The Charlottesville City Council adopted rates for the city’s three public utilities for the coming fiscal year last month, and the numbers weren’t dire: Water and wastewater rates are up, but they’re offset by a slight drop in gas prices.
But two Councilors still aren’t content. Dave Norris and Dede Smith say two fees that amount to taxes are chipping away at Charlottesville’s affordability: The new stormwater utility fee adopted earlier this year, and an under-the-radar component of residents’ regular utility bills called payments in lieu of taxes, or PILOTs.
The stormwater fee had been discussed for years before Council approved it in February. For every 500 square feet of impervious surface—the footprint of a building, for instance, or a paved driveway—property owners will pay $1.20 per month. “A typical homeowner will be paying under $100 per year,” said City Environmental Administrator Kristel Riddervold.
While it may not amount to a huge financial burden, Norris thinks it’s out of proportion to the benefits it provides. “This Council went with the Cadillac plan,” he said, increasing the stormwater fund by 270 percent in a year, when it could have continued paying for upgrades out of the general fund. The new fee structure also creates multiple new staff positions, making it a “bureaucracy-heavy approach,” Norris said.
It also could get costly for some nonprofits with big building footprints and parking lots, including churches. First Baptist Church of Charlottesville, for instance, is anticipating an annual fee of nearly $8,000. Local religious leaders were among the most vocal opponents to the new fee.
But as Norris points out, that policy ship has sailed. City residents will start being billed twice annually next year.
PILOTs have been around much longer. Just how long Charlottesville has collected them is unclear, but Bernard Wray, the city’s director of finance, said they’ve been a general-fund line item since at least 1986.
For water and sewer, the payments amount to 6 percent of the previous year’s sales for each utility, Wray said. For gas, the formula is a bit more complicated—it’s linked to expenses and takes into account the fluctuating cost of gas. But in both cases, the numbers are set by the city government. How much the city collects in PILOTS, and whether the payments exist at all, is up to the City Council.
It’s not chump change. Charlottesville utilities will pay a total of $5.3 million into the city’s general fund this fiscal year. PILOTs make up $4.5 million of that (the rest is to cover what are known as “indirect costs,” or various administrative services provided to the utilities by the city; these costs are lumped into the PILOT line item in the budget, making it hard to tease the two apart). The PILOT amount translates to just over 3 percent of the city’s general fund revenues. By comparison, public utilities in Richmond, which saw prolonged debate over PILOTs when officials raised already high utility rates there last month, provide 2.8 percent of general fund revenues.
And that percentage appears to be going up. While real estate tax, personal property tax, and sales and use tax revenues have all declined as percentages of the city’s total general fund revenues in the past five years, the percentage paid by utilities—and ultimately their customers, as the PILOT is built into utility rates—has increased.
“Most of it is just simply profit,” said Smith, despite the fact that the city’s utilities are described in the Comprehensive Plan as break-even entities. And if you look at PILOTs like taxes, which Smith insists they are, they’re regressive, meaning they disproportionately impact lower-income residents. They penalize people who don’t have the resources to lower their rates by buying costly energy- and water-efficient appliances, Smith said, even with local rebate incentives, “and I just think that’s wrong.”
So what’s a city with failing stormwater infrastructure and no room for a 3 percent cut in revenues to do? During last month’s public hearing on the new utility rates, Smith offered one idea for easing the newly hiked fee burden on residents: Eliminate PILOTs on water, which would put about $1.1 million back into residents’ pockets—not quite as much as is taken out by the more equitable stormwater utility fee, she said.
“It’s kind of a trade,” she said.
Norris said the solution might not be so simple. UVA pays a big portion of the utility PILOTs the city takes in, he said, so phasing them out would essentially mean giving the University a big break, “and we don’t need to be cutting their taxes.” Better to have avoided the new stormwater fee altogether, he said.
But there are strong arguments for both revenue streams, city staff said. Riddervold has been advocating for a stormwater utility fee since 2008, and said the new funding structure equitably covers the cost of upgrades the city is going to have to make sooner or later. It’s crucial to have a dedicated funding stream for the utility, she said, because that allows for long-term planning. We all use infrastructure, said Riddervold, and we all have to pay for it.
“Everybody relies on passable roads and safe drainage, whether you’re a nonprofit, a home, or a business,” she said.
As for the PILOTs, Wray pointed out that their financial impact on utility customers is relatively small—PILOT fees amount to $1.52 of the average residential water bill of $24, for instance. And the fees help keep other taxes in check, he said. A $4.5 million hole in the general fund would have to be filled one way or another. Scrap one revenue source, “and you solve one issue and create another,” Wray said.
But such less-than-obvious housing costs add up, said Norris, and can make the difference between being able to afford to live in Charlottesville and having to leave.
“I’m very concerned about how these gradual increases in utility rates and the new stormwater tax are putting a real strain on middle-class families, particularly those on fixed incomes,” he said. “We’re seeing people get priced out of the city.”
Ultimately, said Smith, it’s up to the city to crunch the numbers more fairly. “‘Well, we’ve always done it this way’ isn’t a good enough reason,” she said.