Divided Front Royal Town Council passes – barely – flat tax rate for FY19

FRONT ROYAL – Honestly, I thought Front Royal wasn’t going to have a tax rate proposed in a game of voting Russian Roulette on Monday night – UNTIL the last man voting at 3-2 FOR flat taxes for Fiscal Year 2019, Eugene Tewalt, prefaced his vote by stating he WOULD vote with the opposing side for a tax rate with no increase to help pay for the new Front Royal Police station. That came as a surprise because Tewalt has been the most critical–well before Monday night–of those on council wishing to defer any tax revenue to pay for the approximately $11-million police headquarters until an annual debt service estimated anywhere from $250,000 to $750,000 comes due.

I mean, I had the first line in the “T” in Tewalt written in the “no” vote column until the former mayor and town public works director explained that despite his disagreement with his no-tax-hike-until-the-bill-is-tacked-to-the-door colleagues, he would vote with them to keep the Town solvent by at least setting a flat tax rate. Tewalt explained that without his fourth vote creating the supermajority necessary for large budget items, like setting tax rates that create a significant portion of the Town’s operating revenue, the town would have no tax rate on the table– and consequently no tax revenue coming in – for FY 2019.

Darn, some common sense in the debate. I fear I found myself anticipating a hardline stand off between the opposing tax revenue and payment sides, William Sealock and Jacob Meza siding with Tewalt, John Connolly, Chris Morrison and Gary Gillespie in the opposing camp – to see which side might blink first facing that FY19 no tax revenue scenario. As Tewalt explained later, due to the two-thirds supermajority requirement, the mayor cannot break a tie in establishing the tax rate – a 4-3 margin not reaching that two thirds requirement.

So, Front Royal’s tax rates will remain flat, at 13.5-cents per $100 of value for real estate and personal property at 64-cents per $100 of value. Also set were a personal property tax relief rate of 60-percent of value on the first $20,000 of assessed value on qualifying vehicles assessed at over $1,000 of value; and a corresponding tax relief rate of 100-percent for qualifying vehicles assessed at $1,000 or less; and adjustment of town codes to accommodate any changes.

According to Town Finance Director B.J. Wilson, real estate tax generates about $1.53 million in annual revenue to the town government. The adopted FY18 town budget was $45,893,820.

John Connolly, absent from the March 12 meeting deadlock and oversight that left the Town without a tax rate for next year, made a motion to set the rates flat. Tewalt then offered an amended motion to raise the real estate rate by the maximum .9-cent allowed by the re-advertisement after council failed to set a tax rate two week earlier when an increase could have been a full penny. Each penny of real estate tax produces about $110,000 of revenue for the town.

In proposing no tax increase, Connolly said he did not consider tax revenue “the Town’s” money, but rather its citizens. And he favored not taking citizens’ money until it was absolutely necessary, particularly with what he called a $1.7-million General Fund cash reserve above legally-required emergency reserves. Tewalt countered that $1.7 million was “nickels and dimes” to a municipality like Front Royal, with a $45-million to $46-million annual budget.

As for emergency reserves, Tewalt said, “This is an emergency to me – you’ve approved an $11-million building and are depending on the (New Market) tax credits (to keep the first seven or nine-year debt service around $275,000) – they could be gone tomorrow.”

Without the New Market Tax Credit program’s interest-only deferment, the annual debt service on the police station has been estimated between $700,000 and $800,000 – also near the amount the tax credit program debt service will reach after the interest-only period disappears.

Tewalt reiterated his point from the March 12 vote, when he told his colleagues, “We can’t keep pulling money out of our reserves … if we add a penny, or close to it tonight we won’t have to add four or five cents all at once in the future. You can’t just wait until the money is needed. If you vote for a project and not to pay for it – I don’t know how some people on this council run their homes.”

Connolly also pointed to the county reassessment now taking place as likely creating higher real estate values producing more revenue in the future. He also said council couldn’t be sure that yet unknown revenue sources such as the corridor agreement with the county wouldn’t crop up and create new revenue sources that could preclude the need for some of the anticipated tax hikes to pay for things like the police station.

However, Tewalt reminded Connolly and his council allies that when reassessments result in higher values that create more revenue to a municipality, state law mandates that a municipal real estate tax rate be “equalized” or reduced so that its revenue stream is returned to the level it was before the reassessment. This assertion appeared to confuse Connolly, who asked Town Attorney Doug Napier whether the council could, as he recalled having been done at the last reassessment, just vote NOT to equalize the tax rate. Napier replied that council could, in fact, vote not to equalize the tax rate. However, Tewalt’s point was that such a vote is a defacto tax increase equal to whatever additional tax revenue is created by the added value placed on someone’s property by the reassessment.

Jacob Meza, right, was skeptical of Connolly’s rosy revenue out of the blue projections; but in the end council may have been relieved to at least have passed a tax rate this time around.

Tewalt also explained that while he did not support building new police station at an estimated cost of $11-million, once his colleagues approved it, he favored continuing the process begun last year with a half-cent increase to the real estate rate to set aside revenue for the eventual annual debt service.

Tewalt ally Sealock pointed out that he had discovered that $55,000 of annual revenue created by the half-cent hike last year wasn’t actually all being put aside, that it was being used to pay rent on the county facility the town police are now located in on Jackson Street. – “It is NOT being set aside as it was supposed to be,” he said.

According to the town finance director, Front Royal paid Warren County $50,537 in rent for the current police headquarters for the period from October 1, 2017 to September 30, 2018. That doesn’t leave much in set aside for future debt service.

The debate became heated at times. Sealock challenged the opposition to smaller incremental increases setting revenue aside to explain their alternative plan. On March 12, Morrison said rejecting what he called an “old way of doing things” as far as financing “will force us to be more creative” in coming up with funding solutions. However, hoping for new revenue to appear out of the sky or disguising larger tax hikes as non-equalization, post-reassessment votes did not appear to satisfy Sealock, Tewalt or Meza as a creative alternative.

Meza pointed out that even with the .9-cent increase this year added to the half-cent hike last year, only about $160,000 of set aside funding for police station debt service would be created – that is $100,000 short of the best-case, interest-only annual debt service scenario. He said he did not believe Connolly’s plan, particularly hoping for new revenue sources, was a good one – “You don’t buy an expensive car and hope to get a pay raise in the future to pay for it.”