a risk for the future of our city.''
You have previously been presented with information on the Capital Improvement Plan needs, and then with my recommendation. Tonight you will hear from the public, but before you do, I want to take this opportunity to further set the framework which you will use to make your decisions.
This City Council faces conflicting demands, and you need creative ways in which to deal with them. For example, it is a conflict, but also true, that Portsmouth needs to make an investment in its future while at the same tine acting in a fiscally responsible manner. That is why I am suggesting you reduce debt from $10 million to $8 million while at the same time suggesting that you can fund pay-as-you-go improvements through a 4-cent tax increase. This increase will raise approximately $1 million per year and I am recommending that it be used exclusively to assist our city in meeting its economic development challenge, which is substantial.
Why is it necessary to raise funds in such a manner? It is because of our declining economic base, which is reflected in retail sales in Portsmouth. In calendar year 1984, taxable retail sales were $416 million. That increased to a peak of $492 million in 1987, but it declined to $412 million in 1993. That is less than it was 10 years ago. If you take into account the intervening inflation, the decline is more severe than the raw numbers indicate.
I mention this not to suggest that we need a real estate tax increase to replace lost sales tax revenue. Instead, this points out the need to make a commitment to invest in our city and make it a more attractive place to live, work, and conduct business. Retail sales is a vital sign of how well we are doing: We need to do better.
We frequently speak of public/private partnerships. One of the best such examples began operation last Saturday: the Children's Museum of Virginia. The private sector raised funds to assist this publicly owned and operated museum. Sometimes, it works the other way: the public sector can and sometimes must provide a contribution to attract economic development, and that is the type of fund I suggest that we urgently need.
I am convinced we can attract new retail enterprises to Portsmouth. Other older central cities have, and so can we if we create the right circumstances. We have the population base needed to support retail establishments. How often have you heard someone say they would purchase items in Portsmouth if only they were available? We need a concerted program to show this to potential investors and then, to the extent we can, to assist those who desire to locate in Portsmouth.
The temptation exists to tie this program to the proposed Economic Development Plan, but they are really two separate items. Even without such a plan, we still have a need to revitalize retail sales and other private investment in our city.
The temptation exists to suggest that revenue raised from this tax should be tied in advance to particular projects. I strongly recommend that, to create maximum economic development flexibility, we need to be in a position to react to opportunities which present themselves and, with equal importance, to crease our own opportunities.
At the risk of repeating myself, let me emphasize that my recommendation will raise revenue without incurring additional debt. As you well know, debt service carries a continuing cost. The annual difference in debt service between the issuance of $8 million and $10 million per year is more than $3 million in principal and interest. If we pay as we go on some capital projects, we can begin to wean ourselves from the temptation of putting off cost by increasing debt.
Some will say that a tax increase presents a burden to homeowners, the business community, or senior citizens. I have already pointed out that the owner of an $80,000 house would experience only a $32 per year increase in real estate taxes. The owner of a typical strip shopping center valued at $340,000 will experience an increase of about $135 per year. An automobile dealership valued at $1.5 million will be assessed an additional $600 per year. Finally, a large manufacturing plant assessed at $25 million will be charged an extra $10,000 per year. These increases are small enough that they should represent a manageable additional burden, especially when you consider that the fund created will be used to improve the business climate in Portsmouth and therefore represents an investment in our community, with a defined return.
The proposed increase represents the first increase in Portsmouth's real estate tax rate since 1989. Since 1989, real estate taxes have increased in Virginia Beach, Norfolk, Newport News and Hampton.
I am aware that businesses need nurture and support and that Portsmouth needs to do all it can do to establish a competitive advantage. While on its face a tax increase does not appear to be the way to do this, I propose that by expending these new resources, in the long run, the overall business climate will improve, aiding not only new businesses, but those which already are in Portsmouth.
Others will say that the increase creates a burden for senior citizens. In fact, the City Council has enacted two programs for the relief of the elderly and disabled. One program abates a portion of taxes for eligible low income homeowners, while the other freezes the real estate tax of homeowners who are eligible regardless of increase in tax rates or assessments. Almost 2,100 homeowners were eligible, with about 1,600 for the abatement program and 500 for the tax freeze. I recognize that there are probably many other persons eligible for these programs who have not applied. I have instructed staff to increase our efforts to make citizens aware that they may be eligible for a tax abatement or freeze.
The total cost of the tax relief programs in 1994 is expected to be almost $900,000, compared to about $825,000 in the previous year. As you are aware, the anticipated cost for 1994 represents nearly 4 cents on the real estate tax base. I submit that the council has acted to protect our senior citizens from increasing taxes.
Others will suggest that increased revenue should be applied to more police officers. Our police chief has stated that we need 29 more police officers to establish a complement of sworn officers appropriate for a city of our size. I have already instructed our chief financial officer to fund these positions in the coming operating budget, and this will be done without a tax increase. The administrative and fiscal efficiencies that we have achieved over the past four and one half years (cost reductions of more than $10 million) have placed us in a position to address this most serious issue. However, economic development is the most important issue facing Portsmouth, as recognized by you when you adopted your goals and objectives. Four of the top seven goals deal with economic development. We can attract private investment, and we will be able to address our public safety and other priorities.
Many will point out that the mood in America is against tax increases and that government should get along with less. If you examine Portsmouth over the past four and one half years, you will see that we have cut costs while maintaining acceptable levels of service. We have complex social needs which can not simply be ignored and we must position ourselves to better address them.
The governor has proposed tax decreases at the state level. While not all the details are available, I have a substantial concern that these reductions will increase the cost to local governments, and that a popular tax reduction program will in actuality result in new unfunded mandates for localities.
At $1.36, we will not have the highest tax rate in Hampton Roads. But even if we did, we should not myopically focus on one factor. I submit that the real estate tax rate is not the all-inclusive decisive factor as to where a business locates. Please be reminded that even with the second-highest tax rate, in 1993, Portsmouth led the region in capital investment and square footage occupied by new businesses locating in Hampton Roads. The overall business and political climate is what matters. A willingness by the government through its elected leaders to work hand in hand with our citizens and businesses is much more important than this one rate, unless that rate is widely out of range with other local tax rates. A $1.36 rate is not at all out of line.
In conclusion, I submit that my recommendation is based on a reasonable balance among competing needs. As you know, we can not address all our needs at once, nor should we incur more debt than we can serve, because we can not spend what we do not have.
This proposal represents a new departure with a more aggressive first step towards a less expensive pay-as-you-go way of meeting our needs. We should focus not just on the present but on the future of this city and where we will be in 10 years, 20 years, 30 years ...
My proposal is for an investment with a clear return.
I offer these thoughts as background for your consideration, and again remind you, that now is the time to something courageous, to take a risk for the future of our city.
KEYWORDS: TAX INCREASE CAPITAL IMPROVEMENT PLAN REAL ESTATE TAX
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