In a 4-1 vote, Martinsville City Council on Tuesday approved on second reading a budget ordinance.
Council member Tammy Pearson voted against the measure, after expressing concern about the lack of a budgeted amount for the city’s reversion fees as well as the decision to reduce school funding by $350,000.
Pearson was referring to shifting of local funds from city schools to give residents a tax break, with the idea that the school division can use federal funds to plug the hole.
The council on May 18 approved an 80 percent tax assessment ratio to help mitigate the effects of a historic appreciation of vehicle valuations and decrease taxes by 20 percent. However, the relief comes at a $350,000 reduction in city funds to the school division, a loss council hopes can be funded with the schools’ pandemic relief funds and which it promised to repay if those relief funds could not be used.
The two-hour discussion on May 18 included not only council members, but also Schools Superintendent Dr. Zebedee Talley and the division’s Director of Administrative Services, Travis Clemons, as officials broached the possibility of using federal Elementary and Secondary School Emergency Relief (ESSER) dollars to replace city funding.
Discussion at that meeting included comparisons to a “loan,” and “like a cup of sugar,” because if the pandemic-related dollars cannot be used, the city agreed to return the money to the schools.
Clemons explained use of the funds must be directly related to helping mitigate the effects of COVID-19.
He added that he was leery of making budgetary changes without first seeking state guidance and obtaining written approval, given the complications associated with spending ESSER funds.
Ultimately, the city’s plan would depend on the state approving supplanting the local dollars with the ESSER funding.
“We literally have to get permission prior to doing something whereas municipalities have been granted a lump sum of money and you can use it to backfill and do things at your discretion. We have to get approval,” Talley said.
“Hypothetically, if we need $350,000, would you anticipate that there are some areas in approved reasoning from ESSER funds that would supplant city funds,” Mayor Kathy Lawson asked.
“I’m certainly willing to work with the state and see what comes back. I would anticipate that we could make ends meet if the year flows like it has in recent history,” Clemons said.
“But can we supplant?” Talley asked.
Council member Chad Martin said the allowable expense guidelines for ESSER “says not to supplant.”
“Supplant is the wrong word, but $350,000 that would be used in ESSER funds rather than city fund balance funds, that’s what I’m looking for,” Lawson said.
“We can certainly agree to attempt that,” Clemons said.
Because the division is required to get state approval for ESSER expenses, Talley asked if the request is denied, “what would we do then?”
“Then, you would come back and say that you gave to us in good faith … and then we would appropriate it through fund balance,” Lawson said, adding that taking additional money out of fund balance—which is already being used along with the city’s American Rescue Plan Act (ARPA) funds to balance the next budget—is what the city was trying to avoid while seeking ways to provide residents with some tax relief.
Council member Tammy Pearson recalled that Commissioner of Revenue Ruth Easley previously said the city may already have the funds to cover a 20 percent tax assessment ratio in the proposed budget, thus eliminating the need to adjust school funding.
“If we do have that and we don’t realize it, we’ll realize it when we go through audit,” Lawson said.
“That’s correct,” City Manager Leon Towarnicki said.
“No,” Easley said from her seat in the audience. “Because part of it is future and part of it is current.”
“But dealing with this budget and looking at the amount that, I think we all would agree, that we would like to reduce the personal property tax percentage, we would need that $350,000,” Lawson said.
“You have it,” Easley said.
“Well, it’s not in our budget,” Lawson said. “We’re dealing with the budget that he’s (Towarnicki’s) presented.”
“It is in your budget,” Easley countered.
“So, the money you’re asking us for is already in there, but you’re asking us to cut that amount,” Talley asked.
Lawson said that although Easley said the funds are in the budget, they are not included in the budget presented to council.
“We don’t want to hurt you,” Martin said, “but we don’t want our citizens to suffer because the tax value has gone up … she’s (Lawson’s) trying to find a certain amount of money to be able to help our citizens.”
Vice Mayor Jennifer Bowles told Talley she could see he was passionate about the funds, but she believes there were instances in the past in which Talley has come to council with a request “and we’ve worked with you on anything that you’ve ever needed.”
“I think we’ve shown good faith,” Lawson said.
“We don’t want to do anything to hurt the schools, and if you all have a need, we’re most certainly going to help,” added council member Danny Turner.
