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Isle of Wight cuts tax increase from budget

Isle of Wight County’s now-adopted fiscal year 2021-2022 budget no longer includes a 4-cent real estate tax increase.

The county’s Board of Supervisors voted 4-0 with one abstention May 13 to approve a general fund budget of $84.2 million, which totals roughly $1.6 million less than what County Administrator Randy Keaton had proposed in April.

The proposed 4-cent real estate tax increase has been deferred until 2022 in hopes that Virginia’s General Assembly will reconsider allowing the county to pay for two new schools by raising its sales tax 1% instead.

Senate Bill 1170 would have made Isle of Wight the 10th Virginia locality permitted to enact a temporary 1% sales tax hike for the duration of school construction projects, provided a majority of county voters approve the measure via a referendum. The bill passed Virginia’s Senate 31-8 earlier this year, but was tabled in a House of Delegates finance subcommittee.

Last year, the county borrowed just over $34 million to replace the 1960s-era Hardy Elementary School with a new building school officials say will be able to house upwards of 900 students. Construction is to begin this June and be complete by December 2022. Plans are also in the works to borrow additional money in 2022 to replace another 1960s-era school, Westside Elementary, with a middle school capable of housing over 1,000 students in grades 5-7.

The proposed 4-cent real estate tax increase would cover the annual debt service payments for both projects.

“In response to direction from the board to defer the proposed tax increase, we’re using an unexpected increase in revenues from this year’s budget to offset a portion of the transfer to debt service reserve for next fiscal year,” Keaton said.

The unexpected increase in revenues, according to Assistant County Administrator Don Robertson, came from additional machinery and tools taxes and from the county’s unassigned fund balance. These revenues, coupled with budget cuts, will give Isle of Wight County landowners another year of the county’s real estate rate staying at 85 cents per $100 while the county continues to lobby for the sales tax option.

If the General Assembly and county voters both approve that option in 2022, the real estate tax increase will no longer be needed. If it doesn’t, “then we’ll have to raise taxes the following year to make debt payments,” Keaton said.

But even if the sales tax option were approved, the resulting revenue wouldn’t come available to the county until July 1, 2023 — the start of the county’s 2023-2024 fiscal year — meaning another revenue source would be needed to cover the debt payments for Hardy due in the 2022-2023 fiscal year.

“The board will have to monitor revenue and expenditure forecasts over the course of the next fiscal year and make appropriate decisions based on the data to whether or not a tax rate increase will be necessary next year,” Robertson said.

But Board Chairman Dick Grice, who represents the county’s Smithfield District, took issue with the plan given that these are “payments on a bond that we have said we would make, that we would raise taxes to pay, in good faith.”

“The creativity that went into this budget by staff and by the Board is outstanding … However, and so that I do not vote against this budget, I will say that I can’t vote for it because of the deferment of the year’s worth of taxes,” Grice said.

The $1.6 million in budget cuts include a roughly $500,000 reduction in the county’s local contribution to Isle of Wight County Schools. While the school system is projected to have roughly 240 fewer students this September than its pre-pandemic population, that wasn’t the reason the county chose to cut its contribution, Robertson said.

Rather, the schools “are going to receive a significant increase in federal funding that will more than offset the local reduction,” he said.