Based on last Monday night’s Town Council public hearing, I get the impression Town Council is going to slow down this decision about building a Vienna pool/gym. At least for a bit.
I think that’s a good thing. At the minimum, they are still finding out new facts and hearing new perspectives about this proposal.
I’m just going to add my two cents, which I hope are helpful. The entire argument that Town Council needed to commit to this right now seems incorrect. Just as a matter of math.
So I suspect that maybe, somewhere along the way, something has gotten garbled. Or merely that I misunderstood what was being said.
The apparent decision framework for last Monday’s Town Council hearing.
As I understand it — and surely as it has been presented to the public — the guidance given by Town staff on this pool/gym issue boils down to the two-pronged choice seen above. Commit to the Vienna pool/gym now, by raising the meals tax by one cent right now, or you will have pushed a Vienna municipal pool off by a decade.
Don’t know if that’s how the Town intended it, but that’s sure how I heard it.
More detail on the “commit right now” alternative.
The actual text of the commit-now path looks like this:
- Commit to the pool right now, with a one-cent increase in the meals tax.
- So that construction may start … five years from now.
Five years? That’s a bit odd. Why the long wait?
The full text of that option reads roughly like this:
- Commit to the pool right now, with a one-cent increase in the meals tax.
- Save that money for four years.
- Then issue a $26M bond to cover construction costs.
- So that construction may start … five years from now.
OK, what’s up with the save-for-four-years step?
My best guess: To issue the $26M bond to get the construction money, the Town needs to show Wall Street that there’s no risk of default. But after the large 2020 bond issue (mainly to build the new police station), most of the revenues flowing into the Town’s capital account were already spoken for, to cover payments for existing bond issues. The annual bond payments for the new $26M bond, on top of the existing commitments, exceeds tax revenue flowing into the fund, including the money from the addition one cent meals tax. The Town has to save up the money from that additional one cent, first, to have enough money in the bank, to be able to make those additional bond payments from a combination of future tax revenues and spending down the accumulated four years’ worth of saved tax revenues.
The upshot is that it’ll take four years to accumulate enough savings to be able to float the new $26M bond. If you want to break ground five years from now, you have to start saving now. I believe that’s the gist of why Town Council was being asked to raise the meals tax immediately.
That’s my vague understanding of it, anyway.
But doesn’t 1 x 4 = 2 x 2?
Note that there’s a six percent cap on the total meals tax rate. Given that the Town already charges three percent, I should have cut this graph off at an additional three percent. I didn’t think it was worth fixing.
My only point is that, in terms of total taxes accumulated via a meals tax, the amount you get from a 1% tax, over 4 years, is (about) the same as you get from a 2% tax, over two years.
So that, if you want to break ground in five years, you could do that with either:
- A 1% meals tax, starting now, or
- A 2% meals tax, starting in two years.
Nothing in Virginia statute suggests that the meals tax has to be whole percent, half percent, or, really, any sort of round number. I’m pretty sure that localities typically choose it to the nearest half-cent purely by convention. (Possibly dating back to the pre-computer era, when it was common to see a sales-tax chart next to the cash register, and sales clerks would manually look up the tax due, and punch that into the cash register, to get the final sales total.)
But now, for example, in Northern Virginia, neither our state sales tax (4.3%) nor our local sales tax (1.7%) are in any sense round numbers.
And so it seems as if the full feasible menu of options for funding this are shown on the graph above. If you need a 1% tax right now to achieve a given start date, then you could use any of the following combinations to achieve the same total saved tax revenues, four years from now:
Above, if you want another half-year to ponder this decision, without delaying the ground-breaking date, you just need to raise the meals tax to 1.2%, for a little over three years. Then let it drop to 1%.
The total tax received would be the same. The total tax accumulated by the fourth year would be the same. But you’d have 0.7 years to think about it, before you made a decision.
There are some practical complications here. You’d have to have a do-over for the legalities of the initial increase — advertise it, have a public hearing, and so on. You’d have to write the proposed increase so that 0.2% sunset four years from now, and the rest phases out at the end of ten. (Instead of the current proposal, written to sunset in ten.)
If this math has always been true, why did it appear that Town Council had no choice but to proceed immediately?
All I can do is guess.
One scenario is that Town Council simply directed Town Staff to find the lowest increase in the meals tax that would accomplish the task. Perhaps not realizing that a side-effect of that, they would have to make the decision right now. In pushing the financing to the limit, that pushed the “savings” period to its maximum, which then forced them to make an immediate decision.
At that point, the actual language of the options would be: If you want the lowest possible meals tax increase, you must act now. (Which makes perfect sense). And if you don’t want a meals tax increase, it’ll be ten years until we’ve paid down enough existing debt to be able to fund this.
And that could give you what appears to be an either/or choice. But only nobody was every tasked with finding all the alternative combinations of tax rate increase, times amount of time imposed, what would yield adequate “money in the bank” for ground-breaking five years from now.
I have no idea if that’s even close to the mark. But that’s surely how we could have ended up with a set of options that boiled down to, commit to this right now, or wait a decade.
Extras for experts: Can Virginia local governments intentionally run a surplus?
Answer: Sometimes.
You can’t just willy-nilly tax people more than you spend. But you can, per Virginia statute, include money that is not to be spent in the current fiscal year, as shown below;
§ 15.2-2505. Budget may include reserve for contingencies and capital improvements.
Any locality may include in its budget a reasonable reserve for contingencies and capital improvements.
If I had to guess, I’d guess that a Virginia locality can run an intentional surplus (that is, revenues exceed projected outlays for a year), as long as the surplus is a reasonable amount, and it is designated as either reserves, or is earmarked for capital improvements.
