When the Richmond City Council was finalizing the city’s latest budget this spring, members repeatedly asked questions about whether all the money the city collects was showing up in the numbers.

Getting a firm grasp on how much revenue the city has, Council members suggested, is particularly important during budget review. Under a strong mayor form of government, that’s when the city’s legislative body has the most power to decide how tax dollars are spent.

“Once we’ve adopted the budget, we’re out of the game,” Councilor Ellen Robertson (6th District) said at one meeting.

Three days after the Council closed the books on the budget, Mayor Danny Avula’s administration announced the city would be getting millions of dollars in previously uncollected revenue by fixing a tax issue with short-term rentals. 

The money wasn’t disclosed to the Council during budget season, which meant there was no opportunity for the legislative body to ask questions or try to formally add it to the budget as members searched for more revenue to make their math work.

The extra money from rentals on platforms like Airbnb and VRBO added up to $5.6 million in delinquent taxes and penalties, according to the city. That amount included $4.3 million in overdue taxes, plus about $1.3 million in interest, penalties and fees. 

According to a city spokesperson, the administration collected the $5.6 million on May 5, almost a week before the Council’s May 11 budget vote.

Resolving the non-compliance issue, the city said, will also mean another $2 million in annual recurring revenue going forward.The new budget that takes effect July 1 projects only $351,554 in short-term rental taxes for fiscal year 2027.

When asked why the issue was revealed a few days after the Council’s budget vote and not when the budget was still open, a city spokesperson said the money wouldn’t have been available to spend immediately, because lodging taxes first go to the Greater Richmond Convention Center Authority (GRCCA) before excess amounts are returned to the city.

Similarly, the city said the $2 million in recurring revenue that was announced won’t happen in the budget year set to begin in a few weeks. Instead, it’s expected to start coming in for the fiscal year that starts next summer.

While the announcement showed progress in the city’s efforts to more aggressively collect unpaid taxes, the timing also raised eyebrows for some Council members pushing for clearer insight into how the city collects and spends money.

“We have to do a better job collectively about being transparent about what is coming into our coffers, even if it’s not in the projected revenue,” Councilor Stephanie Lynch (5th District) said in an interview.

Short-term rental companies are supposed to collect an 8% lodging tax and submit the money to local governments on a monthly basis. 

Richmond officials have said the city wasn’t getting the full amount owed, but haven’t clarified exactly why the taxes weren’t being collected before and who paid the $5.6 million to clear the overdue balance. Instead, the city has repeatedly pointed to confidentiality laws that protect taxpayer information from public disclosure.

Where the money will ultimately end up is also unclear.

Municipal budgeting is always reliant on projecting how much tax revenue might be available before the city actually has it in hand. But lodging taxes are particularly complicated.

Under the terms of a regional agreement, hotel and other lodging taxes first go to the authority that oversees the convention center to help attract more visitors and conferences to the Richmond area. When revenues exceed what the GRCCA needs, local governments receive money back in the form of rebate payments.

“The city does not currently retain or control the funds; rather, we identified it through collections, and it will go to GRCCA, who coordinates the total collections from localities and calculates final rebate amounts,” Avula spokesperson Mira Signer said when asked why the issue wasn’t mentioned during budget season. “Eventually a portion would be rebated back to the city and could be appropriated through the standard budget process or an amendment.”

Shortly after the city announced the extra revenue on May 14,  Henrico County official Brandon Hinton — who serves as GRCCA’s finance chair — said the city should eventually get back the full $4.3 million in unpaid taxes because Richmond had already covered its contractual share of GRCCA’s costs.

The city should receive that rebate at some point after the current fiscal year ends, and the timing means the Avula administration will likely have the first shot at proposing how it’s spent. Under the city charter, the Council can propose amendments to the mayor’s spending plan during the normal budget process. But mid-year amendments to spend excess money can happen “only upon the recommendation of the mayor.”

Most local tax dollars go into the city’s $1.1 billion general fund, which pays for the routine operations of city government. Adding a few extra million into the pot wouldn’t be a hugely substantial increase. 

However, the Council often only makes a few million dollars’ worth of amendments each year. That means the discovery of even small amounts of unallocated money can help Council members fund more of that they want while keeping the budget balanced.

During this year’s budget process, Councilor Nicole Jones (9th District) voiced frustration after it became clear there would be no money to fund her request for a $1.5 million splash pad at Southside’s Broad Rock Sports Complex.

In an interview, Jones said she doesn’t see the short-term rental issue as the administration intentionally keeping the Council in the dark about how much money it has. But, she said, it shows the process could be improved through better planning.

“When the money comes afterward, it’s like ‘Oh, we could’ve had it for this,’” Jones said.

Though local officials largely avoided service cuts this year, the exception was the elimination of the Richmond Virtual Academy, an online school removed from the Richmond Public Schools budget due to a lack of funding. The academy is set to close despite pleas from parents who said the online option was a lifeline for students seeking an alternative to in-person school due to learning disabilities or being bullied.

The annual cost of the virtual academy — which both School Board and Council members said they would’ve liked to keep if the money could be found — was estimated at $3.2 million, less than the amount the city could be taking in soon from overdue short-term rental taxes.

Even before the city resolved the tax compliance issue, short-term rental revenues were coming in well ahead of what the city projected for the budget year that’s coming to a close.

As of the end of April, short-term rental tax revenue was just over $350,000 for the fiscal year, or about 319% of the roughly $110,000 projected in the budget.

Contact Reporter Graham Moomaw at gmoomaw@richmonder.org