Preface – The Hindsight Report
The Free Enterprise Forum is pleased to present this comprehensive economic analysis of the impact of the 1982 Albemarle/Charlottesville Revenue Sharing Agreement, which was negotiated between the two jurisdictions in order to avoid the annexation by the City of Charlottesville of significant Albemarle County properties. This long-standing agreement results in the annual transfer of millions of tax dollars from Albemarle County to the City of Charlottesville. What if this agreement had not been reached? What if the City of Charlottesville was effectively double its current size? How would tax revenues change for each locality? How does the “lost” tax revenue compare to the revenue sharing amounts? What of the tax revenue is “retained” by Albemarle County and, how does that compare with the revenue sharing payments?
Utilizing geographic information system (GIS) technology, former Albemarle County GIS Analyst, Derek Bedarf, developed and refined the parcel data set that makes this report possible. In addition, he ran the complex GIS reports that generated the annual tax assessment data. Using this data as an aid, The Hindsight Report shows the calculable annual tax revenue impacts of the proposed annexation that were prevented during the years 2001-2016, based on the enactment of the Revenue Sharing Agreement.
It is our hope that this report will energize the continuing discussions among business and civic groups alike, as well as in public policy arenas, about the nature of the Revenue Sharing Agreement and the reality that the Charlottesville community, both the City and the County, have a shared destiny. We believe this broad-based compilation and analysis of regional revenue, as seen over an extended period of time, provides for a much fuller, facts-based understanding and discussion of this critical subject.
This Hindsight Report could not have been accomplished without the underwriting support of the Charlottesville Regional Chamber of Commerce and Great Eastern Management Company. Equally important is the interest and involvement of a number of active business representatives. Our organization thanks these active citizens for their support. The Free Enterprise Forum also acknowledges the significant cooperation of the professional staff of Albemarle County and the City of Charlottesville.
Founded in 2003, The Free Enterprise Forum is a privately-funded public policy organization focused on Central Virginia local government. A 501(c)6 organization, the Free Enterprise Forum wishes to thank all of our donors for their financial support of our work. The Free Enterprise Forum is solely responsible for the content of this report.
Mason Graham, 2017 Chair Free Enterprise Forum Board of Directors
History of Revenue Sharing Agreement
In 1982, Albemarle County and the City of Charlottesville entered into an agreement in which both jurisdictions agreed to share tax revenues in return for total immunity from any annexation attempts by the City. The City was proposing a significant annexation of County territory at that time to increase the City tax base. The proposed agreement was approved by County voters in a referendum.
The Annexation Threat
In 1980, the City of Charlottesville prepared a map for its next proposed annexation. The approximately ten square mile annexation was carefully constructed to maximize commercial properties and minimize the number of residential units.
The threat of annexation was clearly present at this point in Central Virginia. The situation between the City and the County at this time was generally regarded as troubled. There was a general animosity toward the City and a constant wariness in all the County’s dealings with the City. During this period, the County Board of Supervisors was also very careful how its actions might be viewed by some future annexation court.[i]
The negotiations to reach an agreement were lengthy and contentious. Actual annexation negotiations were initiated by the Charlottesville City Council, which approached the Albemarle County Board of Supervisors on December 12, 1979. Members of City Council met with the Board in a brief executive session held during a regular Board meeting in the Board Room of the old County Office Building.[ii]
After years of often contentious meetings, and competing consultants’ analysis, in January 1982, the City and County came to a tentative agreement. The County’s legal team believed there was a requirement for referendum on the agreement while the City did not share this view.
According to C. Timothy Lindstrom’s 1992 Thesis “The Charlottesville/Albemarle Revenue-Sharing Agreement an Informal History of Negotiations 1979-1982”:
“The City was anxious to conclude the agreement and probably somewhat skeptical about the outcome of a County referendum. It is also likely that the City considered the referendum a ploy by the County to buy time either to prepare a defense to an annexation suit, or at least postpone annexation.