“So now we’re going to deduct almost $350,000?” Talley asked. “We’re cutting the cafeteria fund (around $175,000, Clemons later estimated), plus the $350,000?”
“We don’t want to say ‘cut,’ Dr. Talley,” Lawson said.
“Well, what do we call it? Is it a loan,” Talley asked.
“Are you going to borrow it like a cup of sugar,” Clemons asked.
“It’s a placeholder for ESSER funds,” Lawson said. She, along with Martin, reiterated that if school administration found ESSER funds could not cover the $350,000, the city would reimburse the funds from the general fund.
“You have not not done what you said” in the past Talley said.
“We would not be honorable people if we didn’t honor our word,” said Lawson.
In addition to the school funding reduction, the approved budget allocates $6,571 to the Blue Ridge Regional Library, which was half of its requested funding increase, with the understanding that the city will fully fund the request should Henry and Patrick counties also contribute their full shares of the increase.
Council also approved an ordinance adopting an assessment ratio of 80 percent for tangible personal property for the upcoming budget year with an anticipated total reduction of $342,659 to the personal property tax bills of residents.
The approved budget includes the following tax rates:
*Real Estate: $1.03975 per $100 assessed value
*Personal Property: $2.30 per $100 assessed value
*Machinery/Tools: $1.85 per $100 assessed value
Refuse collection fees were increased by 7-percent across all categories.
Personal property
The reduction in school funding was done to mitigate increased personal property tax bills following a second year of increased valuations for vehicles due to supply chain issues and increased demand for used cars.
The average increase for passenger cars, trucks and motorcycles as assessed by J.D. Power was 26.14 percent over the 2021 assessments. For example, a 2013 Honda Accord which, in 2021 was valued by J.D. Power at $9,500, this year is assessed at $11,950.
On the higher end of the scale, a 2019 Dodge Caravan which in 2021 was assessed at $13,675 this year is valued at $22,125—a 62 percent increase over 2021’s value.
The personal property tax assessment ratio approved by council will reduce the overall value assessment of passenger cars, trucks, and motorcycles in the city’s fleet by 20 percent, from $74,490,990 to $59,592,792, thus reducing the tax revenues realized by the city in the upcoming fiscal year by $342,658.55, by Easley’s calculations. Had council applied no ratio, the city looked to recognize $1.7 million in personal property tax revenue for the upcoming fiscal year.
In materials provided to city council, Easley wrote that, as of May 17, the city has collected $182,010.40 over the $900,000 budgeted personal property tax revenues in the current fiscal year.
According to Easley’s estimates, the city is expected to receive an additional $201,713.97 the amount currently budgeted for the upcoming fiscal year’s revenues.
During the meeting, Easley said “the revenue is there” to provide the 20 percent reduction, it just “hasn’t been properly allocated because we don’t have discussions in this building.”
Towarnicki said work on the budget begins in January. “This budget was presented a month ago. A lot of information in this document was put together in late March, early April.” As the fiscal year progresses, it becomes easier to budget accurately because the budget team has real numbers rather than projections.
“The numbers that we have in the budget versus what Ms. Easley’s talking about, I certainly understand how a difference like that can occur,” Towarnicki said. After the meeting, Towarnicki said the city’s proposed budget includes a $200,000 increase in anticipated personal property revenues “and we still feel confident in that number.”
During that meeting, Easley noted that not all city residents would feel the impacts of either the valuation increase, or the tax relief measure. Some, including those on fixed incomes, may see 100 percent tax relief, and some may see a decrease in their vehicle valuations over last year.
“You’re still going to have winners and losers,” she said. “You’re just going to have people that aren’t having to give you an arm and a leg and three toes.”
Ultimately, council approved the 20 percent assessment ratio in a 4-1 vote, with Martin voting against because he preferred a 10 percent ratio, which would provide some relief to residents while still increasing the city’s revenues.
“We’re talking about reversion for a reason,” Martin said. “As city council, we can’t live day-to-day, we have to think years ahead.”
Bowles, too, expressed concern.
