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The City of Fairfax is moving ahead with an arrangement that will allow the city to collect its full share of transportation funds without increasing taxes.

Last year’s state transportation bill imposed new local taxes and fees for Northern Virginia, including a new local sales tax. Seventy percent of the new revenues are designated for regional projects, as selected by the Northern Virginia Transportation Authority, and the other 30 percent is to be distributed to the individual jurisdictions to spend on transportation projects of their choice.

In order to receive their full share of those funds, however, localities must first maximize their commercial and industrial tax, a funding mechanism the General Assembly approved several years ago to allow localities to raise money for transportation projects by taxing commercial properties. The maximum rate is 12.5 cents per $100 of assessed value.

The City of Fairfax’s current commercial and industrial tax rate is 5.5 cents per $100 of value, and the City Council has been reluctant to increase the tax. It is the only Northern Virginia jurisdiction that has not already maxed out its commercial and industrial tax rate.

“The debate we had last year was whether it was really worth it,” said Mayor Scott Silverthorne.

City and NVTA staff have now worked out an alternative solution for the current fiscal years, which the City Council endorsed during a Tuesday work session.

The city will use some of the proceeds from the sale of its water system to Fairfax Water to make up the difference in its commercial and industrial tax fund for fiscal 2014, allowing it to collect its full share of the NVTA transportation funds without increasing the tax rate.

For a $1.2 million annual investment in the fund, the city will get an additional $1.3 million from NVTA, said David Hodgkins, the city’s finance director.

The city could use water fund proceeds in this manner again for fiscal 2015, Hodgkins said. Council members acknowledged that they ultimately will have to consider raising the commercial and industrial tax rate.

“The reality of what the GA has done is forced jurisdictions to impose the maximum tax on businesses … to fund what I don’t believe had been adequately funded by Richmond,” said Councilman Steve Stombres, a longtime opponent of the commercial tax. While acknowledging that the council will likely be forced to increase the tax in the end, Stombres said he believes the lower tax rate in the city has helped it attract businesses.

“It’s a real challenge to have the thriving economy that we want to have in the city,” he said.

kschumitz@fairfaxtimes.com