How Cutting the Common Goods Fee Was An Efficient Way To Provide Tax Relief To Lynchburg Homeowners

Michael A. Gillette, Ph.D.,  Ward I Representative to City Council

During the 2007 budget deliberations, Council recognized a need to provide tax relief to its citizens in response to increased property assessments. While Council did provide a cut to the tax rate, Dr. Gillette initiated and successfully carried forward an effort to extend financial benefit in an efficient way that delivered maximal tax relief to those in greatest need. This was done while also achieving efficiencies that significantly reduced lost revenues to the City, saving the City nearly $1,000,000.00 per year.

According to the City Assessor’s office, the total 2006 assessed property value in the City was $3,607,993,735.00. Therefore, for every five cents per hundred dollars in value that Council cut the property tax rate, lost revenue to the City would have been $1,803,996.00. The value of a five cent tax rate reduction to a citizen owning an average valued home in Lynchburg was $44.24 in 2006[1]. However, the Common Goods Fee cost each homeowner approximately $55.00 per year. Therefore, by eliminating the Common Goods Fee rather than cutting the tax rate by five cents, Council could produce the equivalent of a better than five penny reduction in the tax rate for the average homeowner in Lynchburg.

Because The Common Goods Fee is collected strictly from homeowners, it only generated approximately $840,000.00 per year for the general fund (FY 2009 Budget Message). Therefore, by cutting the Common Goods Fee rather than reducing the tax rate by five cents, the City maintained nearly $1,000,000.00 more in annual revenue ($1.8 million in lost revenue from a tax rate cut versus only $840K in lost revenue from eliminating the Common Goods Fee). Furthermore, the elimination of the Common Goods Fee benefited those in greatest need most, as a tax cut for those in homes of lesser value is worth substantially less than the $55.00 fee.

In summary, the plan to cut the Common Goods Fee, in addition to the reduction in the property tax rate that Council adopted, generated a savings to the average homeowner that was worth more than five cents off his/her tax rate, at a cost to the City of less than half an equivalent tax rate cut. Dr. Gillette’s plan targeted tax relief to those who needed it most and saved the City nearly $1,000,000.00 by reducing lost revenue. That savings in lost revenue will recur year after year.