“I’m concerned that we need to keep this money for next year,” she said. “I’m really concerned with what’s going to happen with our budget long-term versus just this one assessment and this particular bill … our revenue is stagnant. Everyone sitting on this council knows our revenue is stagnant. We’re spending $3 million of our ARPA money to plug a hole in the budget so although, yes, I want relief, I’m concerned that we’re being shortsighted about this rather than looking long-term about how this is going to affect us.”
“We have to live for today,” Turner said.
Bowles said she did not understand how Turner, who at every city council meeting over the last several months, has advocated for putting the majority of the city’s ARPA funds aside to help mitigate reversion costs, could advocate for a tax assessment ratio which would reduce the city’s revenues.
“When we increase our taxes, our citizens are less able to pay than the average Virginian,” Turner replied.
Reversion costs
Pearson asked about a number of other items in the budget, including infrastructure needs and the costs of reversion.
“Budgets are based on looking at the past and then moving forward,” she said. “I would like us to put in the number (cost) for our reversion attorneys. That way we can monitor whether we’re exceeding it, we’re meeting that number, we’re under budget.”
Towarnicki said staff could put a placeholder number in the budget.
City Attorney Eric Monday said from a budgetary standpoint, “and given the way that this has turned out with Henry County reneging on their agreement and, as far as I’m concerned, deliberately delaying all proceedings possible since then, I think putting just a placeholder that you may or may not abide to is simply giving another tool to Henry County, a tactical advantage saying you’re spending far more than you budgeted. It might also send them an indication of your political will to pursue this process to a conclusion. So, from a tactical standpoint, I would advise you to continue using the same payment method and budget method that you have heretofore. There’s no point in telling your adversary what your war budget is.”
Towarnicki said the city has no projected budget for reversion, only a record of what has been spent.
“The budget is balanced with ARPA and with fund balance, so anything that goes over is going to come from fund balance.”
On May 20, the city issued a press release stating that the cost of reversion has more than doubled for Martinsville since the county rejected the negotiated Voluntary Settlement Agreement (VSA) in December 2021.
As a result of that action, the release stated, “the process has turned into a contested reversion costing the City of Martinsville $654,543.91 in legal fees” and has equated to the city essentially paying for two reversion processes (a negotiated and a contested) with a total cost (thus far) of $1,139,696.99.
The city did not approve the requested funding increase for the local 911 center, with Lawson saying that Henry County did not fund its portion of the increase, which Powell requested to give his staff a cost-of-living pay increase.
The city also declined to provide a stipend to the public defender’s office. “I think it sets a horrible precedent” for a locality to provide supplemental income for a state agency. Bowles and Martin both voted in favor of the stipend.
Pearson also inquired about certain legal services line items, which Monday said were there to fund external legal advice. “There are times when telecom or the electrical department or other departments need specialized legal services that I am simply not able to provide,” he said.
Monday said he believed there also is a legal line item for the Commissioner or Revenue’s office because “she does not wish to use my services.”
In an email, Easley wrote that the line item referenced by Monday was $3,000, which she requested with the FY19 budget “because I had businesses that were operating without a business license, which is a criminal offense under the city’s licensing ordinances.”
She said that when Joan Ziglar was Commonwealth’s Attorney, her office would handle the few cases Easley had each year. When Monday became city collector, he and Ziglar had a verbal agreement that he would handle those cases if Ziglar wished.
“She had no problem with that, as long as I didn’t have a problem. I did not, at that time. However, by 2013, Mr. Monday only wanted to handle the “larger” non-compliant businesses, which created a uniformity issue for my office. Consequently, we went several years with a compliance problem,” Easley wrote.
Easley said she eventually created a $3,000 annual contract with Taxing Authority Consulting Services (TACS) for 12 hours of legal work each year, which was approved by council in 2019 “because Mr. Monday told the mayor in a budget meeting that he was the city council’s attorney and not my attorney.”
She wrote that she now has an agreement with the current Commonwealth’s Attorney Andy Hall to handle the few compliance issues that come up each year, but continues to budget legal services for any legal issues that arise outside of Hall’s purview. Any unexpended funds, she said, return to the city at the end of the fiscal year.
In other matters at its meeting Tuesday, council:
*Heard an overview of the May 23 West End neighborhood tour and meeting.
*Set a public hearing for June 14 to receive names of those interested in appointments for one 3-year term ending June 30, 2025, and one unexpired 3-year term ending June 30, 2024.
