Budget Dance: Act 1

by Jessee Perry

The budget relationship between the City and Richmond Public Schools is confusing at best because since RPS Board does not have the authority to raise their own revenue, all dollars pass through RVA Council; however, RPS Board has oversight of their own funds. In light of the proposed meals tax that will go to vote on Monday February 12th, I am going to try and break this down so everyone is better able to hold their elected officials accountable should the ordinance pass. This is part one of a two-part series that focuses on breaking down the meals tax. Part two will explain more about the budget process and how to track this money through the budget.


The Agenda

ORD 2018-017 is on the City Council regular agenda for February 12th. If you look at the agenda, each Ordinance has a brief summary to explain what the ordinance or resolution is about. The summaries on the agenda seek to provide a quick highlight of all parts of the resolution without going into depth. The agenda summary is not what goes on the law books. To read the actual text that will go on the law books, you have to click the blue ordinance number hyperlink. 

ORD 2017-017 Agenda Summary- this language is not what goes into law

ORD 2017-017 Agenda Summary- this language is not what goes into law


Meals Tax Language

There are three sections in this ordinance; however, I believe there are four key components to understand: 

  1. Addition of a new section to Chapter 12, Article 2 of City Code (RED)
  2. Existing Special Reserve Fund for public schools (BLUE)
  3. Amendment of section 26-669 of city code (PURPLE)
  4. Effective date (GREEN)

After breaking down the meals tax, there are some really really really (did I say really?) important things for people to know about the issuance of bonds. So... keep reading! 

ORD 2018-017: This is the language that will go into effect as law

ORD 2018-017: This is the language that will go into effect as law

Adding Section 12.37 (RED)

Chapter 12 of City Code dictates everything from the budget process to different designated funds to what reports are required when. ORD 2018-017 adds a section that dictates by code, 1/5th of the meals tax collected will be put in a special reserve fund assigned to support public schools. This is new language that directs the Director of Finance (currently John B. Wack) to move 1/5th of the meals tax from the general fund and credit an existing special reserve fund for public schools. Once the resolution passes, the Director of Finance would be required by law to complete that action which means the money will not end up sitting in the general fund unless there is some future passed action by City Council to amend the code. 

 

Special Reserve Fund to Support Public Schools (BLUE)

We are still in Chapter 12 of city code for this one; however, we have moved up to understand existing Section 12-32. The meals tax language specifies that 1/5th of the revenue will be put into a special reserve fund that is already established under section 32, subsection B1 (shown below). Here it dictates that City Council may appropriate these funds for the construction of new public schools or for the capital repair/renovation of existing active school properties. In my opinion, to provide more assurance that the money will specifically go to facilities, City Council should review with their attorneys the option of adding the language to change it from “may” to “shall.” Current City Code grants permission to Council to use the funds for facilities would be indicative of the intent to be using it for facilities so if Council (mis)appropriated it to the general budget, the current wording would be grounds to at least have an argument. Amending code to include “shall” would change the sentence from permissive to directive so anything outside of that action would not be allowed without further amendment. The change would mean when the Director of Finance credits this fund with 1/5th of the revenue generated from the meals tax, City Council can only credit the money to the School Board's facilities budget. 

Section 12-32, section B1: the special reserve fund

Section 12-32, section B1: the special reserve fund

 

Amendment of Section 26-669 (PURPLE)

Section 26-669 pertains specifically to the city's meals tax and includes information about all applicable rules such as what is subject to the tax. This section updates the language from the tax being 6% to 7.5%. 

 

Effective Date (GREEN)

Per the city charter, than real estate, personal property, and machinery and tools taxes, tax year is determined by ordinance. In addition, the rate of all other taxes (meals tax included) must be fixed before the start of the tax year. The new meals tax ordinate sets the tax year for the increase to be reffective until July 1, 2018. Based on the City's charter, the fiscal year of the city runs from July 1-June 30th. The 2003 meals tax became effective immediately upon adoption (7/28/2003); however, by making this effective July 1st, it corresponds with the city's fiscal year which allows the mayor to seamlessly include projected revenues in this budget cycle. Without Council or the Mayor explicitly stating this, we can’t know for sure; however, since the Mayor's deadline to submit his proposed budget to City Council is March 6th (and the vote is scheduled for February 12th) I would guess some of the reluctance to a continuance of any length is because they want to get the revenue committed to be included in this budget cycle so schools can start being built. While a noble goal, this has made the process feel hurried and rushed to some people and generated a lot of suspicion. 

Fiscal Year.JPG

 

Issuance of Bonds

Chapter 7B of the City's Charter outlines City Council's general borrowing power. This is extremely important information because the reason increasing revenue is necessary is to increase the City's debt capacity to allow and pay for $150M in additional debt to finance construction of new schools and there are a few protection measures:

  • City Council MUST pass an ordinance to acquire more debt.
  • The ordinance pass with SIX affirmative votes instead of the standard five vote majority. 
  • Public notice of the ordinance passing must be provided. 
  • The ordinance does not take effect until 31 days after public notice is posted. 
  • There is a 30 day window by which the people can file a petition for the matter to go to a referendum (a vote).
7B of City Charter regarding issuance of bonds

7B of City Charter regarding issuance of bonds

I went through the City Council website and did a quick search for past ordinances regarding the issuance of debt. Every ordinance lists the amount of money and a general description of what the money will go toward. If the meals tax passes, we should not expect the corresponding ordinance to list specific schools that will be addressed with the funds, we should see general information about the money going toward construction of school facilities (aka not a Coliseum).  

If City Council proposes and passes and ordinance to issue debt that the people disagree with, there is a 30 day window in which a petition can be submitted to call for a referendum and force it to a vote of the people. The number of signatures is equal to 10% of the largest number of votes cast in any general or primary election in the city in the 5 years immediately preceding. For example, in the most recent 2017 Gubernatorial election, there were 71,258 voters. The referendum petition would need 7,126 validated signatures. Over 7,000 signatures is not a small number; however, this is where it becomes key for everyone to continue being engaged in the government process because there are some protections in place if we mobilize together. 

    City Charter regarding petitions

    City Charter regarding petitions

    Summary

    On February 12, 2018 City Council is scheduled to vote on the proposed meals tax. If passed, the resolution will direct the money into a special fund dedicated to public schools. That money will be used to take on $150M in debt which has to be passed by an ordinance with six affirmative votes of council. Once the debt is issued, the money goes to Richmond City School Board. Budget Dance: Act 2 (which is still forthcoming), will explore the relationship of City Council and School Board as it pertains to the school budget.