“The County Board’s position was a mixture of a sincere belief that a referendum was required by law, some pleasure in seeing the City inconvenienced by the inequity of a state taxation system which limited the fiscal authority of counties in ways that it did not limit cities and a desire to have the ultimate decision on this far-reaching agreement rest with the public. Additionally, an agreement approved by referendum would be nearly impossible to renegotiate to the disadvantage of the County once it had been approved at referendum…. Staff believed that any agreement not adopted by County-wide referendum would almost surely be subjected to legal challenge by some County residents.”iii
On February 17, 1982, the City of Charlottesville and Albemarle County came to the final annexation Revenue Sharing Agreement and sent it to a public referendum on May 18, 1982. The work of selling the Agreement to the voters fell to Members of the Board of Supervisors, City Council, The Citizens Committee for City-County Cooperation (5Cs) and others.
The agreement provides that the County and the City shall contribute annually to a Revenue and Economic Growth Sharing Fund which is then divided between them pursuant to a formula based on the City’s and County’s population, “true real property tax rates” as determined by the Virginia Department of Taxation, and the assessed value of real property. Based on this formula, the agreement has required the County to pay the City a revenue sharing amount each year since 1983 in an amount that is approximately equivalent to revenue generated by ten cents of the County’s tax rate.[iii]
Facing an approval rating of only 23% in a January poll a few months before the vote, Rey Barry, a former radio personality and free-lance journalist, helped formed SAFE (Stop Annexation Forever) and asked local artist Charles Peale to create the Annexation Monster. By May 18, 1982 (voting day), the monster was a familiar face. The monster personified that the public approval of the Revenue Sharing Agreement meant immunity from annexation, and it won by 63%, a landslide.[iv]
The Revenue Sharing Agreement became effective on July 1, 1982, and remains in effect until:
- The County and City are consolidated into a single political subdivision; or
- The concept for independent cities presently existing in Virginia is altered by the State law in such a manner that real property in the City becomes part of the County’s tax base;
- or The County and City mutually agree to cancel or change the agreement.
The Study Area
The original map of the study area came directly from Charlottesville City documents acquired by the Free Enterprise Forum. Additional research found that the City of Charlottesville had attempted a similar, but more limited, research project in late 2007.vi While our parcel data set is more refined than the City’s initial effort, we utilized this research to help scope our efforts.
In drawing the boundries for the potential annexation area, the City worked diligently to avoid acquisition of residential property and the associated government service costs (education, public safety, social services, etc.).
Our analysis of the zoning classifications shows roughly 75% of the property in the proposed annexation area was zoned for potential residential use. This compares to nearly 98% County wide.
A few important notes about the mapping:
• GIS acreage may differ from deeded acreage. In the areas with more development, this discrepancy is much less, as the parcels are more current and have more likely been digitized with greater accuracy. As a generalization, for this analysis, these parcels should fall in to the more accurate category.
• Zoning acre totals decrease due to:
o 2002-03 Additional Planned Unit Development (PUD) adjustments to complete a neighborhood. Also alterations to road Right of Way (ROW) that continue to this day, due to modifications to GIS parcels to remove road ROW the parcels.
o 2003-04 ROW changes
o 2005-06 ROW changes
o 2006-07 ROW changes
o 2013-14 ROW changes
The Revenue Sources
General Property Taxes. General property taxes are ad valorem taxes based on the assessed value of real and personal property owned by businesses, individuals, and public service corporations. Both real and personal property are assessed at 100% valuation with tax rates applied per $100 of assessed value. For this study, we included general property taxes of real estate, public service, personal property, and machinery and tools tax.
Real Estate Property Taxes are the largest source of revenue for Albemarle County and the City of Charlottesville, representing close to 50% of all revenues most years. Land use deferrals (not recognized in the Revenue Sharing Agreement) reduce available tax revenue in the County by over $20 million in FY16. These taxes includes real estate taxes that are dedicated to the stormwater resources mandate and to the Fire Services Fund.
Public Service Taxes are levied on the real estate and tangible personal property owned by railroads, utilities, pipelines, and other businesses required to register with the State Corpration Commission (SCC). Public Service Corporation assessments are prepared by the Virginia Department of Taxation and the SCC and are based on the percentage of statewide total capitalized equipment located in the County of Albemarle. The public service ratio calculated by the Department of Taxation varies directly with the statewide sales ratio.[v]
Personal Property Taxes are levied on vehicles and other tangible non-real estate property owned by individuals, businesses, trusts, and taxable non-profit organizations. Qualified vehicles are eligible for a pro-rata share of Personal Property Tax Relief, which consists of a fixed payment from the State.
