Norfolk considers tax rate hike to pay for light-rail overruns

NORFOLK

To help pay for higher light-rail costs, Norfolk leaders are weighing whether to raise commer cial real estate tax rates or to tap a federal and state program that could take away money from other major transportation projects.

City leaders learned this week that they need to find $20.7 million more to pay for light-rail cost overruns. The project's price tag is now $288 million, up from $232.1 million a year ago, city leaders said.

Norfolk's total contribution will grow to $53.7 million. The state and federal government are paying the project's other costs.

City Manager Regina V.K. Williams told the council she plans to review several options for funding the city's additional costs and will get back to them within 45 days.

But at least one council member said Wednesday that Norfolk should seriously consider raising commercial real estate tax rates, which would include rates for offices, stores and restaurants.

"This is not something we want to do," City Councilman W. Randy Wright said. "I own a small business and don't want my taxes raised. But it would give us a dedicated source of revenue for transportation."

Wright said that during the housing boom, commercial real estate assessments grew more slowly than residential. When the city reduced its tax rate by 16 cents in 2007, to $1.11 of $100 of assessed value, most residents still saw their taxes increase, while nearly all businesses saw their taxes decline.

"Businesses received a huge windfall," Wright said.

In 2007, the General Assembly gave cities and counties the right to raise taxes on commercial real estate to pay for transportation needs. Few cities have discussed the issue seriously, but in Northern Virginia, where transportation problems are more serious than in Hampton Roads, Arlington County enacted a tax increase last spring. Loudoun County officials are considering doing the same.

Raising the tax rate by a penny in Norfolk would result in $381,000 a year in revenue, Williams said.

A 10-cent increase would provide $3.8 million annually and would cost a Norfolk business assessed at $500,000 an additional $500 per year.

Diane O'Brien-Bolen, general manager of Janaf Shopping Center, which has more than 1 million square feet of retail space, said the idea of a tax increase is a little frightening.

"Any increase in taxes right now would be tough to swallow because of the economy," she said. "The mom-and-pop businesses are already struggling to figure out how to make ends meet."

Jon Hunger, who runs Hunger's Automotive, a family-owned entity whose business he said has already fallen by 35 percent because of construction on Virginia Beach Boulevard, was shocked to hear about the tax increase proposal. "We're barely making it now," he said. "A tax increase might put us under."

There are three other options for funding the cost overruns:

- Pay for it as the city has paid for light rail to date, by using a share of its urban allocation transportation money.

- Make it an item in the general budget, meaning taxpayers would be responsible.

- Set up a Tax Increment Finance district, similar to those in Virginia Beach, in which future tax growth would be captured from businesses that benefit directly from light rail.

However, a majority of the council members do not want to take funds from the general budget, and city officials said they doubt that a TIF would work.

The urban allocation money is a pool of federal and state funds issued to the city each year for new road construction.

Currently, about a third of the allocation, or $2.2 million a year, is used to make payments on debt the city issued for light rail.

Williams suggested the city ask the state for permission to increase that allocation to one-half or two-thirds. If it is increased to two-thirds, the additional money would pay all of the city's light-rail costs, including the overruns, or $4.3 million a year.

Doing so, however, would take funds away from future transportation projects. The next planned major road project in Norfolk is a $100 million reconstruction of the Lansdale traffic intersection, where Military Highway, Princess Anne Road and Northampton Boulevard come together.

John Keifer, the city's director of public works, said the first phase, an expansion of Military Highway from Lowery Road to just short of the intersection, is many years away. If light rail captures a majority of the money, the project would likely take even longer, he said.

Mayor Paul Fraim said he is undecided on how to pay for light rail's overruns. But the urban allocation money is intended for transportation, he said.

"And light rail is a transportation project," Fraim said.

Wright, who commutes to work through the Lansdale intersection, has been a proponent of fixing traffic problems there. But he said the city will benefit economically from light rail in a way that will dwarf any expansion of Military Highway.

"Light rail will result in hundreds of millions of dollars of private investment in the city," he said.

"That should be our priority."

Harry Minium, (757) 446-2371, harry.minium@pilotonline.com