City Council Special Meeting

Rachel McQuillenOkay, yes, because this morning the Board of Supervisors made some statements regarding their budget and the plans that they have for their budget, which does impact our budget as well, especially in relation to what we understand with their meals tax and what their real estate tax that they are adopting. So I would like to discuss this with counsel to understand if there is... I had written a statement that says I would respectfully ask that counsel consider the possibility of delaying the budget adoption. In the past, we heard from Mr. Sebelia that it would be possible to push it back for one week. I think I need some more clarification, maybe some more information about that. And then in light of the new budget information that came out this morning, I believe it would be prudent for us to have the opportunity to fully review and understand the potential implications of our budget in relation to the numbers that the Board of Supervisors have been discussing with their budget.

JC MartinezstaffSo what is being presented specifically is for the C&I tax. does not directly relate to the personal property tax the real estate tax or the meals tax this is a very specific area that is separated and segregated specifically for this additionally in the CNI tax it has to be restricted for transportation in addition we use this funding to help supplement and maximize NVTA 30% funding and also revenue share funding as well so I don't know how Fairfax County's actions today directly relates to this one specific item

JC Martinezstaffyou mayor council an additional two percent to the current four percent meals tax rate was proposed in the city managers FY 2026 budget the last change the meals tax occurred in 2004 when the rate was increased from two percent to four percent 21 years ago an increase to the meals tax is often seen as a way to reduce the financial burden on residents as it is also paid by visitors and non-residents helping to offset the need for higher real estate the proposed 2% increase was estimated to generate approximately 4.4 million dollars in additional revenue after thorough discussion and deliberation City Council expressed no appetite for changing the current meals tax rate the recommended motion formally affirms the decision to maintain the existing rate

Thomas PetersonWell, maybe to just check some numbers here, if you don't know off the top, just to put it in perspective, I know there's been a lot of sensitivity on the real estate side for the fact that assessments are growing and the base then that we apply a tax to is a base that has grown. If I'm not mistaken with meals, it's an even more extreme situation because the rate of increase in out-of-home meals purchases is running about 50 percent higher and forecasted to run about 50 percent higher than inflation itself. So we've already into the cost basis here for the meals tax, a higher than normal inflationary rate, and that translates out to effectively about a 6% rate that we're applying effectively as

a consequence of the above norm inflation that's taking place. I just wanted to raise that because I know there's been a lot of sensitivity around the meals tax and the cost of it and I think there have been a lot of statements associated with it along the lines that people really wouldn't see and know that a meals tax has happened. We hear a very different story from the restaurateurs, for instance, who are experiencing this and I think part of it that I just wanted to raise so it could be acknowledged is we're dealing with a cost structure here that is growing faster than inflation and makes this a particularly sensitive area of taxation.

Anthony AmosCorrect. So the reasoning for that is since we pay meals tax, part of what was raised during this process was the inequities that restaurants pay taxes while other businesses don't. And so I just wanted to know if that was even a possibility, but it sounds like that would need to be in addition to getting the percent power that's granted to us as well.

Thomas PetersonIf I understand correctly, part of today's news that we've gotten is the probability that Fairfax County will establish a four-cent meals tax. So what that would mean would be for the first time if we also have a four-cent sales tax we've equalized. We've had a very long period of time where we've had just the opposite, a zero versus Now we're going to have four and four at the same time. So to wear my economist hat, it's a perfect opportunity to study the effect of this and see what effect equalization has on food purchases and income, et cetera. I hope there could be a plan to actually take a look at this so that we have a base of information here to guide us in the future in terms of the impacts of these meals and the disparities

Stacey Hardy-Chandlerwhat we collectively arrived at was a 2.5 percent increase with no meals tax increase. So just to reiterate, I'm not hearing factors that would persuade me to limit this process or delay this process any further. I also think that the public has been a part of this process. We owe it to them to move forward. We've done the work. extensive information it's time to move on

Catherine Readthink trying to get to a tax rate has largely been what this exercise is about and what the capacity is for people to accept whatever the tax rate is going to be set by the dais. What I think Mr. Foster is saying is if you have decided you're not going to raise the tax rate beyond 2.5%, that funds a certain budget. There is leeway. we've already identified the things that we've chosen to fund just like the county has like they're gonna they have said they're restoring certain programs because of what they have decided to do with their tax rates meals tax tot and their real estate tax you know for us we have funds that we could reallocate i believe i'm hearing mr foster correctly there are funds

Brian Fosterstaffin addition the county executives proposed budget it did not include the actual revenue from the proposed meals tax. He suggested that that be an option, but he did not include the revenue because they were not sure if that would be passed or not. So part of the offset that they have is from the meals tax that they are moving forward to implement.

Anthony Amosyeah I mean I was going to the county report this morning because I was waiting for the budget markup and just so you know traditionally especially with the board they they don't stray from it and so what it sounds like is winning a 4% meals tax in addition there's an initial dealer discount of 3%. And then you also have a decrease in the real estate tax by about, I think it was a quarter cent, 0.25. To follow up on earlier's point, you add in fact, you're in the meals tax and the meals tax in the city per cent, we get 2.2. What the counties do before, they get 67 million. In terms of cuts and reductions, the county actually didn't even get to a cent when it comes to cuts and reductions. They ended about, I believe they terminated 168 positions

yeah I am still a little confused so I mean my concerns, especially with, for example, what do schools come back with? What might the health and human service impact be? The federal impacts? A lot of that probably won't be answered before our budget, not only before we adopt a budget, but even when the fiscal year starts, which is often why, for example, the county, they do the third quarter carryover review, and we do something similar to kind of reassess where we are in the fall. So, I mean, we have more this. I'm just not seeing where we get to between now or May 13th or if we did it sooner. I mean, also trying to compare us to Fairfax County is a little difficult. Like, for example, we already had a 4% meals tax for two decades. They're just putting theirs in, and that's the

whole reason why they can even decrease the real estate tax was the meals tax. They're increasing the transient tax. We all discuss doing the same once we do a charter increase it. They have office budgets that they can take from. We don't. They took about almost $300,000 from their office budgets. It's just I'm not seeing where we get to a sufficient place that would justify deferring this decision and potentially scaring residents.