Month: April 2026

Staunton council is in a tax squeeze

(Reading time: 8 minutes)

As Staunton wrestles with the math of trying to make revenues match expenses, its options are actually quite limited. Roughly one-fifth of its income comes from the state, while a quarter or so comes from a grab-bag of smaller taxes that can’t be pushed much higher, primarily the local sales tax, restaurant meals tax and lodging tax.  But the biggest slice of the income pie, at just under half, comes from general property taxes, and by far the dominant segment of that category is real estate taxes. It’s therefore disconcerting to realize, after even a little analysis, just how self-defeating it is to pin our city’s fortunes on such an economically stupid way of raising money.

Not that Staunton, or any other city, has much choice. Real estate taxes are the one significant revenue tool left to municipalities by a state that reserves for itself the lion’s share of other taxes, such as taxes on income. Even with that, however, a city’s taxing ability is severely circumscribed by Virginia’s embrace of the Dillon rule, which essentially prevents any kind of municipal initiative that isn’t explicitly allowed by state law. The result is a rigid set of constraints that strangle innovation.

That’s too bad, because the way real estate taxes currently function has at least two hugely deleterious effects. One, as briefly explored in my post Sunday, is as a brake on Staunton’s ability to raise sufficient revenue to fix aging municipal infrastructure before it becomes unserviceable. The second is the way real estate taxes contribute to housing blight while simultaneously raising housing prices overall, making a significant contribution to the affordable housing crisis we’re currently experiencing.

To understand why that is, take a minute to consider how property taxes work. The rationale behind them is that the bulk of city services—roads, sewers, waterlines, fire protection and, to a significant extent, police protection—go to property, not people. And as the value of property rises, so too does the value of the services it receives, so the tax should increase accordingly. That seems straightforward enough, but here’s the question that tends to be overlooked: why does a property’s value increase?

Why, for example, does property in an urban core get valued more highly than in agricultural areas? As should be readily evident, a parcel’s value is highly dependent on what’s around it. You can buy a larger house on more land in a rural part of Augusta County for the same price you’ll pay for a smaller home on much less land in Newtown, largely because of the latter’s proximity to downtown and Gypsy Hill Park. Ready accessibility to shopping, recreation and cultural pursuits is worth a lot, as is not having to foot the bill for maintaining a well and septic system. A significant portion of land value, in other words, is collectively and publicly created.

Meanwhile, the value of what’s on that land also goes up as improvements are made, be it an addition, a renovated kitchen or bathrooms, new windows and doors or a new roof. As a result, the owner of a well-maintained home pays more tax than the owner of a poorly maintained house across the street, even though the city’s cost of maintaining a paved road and the utilities between them remains unchanged. In purely economic terms, therefore, a real estate tax provides a negative inducement for improving one’s property. A slumlord who neglects his property because he views it in cash-flow terms, not as a home that is building generational wealth, nevertheless profits from the improvements made by surrounding homeowners, who by their stewardship raise the value of all the properties in the area.

But that’s not all. When housing is in short supply, as is true in Staunton and most cities today, cheaper homes will appreciate faster than more expensive homes because of increased pricing pressure caused by unmet demand. In simple terms, a million-dollar home may appreciate only a couple of percentage points from one year to the next, while a home that a few years ago may have gone on the market for $150,000 will be listed today for nearly twice that amount, as anyone following Staunton’s real estate listings can attest.  That makes real estate taxes extraordinarily regressive, with low-income people getting priced out of homes they can no longer afford because their market value has gone up even as their actual value, measured by their physical condition, has deteriorated.

For numbers nerds eager to explore this subject more deeply, the University of Chicago’s property tax project provides a granular analysis of the subject nationally, with a look at Staunton’s 2023 property tax rates and their regressivity available here. This is truly wonky territory, but the bottom line is this: Staunton three years ago ranked as the 45th least regressive of the 131 Virginia cities and counties in the project’s sample, as its home values were above average nationwide and regressivity levels were in the bottom quartile. So compared to others, Staunton has been fairer than most.  

That’s the good news. The bad news is that the data is three years old, and since then the city has seen a 14.45% increase in the median residential assessment. More to the point, pressure on the city to raise revenue is only going to increase as its infrastructure demands keep growing, but hiking real estate taxes—the one significant revenue source over which the city has any control—would fall most heavily on those who can afford it least. Is there no escape?