Machinery and Tools Taxes are levied on equipment needed in the manufacturing process.
Other Local Taxes. This category consists of sales taxes, consumer utility taxes, business taxes, motor vehicle licenses and prepared food and beverage taxes. Other taxes, excluded from this study for a variety of reasons, include utility consumption tax, short term rental tax, clerk fees, transient occupancy tax, penalty and interest, and audit revenues.
Sales and Use Taxes are revenues received by the County from the 1.0 cent state sales tax generated within the County.
Consumer Utility Taxes are taxes collected by utility companies on residential, industrial, and commercial users of telephone, gas, and electric services. This tax is levied by the Commonwealth of Virginia at 5% of taxable use, with a $4 monthly cap on residential service, and allocated to local jurisdictions based on prorated receipts. Taxation of gas and electrical service is based on usage.[vi]
Business, Professional and Occupancy License fees are revenues collected from businesses, professions, and occupations for the privledge of operating within Albemarle County. The fee to be paid by each business is calculated by multipling the applicable rate by a business’s gross revenue from the previous calendar year.
Motor Vehicle Licenses (County Decals) are registration fees collected from property owners for the privilege of operating vehicles on County highways. During the FY 07/08 budget process, the Board of Supervisors raised the decal fee to the maximum allowed by the State. License fees are based on vehicle weight.
Bank Franchise Tax is collected from banks doing business in Albemarle County. The tax is based on equity capital allocated by branch deposits.
Food and Beverage Taxes are taxes assessed at 4.0% of the sales price of prepared food and beverages sold in the County. The Albemarle County food and beverage tax was passed by a County-wide referendum in 1997, and became effective January 1, 1998.[vii]
Revenue Calculation and Allocation Methodology
GIS Data Query. Building on the work of Nicholas Feucht and Jim Herndon of Charlottesville Neighborhood Development Services[viii], the Free Enterprise Forum created a digital version of the proposed 1980 annexation map and selected the relevant parcels utilizing GIS technology. After removing all non-tax properties in the relevant area, we summed the total assessed value of the remaining parcels on an annual basis from 2002-2015. We then calculated the annual land use tax deferral amount for any properties in the program and reduced the annual assessment to reflect this participation.
In addition, we assembled a query that produced an annual report of acreage by zoning classifications both in the study area and all of Albemarle County. This information was used to generate tax specific ratios within the study area in the “other” local taxes portion of this report.
All of the data used to generate the following charts is available in the appendix and online at http://www.Freeenterpriseforum.org under the reports tab.
Albemarle Real Estate Revenue Collected. Utilizing the study area annual assessment data, including the land use reduction, we multiplied the assessment times the applicable real estate tax rate.
Over the study period (2001-2016), Albemarle County collected $232.76 million in real estate tax revenue from the study area.
Charlotesville Tax Revenue Forgone. Utilizing the study area assessment data, ignoring land use reduction (as Charlottesville does not have such a program), we multiplied the annual assessment times the applicable real estate tax rate.
As Charlottesville has a higher annual tax rate than the County, and does not offer land use tax relief, the tax impact of the same property during the study period is significantly different.
During the study period, Charlottesville did NOT collect $304.79 million in real estate taxes from the study area.
Non-Annexation Dividend. As the base real estate tax rate and land use taxation participation differ, property owners in the study area paid less real estate taxes as Albemarle County parcels than they would have paid had the annexation occurred. This Non-Annexation Dividend (applied Charlottesville Real Estate Tax Burden less applied Albemarle Real Estate Tax Burden) peaked at over $6 million in 2007, and totaled $72 million during the study period.
Sales and Use Tax Revenue. Unlike the real estate data, sales and use tax revenues are not directly calculable via direct GIS analysis; however, utilizing certain assumptions, a reasonable study area estimate can be calculated.
Sales and use taxes receipts are mostly generated by commercially zoned land including Commercial, Commercial Office, Highway Commercial, Neighborhood Model, Planned Development Mixed Commercial, Planned Development Shopping Center, and Planned Unit Development. For this study, we calculated the annual amount of the above referenced zoning categories by acreage and divided it by the same calculation County-wide.
