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Richmond’s property tax relief options constricted by state law

Kristen Nye attends a Richmond City Council meeting.
Crixell Matthews
Richmond councilmember Kristen Nye attends a meeting in 2019. Nye and fellow councilmember Reva Trammell have submitted plans to cut the city's property tax rate. (File photo: Crixell Matthews/VPM News)

Richmond City Council is considering lowering the real property tax rate as property values across the city increased 13% on average from a year prior.

Councilmembers Reva Trammell and Kristen Nye introduced one measure to lower the city’s property tax rate by about 3%. Trammell also introduced a separate measure to decrease the property rate by about 8%. Nye told VPM News she thinks the 3% cut is manageable for the city and addresses current inflation.

“Keeping our budget level for the upcoming year would be really challenging because we have organic increases in our budget, just like almost every business and government entity,” Nye said. “[We] just kind of looked to work back from that and to put forward something that was a decrease, where folks could see that decrease in their bills.”

While some have called for Richmond to rethink how it assesses property, the city does not have much leeway. The state constitution requires Richmond to assess properties based on the “fair market value,” which means when a nearby home is sold, a neighbor’s assessment must reflect the change in value.

“In other states, they’re allowed to take a three-year average, they’re allowed to put a cap on it,” Nye said. “We don’t have that kind of autonomy in the commonwealth. So, that’s why one of the few tools in our toolbox is [changing] the tax rate annually.”

Carl Davis, an economist at the Institute for Taxation and Economic Policy, said that’s not an uncommon tactic for local governments dealing with hot housing markets, like Richmond.

“The balancing act there is the city is facing rising expenses,” Davis said. “That doesn’t mean the tax rate can’t come down, but it means you have to be figuring out a level of tax-rate cut the city can afford.”

Impact on people’s finances, city borrowing

Trammell said the city can afford a deep tax cut and proposed last week cutting the real property tax rate by 10 cents — an 8% decrease in the rate — to partially offset rising assessments.

“If we did 10 cents, that still gets the mayor three cents,” Trammell said. “It’s not going to hurt the budget. I don’t care what you say about this, about that. There is money, millions and millions of dollars, that the mayor got from the ARPA money … .”

Councilmember Andreas Addison said he’s worried even the proposed 3% cut, which would bring the city’s tax rate to $1.16 per $100 of assessed value, could hamper the city’s finances.

“Every penny is about $3.4 to $3.5 million of revenue that would be lost to the future budget,” Addison said. “One of the challenges with a tax-rate reduction is that our revenues and our forecasted revenues derive how we are going to do our capital budget. And so, when you change the tax rate, therefore it changes our ability to borrow.”

He also said the 3% cut would not meaningfully affect people’s finances and that the city could not afford a rate decrease that would bring meaningful relief. The owner of a home with an assessed value of $300,000 would save $120 per year under the tax cut.

“I’m concerned that we're not able to afford enough as a tax-rate reduction currently,” Addison said. “In order to really support alleviating this pain and pressure on families, you need to look at other options.”

He pointed to Henrico County, which earlier this year approved a one-time tax credit to homeowners in addition to reducing the property tax rate. Addison said that could be an option for Richmond to provide tax relief without affecting its future ability to borrow.

“All options are on the table,” Addison said. “I’m not saying one is better than the other. It might be a combination of the two with a tax rate reduction and a tax credit. But I know that we need to make sure we consider the needs of our growing city and infrastructure to be financially supported for the long term.”

Virginia’s Constitution also restricts what kinds of property tax relief city council can offer to Richmond residents. While Richmond offers either partial or full tax relief to some homeowners, access to that program is restricted to residents 65 or older and those with a disability, as required by the state. Veterans with a 100% service disability rating, their surviving spouses and the spouses of people killed in combat while serving in the U.S. military are fully exempt from property taxes on their primary residence in Virginia.

Davis, the economist, said expanding property tax relief programs is the only long-term solution to people being unable to pay rapidly increasing tax assessments. He pointed to a solution called a “property tax circuit breaker,” which has been implemented in states including Minnesota, Michigan and Maryland.

“The way a circuit breaker works is it looks at your property tax bill, and it looks at your income level, and it says, ‘If we’re charging too much property tax relative to your income level, relative to what you can afford, the circuit breaker cuts off the property tax bill,’” Davis said. “It really speaks to the core problem here, which is any instance where there’s a disconnect between the property tax bill being charged and what the homeowner can afford to pay.”

Essentially, the state would set a cap for how much of someone’s income could be paid in property taxes. For example, in Michigan, if a homeowner’s property tax bill is more than 3.2% of their income, they receive a credit for 60% of what is paid past that amount, as long as they meet certain income thresholds.

A 2008 report from the Weldon Cooper Center for Public Service at the University of Virginia suggested the state adopt its own property tax circuit breaker program, noting the issues with the current system.

“Targeting tax relief can provide more relief for those most in need at a lower overall cost than non-targeted relief. Income is a more reasonable targeting variable than either age or rate of increase in home value,” economist John Bowman wrote. “Many property tax relief programs are for the elderly only, and many others that include all ages provide more generous relief to the elderly. Such practices are inappropriate. Age is not a good proxy for need; in fact, poverty rates are lower for the elderly than for the non-elderly. In addition, net worth is greater for the elderly than for the non-elderly; older people are more likely to own their homes and to have accumulated other assets.”

Last year, city council ordered one study on how to provide property tax relief to people not currently eligible under state law, as well as another seeking to get the state legislature to authorize Richmond to implement a “homestead exemption.” That proposal calls for 25% tax relief for those who meet certain income requirements.

The changes outlined in the studies would require amending the state constitution. Del. Betsy Carr (D-Richmond) sponsored a resolution this year to add an exemption for longtime owner-occupants to the constitution, but the committee assigned to the proposal never acted upon it. Carr plans to resubmit the resolution during next year’s legislative session, which begins in January.

“We can give tax relief to long-term home owners. These are the people that have been in the community for a long time,” Carr said. “So, it really behooves our communities for them to stay in their positions. They're adding stability and leadership in those areas where they are.”

If Carr’s proposal passed the General Assembly, it would need to be approved again following an election and put to a voter referendum before the state constitution could be changed. Nye said city council must act more quickly than that to address rising tax assessments. 

“It's just so hard when we don't have the autonomy to do this stuff. Because even if [the General Assembly] were to vote on [a homestead exemption], it probably wouldn't be available till July 1 of next year. And then by the time we put in something on our end, you're talking about like, 2024. It's a really long timeline when we don't have access to anything else at our fingertips,” Nye said. “The other reason for putting this tax reduction forward is I'm sort of tired of waiting around for the General Assembly to put in these programs.”

City council’s finance committee is set to discuss the proposed real property tax rates at its next meeting on Oct. 20. The full council will hear the proposals at their meeting on Nov. 14.

Editor's note: This story was updated Oct. 4 at 3:54 p.m. to include information about the Nov. 14 city council meeting.

Connor Scribner is the assistant news editor at VPM News and also reports on the housing market and public housing.