Bridgewater town officials are proposing increases in taxes and fees to bridge a budget shortfall created by a change in how Virginia divvies up sales tax.
Citizens can weigh in on the proposed changes during an April 17 public hearing at 7:30 p.m. in council chambers.
Town Superintendent Bob Holton presented the proposal at last month’s council meeting. He estimates the town must cover a shortfall of nearly $200,000, which breaks down to $143,000 in less sales tax revenue than would have been generated in previous years and $55,000 in financing costs for a new water storage tank.
Budget-writers want to close the gap by implementing a cigarette tax and increasing the meals and real estate taxes. The meals and cigarette tax changes would go into effect at the start of the fiscal year, which is July 1, and the real estate rate would go up the following year.
Officials are also not planning on giving employees raises in an effort to save $50,000. This year’s $7.4 million budget, up from $5.9 million the previous year, is inflated because of two road projects that were largely funded by the Virginia Department of Transportation.
Facing a dramatic reduction in revenue from housing construction and cuts in state funding, Bridgewater officials have trimmed the town’s budget in recent years.
Also during that time, residents have seen their sewer rates skyrocket because of higher costs associated with upgrades to the Harrisonburg-Rockingham Regional Sewer Authority.
Bridgewater passed on the higher costs to users, and its bottom line hasn’t benefited from those increases, which have exceeded 10 percent in some years.
Officials acknowledge higher taxes and fees are never popular, but they say the town’s budget has been cut to its bare bones, including virtual elimination of capital improvement projects and fewer employees.
“I’m sure we could find small places to cut [more], perhaps buying fewer pencils or something like that, but we’re not talking about major dollars there,” said Councilman Ted Flory, chairman of the finance committee.
Most of the shortfall consists of a drop in sales tax, which the state collects and then returns a portion of to local governments. It’s allocated based on the number of children 19 and younger who live in a locality, Holton said.
Previously, this included out-of-town students attending college, Holton said, but the state has changed that policy and the localities where students are from will now get the sales tax revenue.
With an enrollment of about 1,700, Bridgewater College students make up a sizable chunk of the town’s population of 5,600. The change, which takes effect in July, translates to a nearly 78 percent decrease in sales tax revenue for Bridgewater, according to an estimate from the Weldon Cooper Center of Public Service, Demographics and Workforce.
Under the budget proposal, Bridgewater would begin collecting a cigarette tax of 20 cents per pack, for a revenue increase of roughly $20,000.
The meals tax would go from 5 percent to 6 percent for an estimated increase of $50,000.
Also, a cost-of-living increase of 3.16 percent would be applied to water and sewer rates as usual. Holton hopes that increase will cover the annual payment for a new water tank of $55,000.
Holton said the new tank is necessary because Bridgewater’s storage capacity is too low and went even lower when the 50,000-gallon Grove Street tank was taken out of service. The Virginia Department of Health has noted the capacity issue, he added.
The proposal also calls for a 1-cent increase in the real estate tax to 9 cents per $100 of assessed value. The increase would take effect in 2013.
But Holton and Flory say that tax increase should be a wash because they anticipate assessments to drop, meaning many homeowners won’t pay more and some may pay less.
Also next year, officials plan to begin charging a $1 per month storm water utility fee for homes and businesses.
Holton said the proposal’s effect on Bridgewater households would vary depending on habits, ranging from $6 to $60 annually when the next fiscal year begins this summer.
Town officials say the proposed budget’s aim was to generate more revenue by increasing taxes paid by residents and outsiders, rather than just people who live in Bridgewater.