TO BE SURE, there are a few workarounds Virginia has made available to taxing localities, chiefly in the form of tax exemptions for low-income homeowners. But that approach, while individually helpful, must be seen as a limited patchwork that only underscores how unevenly real estate taxes are applied and doesn’t solve the bigger problem.

One theoretical, if politically unlikely, solution would be to make real estate taxes explicitly progressive, in the same way that income is taxed progressively—those who make more get taxed at a higher rate. Under that approach, homes appraised below a certain level would be taxed very little or not at all, while higher appraisals would be taxed at progressively higher rates. Instead of the current rate of 91 cents per $100 of assessed value, for example, Staunton could have a rate of 85 cents per hundred for homes assessed below the current median value of $251,240, then increase the rate by 5 cents for every additional $50,000 in assessed value, to a maximum of $1.35 per hundred dollars for homes assessed at $750,000 or more. Which, as it happens, is the tax rate in Alexandria, which is no stranger to homes in that price range.

Yet another approach, and one with some academic credentials, is to tax land but not the improvements—or as summarized by conservative economist Milton Friedman (yes, yet another University of Chicago reference point), “the least bad tax is the property tax on the unimproved value of land.” That would at least eliminate the tax disincentive for investing in one’s property, even if it would not address the underlying problem of speculators benefiting from their neighbors’ investments.  Moreover, a land value tax (LVT) instead of the common real estate tax would be a huge deal for small land developers and builders, who don’t have the political muscle to push for tax abatements or other incentives. That could make a major difference for a city like Staunton that is trying to incentivize in-fill projects.

The curious thing about our current real estate taxes is that we already assess land and any improvements on it separately—but then combine the two into one assessment to which a single tax rate is applied. Theoretically, then, it would be a simple matter to separate the two and tax land at a higher rate, determined by its development potential, while dramatically reducing the tax rate on improvements that have already been made. Theoretically. Whether that’s even possible under the state’s Dillon rule is, however, questionable.

None of the exposition above will make any difference this Thursday, when the city council will be formally presented with next year’s budget. But it should prompt our elected officials and their administration to question what the city can do long-term to ensure adequate funding of our infrastructure while also protecting our most economically precarious residents, because without that discussion we’ll just find ourselves in the same bind—but worse—a year from now, and for many years after that.  That could mean pursuing one of the ideas above. It could mean something entirely different. Whatever it is, however, the real estate tax should be a leading candidate for reform, even if that requires an assault on the Dillon rule.   

There’s thrifty—and there’s cheap

(Reading time: 6 minutes)

It’s crunch time for Staunton’s budget decision-makers, and for anyone looking at the big picture, it doesn’t look good.

Last year’s budget came with a 2-cent increase in the real estate tax rate, but even that small bump prompted some push-back from city council member Jeff Overholtzer, who worried about its impact on lower-income homeowners. So this year, perhaps wanting to avoid stiffer resistance, city manager Leslie Beauregard is holding the line on requesting a tax increase (well, except for a 10-cent-a-pack increase on cigarette sales taxes) and instead is looking to hike water, sewer and refuse fees. The proposed fee increases will raise the average household bill an estimated $7.41 a month.

That doesn’t come close to what’s actually needed, guaranteeing a much more expensive reckoning down the road.

To understand the financial sinkhole lying in front of us, it helps to think of Staunton as a 100-year-old house. It’s got great bones and period architectural details, but a lot of crucial maintenance has been deferred and it’s starting to show. With an actual house, that might mean a roof that’s been leaking long enough to create a mold problem, or plumbing that gets stressed every time the ancient furnace kicks in. With a city like Staunton, it means corroding water and sewer lines. A smart home-buyer who acquires such a vintage Victorian will budget anywhere from 5% to 10% of his purchase price, annually, to address the issues he’s inherited. Staunton, by contrast, puts aside just 1.8% of general fund revenues for its capital improvement plan (CIP).

