In a meeting about how to help build affordable housing in Falls Church, one potential solution proposed was increasing the meals tax by 1%.
Meals tax increases have been a go-to solution for finding more funding for affordable housing in neighboring jurisdictions like Arlington County. Meals tax increases are frequently contentious even in the best of times, but the Falls Church City Council noted that these are far from the best of times.
Representatives from the hired consultants National Housing Trust and Federal City Council offered 11 recommendations in what they described as a tool box in a City Council work session on Monday. A meals tax was only one of those suggestions, but one most likely to turn heads, as restaurants in the area face devastating losses in revenue.
The consultants argued that increasing the meals tax by 1%, from 4% to 5%, would bring Falls Church in line with the meals tax in other parts of the region and would generate $800,000 for the affordable housing fund annually.
According to the report:
A meals tax is levied on prepared food purchased for consumption at a restaurant or taken to-go. Falls Church already has a meals tax of 4%, which generated over $3 million in revenue annually from 2017-2019 . Currently, all the funds generated by the meals tax are directed into the City’s General Fund. To provide a dedicated and consistent revenue source for the Affordable Housing Fund, Falls Church should consider increasing the Meals Tax to 5%, dedicating the additional 1% in tax revenue to the Affordable Housing Fund. This would represent a much-needed consistent revenue source for the AHF and would generate approximately $800,000 annually for the Fund.
A 5% meals tax is in line with what is levied by other jurisdictions in the area. In the Commonwealth of Virginia, the median meals tax rate is 6%. While neighboring jurisdictions Arlington and Fairfax County currently levy a 4% meals tax, as of 2016, 108 localities in the Commonwealth have instituted a meals tax that is higher than 4%.
The report notes that Alexandria’s meals tax increase was aimed squarely at raising funding for affordable housing, though the report also acknowledged that recent factors could make the proposal untenable in the near term.
The consultants recognize that restaurants nationwide are struggling to survive on reduced revenue caused by COVID-19, and the subsequent limits and restrictions on service that have been imposed to stop the spread of the virus. An increase in the tax at this time could potentially discourage the purchase of food from restaurants at a time when restaurants are operating on extremely thin margins. The implementation of this recommendation should be considered in the long-term, once the restaurant and hospitality industry is under less financial pressure.
City Council member Letty Hardi struck down the idea as soon as the discussion was turned back over to the City Council.
“In regular times I’d be a fan of looking at things like the meals tax or carving funding out of the general fund,” Hardi said, “but I think neither of those would fly currently given how much suffering there is in the community.”
One proposed source of funding that sat better with the City Council was dipping into Amazon REACH Funds — a $75 million funding commitment to support affordable housing in the area and avoid the affordable housing loss associated with the tech giant elsewhere.
“The City of Falls Church should take the opportunity to engage with local housing development owners whose projects are eligible and are able to access the funds to increase housing affordability in the City,” the report said. “The final deadline for a project application is June 15, 2021.”
Maura Brophy, director of transportation and infrastructure for Federal City Council, also said that promoting accessory dwelling units can have a meaningful impact on housing affordability by increasing the supply, but without other interventions and requirements, there’s no guarantee that the accessory dwelling units would be affordable.
“If we can access all $3 million, that will allow us to buy down 60 units for about ten years, and that’s way more than we can produce in a year as-is,” Hardi said. “That feels like we should put pedal to the meddle and go after that free money.”