Avula administration says deferral program would cost city millions, require 20 new Finance staffers

Mayor Danny Avula’s administration is opposing a proposal to create a tax deferral program, saying it would require the Finance Department to hire 20 new analysts for an effort that it doesn’t consider to be “true” tax relief.

Furthermore, said Ken Martinez, the city’s director of revenue administration, “we don’t feel this is really a core function of the Department of Finance.”

“We collect on all the taxes that we have here,” he told the City Council’s Finance and Economic Development Committee April 16. “That’s a complicated process, and we frankly don’t have enough folks here now to be able to adequately do the things we need to do now.”

Four city councilors have backed the proposal from Councilwoman Sarah Abubaker (4th District) to create a program that would allow some Richmonders to defer payment of part of their real estate taxes if their bill is more than 105% of what they paid in the prior year.

Abubaker has acknowledged that the proposal doesn’t forgive taxes, instead requiring property owners to pay them back at a future time along with 2% annual interest. But she has argued that without any other proposals on the table to relieve residents who have seen their home assessments spike but are neither elderly nor disabled — two categories of resident who do have access to relief — the city should move forward with her plan.

“I cannot continue to stress enough that we have to do something for the citizens of Richmond,” she said.

Abubaker and Councilor Stephanie Lynch (5th District) have also questioned the Avula administration’s calculations of how much a deferral program would cost.

Martinez has estimated it would require between $1.7 and $3.3 million for staffing, in addition to the costs of new software systems the city would need to set up to calculate and track liens associated with deferrals. The technology, he said in a memo, would likely cost anywhere from $300,000 to $1 million upfront, with recurring annual costs of $150,000 to half a million.

“We don’t really have systems that calculate and track liens and releases, and we don’t monitor real estate sales,” he told the Finance Committee.

The $1.7 million estimate — which would cover the hiring of 20 new Finance Department management analysts for the program, to supplement the 20 who currently work for the department — “sounds pretty high for a program like this,” said Lynch during the April 16 meeting.

Still, the Avula administration has been adamant that it believes the proposal would require major resources.

“I would not agree that it is a small program,” said Martinez.

How the deferral program would work

Under Abubaker’s ordinance, the property owner could only defer payment on amounts above the 105% threshold, meaning that if they paid $1,000 in taxes the prior year and were charged $1,200 in the current year, they could put off payment of $150.

Deferred amounts would also be capped: Over the course of their lifetime, a property owner could owe no more than $50,000 in deferred taxes and interest on a single property.

To participate, owners would have to occupy the home as their “sole dwelling,” not be delinquent on any of their tax payments and not be participating in any other relief programs. The property would also have to have an assessed value that was less than or equal to 200% of Richmond’s median assessed value for residential property — about $650,000 this year.

Repayment of the deferred amounts could occur at any time but would be mandatory before any future transfer or sale of the property. And as long as money was still owed, the city would place a lien on the home.

Like other tax programs offered by the city, the deferral would be optional.

Abubaker has said she believes it’s particularly important for Richmond to extend the tool to residents ahead of expected assessment spikes following the end of a freeze the city has put in place this year.

After the freeze, “many residents will see double-digit increases in their tax bills — costs they simply cannot absorb overnight,” she said in an April 13 memo to the administration.

Estimating sign-ups

It is when it comes to estimating how many people are likely to sign up for the program and how much it would cost that Abubaker and the Avula administration disagree.

Abubaker has predicted more limited financial impacts. Council analysts estimated the price of administering the program could be partially or fully covered by the interest assessed on the deferrals, with the city facing anywhere from $391,000 to $1.56 million annually in temporarily foregone real estate tax revenues.

Finance Department estimates dwarf those. Besides the staffing figures Martinez presented, the administration has said that annual deferred revenues could range from $700,000 to $2.1 million.

Much of the disagreement appears to stem from different assumptions about how many people are likely to participate.

The Avula administration believes anywhere from 6,000 to 12,000 properties would sign up for deferrals. Those figures stem from Martinez’s calculation that about 25,000 properties would meet the assessment and tax increase criteria and the assumption that a quarter to half of them would opt to place a lien on their property to obtain the deferral.

Abubaker has argued those figures are unreasonable. In an April 13 memo, she maintained that the pool of potential properties would actually be much lower, closer to 10,000 homes, due to the program’s owner occupancy requirement.

Census Bureau data report that “fewer than half of the homes in the City of Richmond are owner occupied, which has significant implications for program eligibility and participation — implications that do not appear to be factored into the administration’s analysis,” she wrote.

For residents, however, one of the most critical factors in deciding whether to take a deferral will likely be whether they are willing to have the city place a lien on their property — a feature that has received little discussion.

No other local governments in Virginia currently offer a tax deferral program for all residents, making direct comparisons difficult.

“Empirical data is unavailable,” wrote Martinez in an April 22 memo to the City Council that attempted to clarify his calculations.

Other localities that have, however, experimented with deferral programs for people who are elderly or disabled have reported low levels of participation.

When Fairfax County offered the option to those groups in the 1980s, the largest number to ever sign up was 38, a level officials attributed to residents’ reluctance to encumber their estate with debt. The county subsequently canceled the program.

Information gathered by Fairfax on deferral programs in the region in 2021 listed 25 participants in Alexandria, 64 in Arlington, 13 in Manassas and seven in Falls Church.

The Avula administration told The Richmonder that in estimating costs, it had looked at “similar local programs” like Richmond’s Older Adults and Persons with Disabilities (OAPD) program and the Gap Grant initiative.

OADP offers up to 100% real estate tax exemptions or freezes to qualified people who are 65 or older or totally disabled, while the Gap Grant program offered one-time grants of up to $1,200 to help Richmonders with their housing bills. Both set income restrictions to participate. Neither involves liens.

Mira Signer, a spokesperson for the mayor, said that last year, OADP served 2,292 households. The Gap Grant program, which has now been discontinued, served 610 people.

Staffing

Because the Finance Department believes thousands more people would sign up for deferrals, it has calculated that it would need another 20 to 40 management analyst positions.

Currently, the department employs 16 associate analysts, two principal analysts and two senior analysts.

Martinez said he arrived at the staffing figures by estimating it would take between four and six hours to review and process each application, based on the city’s experience with OADP and the Gap Grant program and information from Alexandria and Virginia Beach on tax exemption programs those cities run.

Abubaker has also disagreed with that conclusion, noting that those programs require far more extensive documentation, including banking, stock, bond and mutual fund statements and proof of any income or disability.

The deferral program “was specifically designed so that Finance has this information. We are only asking for assessed value of the home and owner occupancy and any delinquency,” she said. “Those are things that not only live in City Hall, but live in the Department of Finance.”

Council’s Finance Committee will take up the proposal again at its May 20 meeting.

Contact Reporter Sarah Vogelsong at svogelsong@richmonder.org