Much of the CIP, it should be noted, goes not for maintenance of existing infrastructure but for expanding what’s already there, such as the $10 million projected for extension of water and sewer lines to Uniontown. But maintenance is hellishly expensive. Replacement of the existing water mains along Richmond Avenue, from Frontier Drive to Greenville Avenue, is expected to cost more than $13 million. Upgrading of existing sewer lines will cost an estimated $7.5 million. And replacing the 16” mains that bring water into the city, now a hundred years old, will cost $42 million or so—$42 million that is carried in the budget as an “unfunded” expense. Which is to say, no one has figured out yet where that money will come from.

The $42 million “unfunded” expense aside, it’s not the least bit clear how Staunton will pay for any of the other infrastructure repairs just mentioned, nor additional millions in other needed maintenance. As the city manager forthrightly acknowledges, existing capital fund balances and projected inflows won’t come close to covering projected costs. Indeed, the fund used to pay for Staunton’s share of the regional landfill is “in danger of becoming insolvent,” while three needed positions in the public works department to properly service water and sewer operations have been frozen since 2023. (Although if they were ever thawed, good luck finding decent job applicants for a starting wage of just $17.37 an hour.)

Okay. That’s the expense side of the books. What about the income side? Why doesn’t Staunton have the income it needs to meet its expenses?

Part of the problem is that the city has a history of presenting itself as a low-tax, affordable place to live, unburdened by the socialist pretensions of its bigger brethren, which is why Staunton is so far behind the eight ball in addressing its housing needs. Almost half of its revenue is from general property taxes, but despite some city residents feeling they’re already over-taxed, Staunton’s property tax rates—91 cents for real estate, $2.90 for personal property—are among the lowest of all of Virginia’s 38 cities. At the end of 2024, for example, Lexington had rates of 92 cents and $4.25, respectively, while Harrisonburg was at $1.10 and $3.45, and Winchester was at 83 cents and $4.80. Waynesboro, meanwhile, raised its real estate tax to 89 cents (from 77 cents!) at the same time Staunton bumped up its rate, but had a personal property tax rate of $3.25. Only five Virginia cities had lower personal property tax rates than Staunton last year, and until last year, only seven of them had lower real estate tax rates.

So purely on a comparative basis, Staunton has room to increase its property taxes, no matter how worrisome that may be for some. But Staunton is further hobbled by another conceit, which is not only that it’s a low-tax haven but that its utilities are self-supporting enterprises like those found in the private sector, such as Dominion Power or Columbia Gas. Indeed, as explained to city council in a presentation March 12, Staunton’s water, sewer and trash collection services are supposedly supported by user fees, not local tax dollars. “Revenues must be sufficient to operate the system and invest in infrastructure without relying on general tax dollars,” according to Staunton’s chief financial officer, Jessie Moyers.

Except, of course, that they’re obviously not.

A small but growing number of Staunton residents are waking up to the crisis that is building up around them, with the recently released 2026 American Community Survey showing a 9% decrease in public perception of “the overall quality of utility infrastructure,” matched by a 9% increase in respondents wanting to see the city give the issue a higher priority. But that concern is scarcely touched by the budget proposal now under consideration. While leaving the general fund and its CIP untouched, the 2027 budget nibbles around the edges of the infrastructure problem by proposing utility fee increases that will raise just $517,000 a year in additional revenue from water and sewer customers. At that rate, Staunton will accumulate enough money to replace those 16” mains by the year . . . 2107.

Not only do the proposed fee increases fall far short of what’s needed to maintain infrastructure without relying on tax dollars, but they’re so timid that if adopted, Staunton would still have the lowest utility rates around. A Staunton household using 9,000 gallons over two months, for example, would have a water bill of $48.72, compared to $73.81 for a Waynesboro household and $76.53 in Augusta County. Similarly, the Staunton bill for 9,000 gallons of sewage would run to $67.20, compared with $119.20 in Waynesboro and $121.02 in the county.

Everybody loves a good bargain, but these are illusory savings—the equivalent of eating your seed corn.  Whether the city council understands it’s being asked to kick a fiscal can down the road, with even more dire news awaiting future council members, may be evident this Thursday at city hall: the city council work session (open to the public) starts at 5:30 p.m. and will be followed by the regular meeting at 7 p.m. The 2027 budget and the proposed fee increases are on the agenda.

Next up: is there any way for cities to break out of their fiscal strait-jackets?