The resultant percentage was then multiplied by Albemarle’s annual sales tax revenue to create a reasonable estimate of the study area’s sales tax revenue.
Other Local Revenues
Other Local Taxes. These taxes consist of sales taxes, consumer utility taxes, business taxes, motor vehicle licenses and prepared food and beverage taxes. Other taxes excluded from this study, for a variety of reasons, include utility consumption tax, short term rental tax, clerk fees, transient occupancy tax, penalties interest, and audit revenues.
All of the “other” local tax revenues calculated in this report are based on taking the annual revenue from the particular tax and dividing that revenue by the total number of acres in Albemarle County. The resultant factor is then multiplied by the number of acres in the study area. Considering the population density and amount of activity in the study area, this is a highly conservative methodology.
While one would anticipate the amount of Business, Occupancy and Professional License fees, Public Service Tax, Vehicle Registration Tax, Utility Tax, the Food and Beverage Tax as well as the Machine and Tool Tax would be statistically higher in the study area than perhaps the majority of Albemarle County. Absent a reliable metric to base such an assumption, we have opted for the most conservative calculation.
It is important to note the “other” local tax revenue would have gone to the City of Charlottesville had annexation been successful.
Revenue Sharing Payments compared to Study Area Tax Generation. Considering all the above calculated local tax revenue streams, how do these revenues compare to the revenue sharing payments made by Albemarle County during the study period?
During the study period (2001-2016), Albemarle County received, from the study area, over $277 million in local tax revenue compared with the $212.9 million revenue sharing payments made to the City of Charlottesville (+$64.1 million).
The Hindsight Factor is the difference between the taxes calculated from the study area and the revenue payments made by Albemarle County to the City of Charlottesville. The cumulative impact of this calculation for the entire study period is more than $64 million.
Often the most enlightening questions start with, “What if?”
This analysis is the result of such a question: “What if Charlottesville’s annexation was successful compared with the results of the negotiated Revenue Sharing Agreement?”
After significant research and deliberation, it was determined that this information was available but not assembled in a manner that made such calculations easy. Utilizing GIS technology for assessment data and 15 years of Albemarle County budget documents, The Free Enterprise Forum calculated the tax revenue generating power of the study area.
The Hindsight Report indicates that over the study period (2001-2016), Albemarle County received, from the study area, over $277 million in local tax revenue compared with the $212.9 million revenue sharing payments made to the City of Charlottesville (+$64.1 million).
Had Charlottesville been successful in the annexation and the revenue sharing agreement not been in place, the City would have received $304.7 million in tax revenue from the study area during the study period compared with $212.9 million in revenue sharing payments from Albemarle County (-$91.8 million).
During the study period, study area property owners paid $72 million less in real estate taxes by being in Albemarle instead of the City of Charlottesville. This “Non-Annexation” Dividend averaged saved property owners between $3 million and $4 million annually topping out at $6 million in 2007.
The question the data does not answer is whether the Revenue Sharing Agreement was a good deal for all involved. This is a subjective question that can only be answered in context.
At the time, the historical record suggests annexation was a very real threat and revenue sharing negotiations were heated.
The historical public record also shows many citizens at the public hearing raising some of the same questions regarding equity and fairness that remain part of the discussion today.
Was it a good deal?
Hopefully this data will help you decide.
Neil Williamson, President
[i] Lindstrom C. Timothy Thesis “The Charlottesville/Albemarle Revenue Sharing Agreement” May 1982 p. 9
[iii] Albemarle County Budget FAQs https://www.albemarle.org/navpages.asp?info=budgetfaq
[iv] Berry, Rey The Freeware Hall of Fame Website http://www.freewarehof.org/charlo.html#prt2
[v][v] County of Albemarle, FY 12/13 Adopted Budget, p.46
[vi] Ibid p.48
[vii][vii] County of Albemarle, FY18 Recommended Budget, p.65
[viii] Feucht, Nicolas, Herndon, Jim; Potential Real Estate Revenue memo to Jim Tolbert December 7, 2007
Calculations available under separate tab