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Reducing the city's budget gap from nearly $2 million to $550,000 by raising taxes and rates had a handful of city residents and restaurant owners speaking out during Monday's budget hearing.
They told Galax City Council that they feared tax increases, especially the 1 percent meals tax hike, could do more harm than good.
The proposed 2009-10 general fund budget is $19.47 million, and the utility fund is $4.71 million. If the recommended budget is adopted, tax levies will include an increase in real estate tax from $0.55 to $0.57 per $100; a 26 cent raise in personal property tax to $1.68 per $100; a 3 percent increase to the lodging tax, from 2 to 5 percent; and a 1 percent hike in the meals tax, to 5 percent.
Residents could also see an increase in water and sewer rates, green fees for the Galax Municipal Golf Course and the cost of trash collection.
For Raymond Sage, owner of Galax restaurants West Galax Diner, County Line Cafe and The Dairy Bar, almost all the increases — water and sewer rates, sanitation costs, real estate and the meals taxes — aim straight at his pocket, he told city council.
Like the significant rise in the cost of cigarettes due to federal taxes has driven smokers to give up the habit, rising food costs may force people to quit dining out.
Even though times are tough, Sage said he wants to make sure all his hard-working employees keep their jobs. The city currently imposes a tax of 4 percent on prepared meals, and Galax was one of 15 localities in Virginia that had a rate of just 4 percent.
However, just this year, Sage's three businesses were down by 20-24 percent. With the city's proposed 5 percent meals tax — expected to generate $225,000 in annual revenue — Sage is concerned that restaurants may not be able to keep regulars and lure new customers, forcing them to go out of business.
"I understand that the city needs money to operate, and we have a good city, good fire department and good police department," he acknowledged.
Holding up a copy of The Gazette, Sage pointed out a statement made by City Manager Keith Holland. The article quotes Holland as saying he and council members believe that an increase of 1 cent on the meals tax will not hurt local restaurants since "much of this is generated from tourists."
"I beg to differ," said Sage, noting that most of his customers are local regulars. "Any tax will hurt the restaurants. With a 10 percent tax, [including the sales tax] we already have to explain why their meal is so high all the time when they ordered something for just $4."
Also budgeted is money for the Chestnut Creek School of the Arts, designed to create jobs for artisans and generate revenue through tuition, meals and lodging. City leaders expect this, along with other economic projects, to turn the local economy around.
In fact, “Economic and Community Development” makes up 13.7 percent of the total budget. Major accounts in this category include tourism, $136,109; art school renovations, $226,400; downtown revitalization, $371,700; and The Wired Road broadband project, $211,603.
Many of these expenses are being covered by grants, local matching funds and, in the art school's case, tuition fees.
"Tourism is a great thing down the road, but we need to step back from it and see what the economy is going to do," Sage suggested. "But will the art center help us today?
Tourism efforts such as the school "need to be tabled," he added. "We need to get industries in here. You can't continue to ride the existing businesses."
Sage pleaded with council to find other ways to modify the budget. He suggested that the personal property tax be raised, instead.
Stu Frazier, owner of Bogeys Restaurant in Galax, had the same concerns as Sage.
Frazier opened Bogeys in 2005, and noted that Bogeys has become a destination restaurant, bringing in tourists and regulars from North Carolina.
But since 2005, business has fallen off 28 percent. "With just [a 1 percent tax increase], it could hurt us in this down economy," he said. "I'm just trying to keep workers employed."
Jim Adams of the Galax School Board commended council's support of education. Adams owns several properties in Galax and supports the real estate tax increase.
"The city does so many things," he told council, noting the renovations made to Galax High School and services offered at the Galax Recreation Center. "We get a value from real estate taxes, and I will gladly pay that if you had to go up."
However, raising the meals tax could mean tourists will eat one less meal. "We need to do everything we can to ensure these restaurants' survival and encourage others to open restaurants."
Adams suggested a meals tax holiday, one month a year, possibly reducing the tax to 2 percent to entice more locals and tourists to spend their money in Galax restaurants.
Sage agreed with Adam's idea.
Scott Petersen, owner of A Place In Time Antique Mall in downtown Galax and president of the Galax Downtown Association, told council that any tax increase will put local businesses in jeopardy. These increases could close restaurants and even some downtown antique shops, he said, based on his experience as a store owner.
Peterson admitted that his business lost $12,000 a couple years ago and $11,000 last year.
"I can't keep bleeding," he said. "We need to find a better way."
Ruth Smythers of Galax told council that she lives on a fixed income and did not expect so many rate increases. She asked council to reconsider.
City council worked 20 hours to reduce the budget gap, not including department heads and the city manager working several hours to eliminate all the expenses and projects possible. "This has been the toughest budget year since I've been on council," Mayor C.M. Mitchell told those at the budget hearing. "We have some difficult decisions to make, and we will take your comments into consideration."
In addition to rate increases, capital improvements were cut, and city employees will not receive a salary increase this year.
Council Member Derrick Davis, owner of Stringbean Coffee Shop & Shamrock Tea Room in downtown Galax, and council members Bill Webb and Willie Greene, both former restaurant owners, sympathized with these business owners.
Davis admitted that he didn't know all that went into creating a city budget until he joined council, saying that these tax increases provide revenue for the city.
"It's a difficult decision and quite challenging," he said. "We appreciate that you invested time and money into your community, and we'll try to do our best to provide the maximum."