There are many conversations surrounding the cost of a new school and other critical capital improvement projects, and the resulting property tax increases, that center on the impact on housing affordability. Those concerns are valid. I’m very concerned about it, too.
In my July 11th Newsletter, I explained the concept of “equitable housing” and gave a few examples. The GWRC Study from 2020 (and I do hope you’ll read it) identifies 42 possible solutions that we might consider as we develop approaches that could make housing more affordable in Fredericksburg.
Today, we’ll delve into one recommendation from that study: “Promote and expand existing senior tax relief programs.”
This relates primarily to the concept of aging in place. Seniors and disabled folks often have a fixed income (pension plan, Social Security, or disability benefits). Many live in our community, and each month they make difficult decisions about what they can afford to spend on food, clothing, medications, and entertainment. Some of these folks might have significant savings that they don’t touch, such as stocks, bonds, or a 401(k): which they try not to deplete in case they need to go into assisted living or a nursing home later in life. An important part of equitable housing is finding ways to allow these folks to “age in place” given their fixed incomes, without exhausting their savings.
Fredericksburg has a tax relief program that exempts certain homeowners from paying all or a portion of their real estate taxes. It’s available to homeowners who are 65 or older, as well as folks who have a permanent and total disability. This program is authorized under Virginia law.
I recently met with Ms. Lois Jacob, our Commissioner of the Revenue, for a briefing on this program. Unfortunately, the program is underutilized, and we should ask ourselves why. The number of households participating in the program has been dropping steadily, from 133 in FY 2019 to just 80 in FY 2023.
There are at least five approaches we can pursue to expand this program (promoting more participation in the program is a related but separate matter):
· Increase the Annual Household Income limit (currently $50,000)
· Increase the Net Financial Worth limit (currently $300,000)
· Increase the Maximum Relief limit (currently $3,000)
· Increase the Percentage of the Exemption (currently varies from 60% to 100% of your tax bill)
· Be more creative in how we apply the above four approaches
Annual Household Income
Virginia law authorizes (but does NOT require) our program to have an annual income limitation. Currently, it’s $50,000 in our program. So, if your annual household income exceeds $50,000, you are not eligible for the program. It’s not just the income of the homeowner that counts, however. The $50,000 figure includes the income of other occupants, such as children, grandchildren, and other relatives who live with the homeowner. To put this in perspective, if your annual household income is $50,000, and your monthly housing cost (including utilities) exceeds $1,250, you are “cost-burdened”.
Keep in mind that the median household income in Fredericksburg is roughly $70,000 according to the 2020 Census. You can easily imagine that many households do not qualify for our program because they earn over $50,000, yet many of these households may be “cost-burdened” when it comes to housing (see the chart). For example, if you earn $70,000 and your monthly housing cost (including utilities) exceeds $1,738, you are “cost-burdened”.
Net Financial Worth
Likewise, Virginia law authorizes (but does NOT require) our program to have a “net financial worth” limitation. It includes the net worth of the homeowner and his or her spouse. Currently, it’s $300,000 in our program. The value of your Fredericksburg residence is not included in this calculation, so think of ”net financial worth” in terms of the total value of your (and your spouse’s) nest egg such as 401(k), bank accounts, stocks, bonds, etc.
Maximum Relief
Virginia law authorizes (but does NOT require) our program to limit the maximum annual dollar value of the tax relief. Currently, it’s $3,000 in our program, which means that up to $3,000 of your real estate taxes can be exempted.
Percentage of the Exemption
Under Virginia law we can also have a sliding scale that varies the maximum relief according to how we treat Annual Household Income and Net Financial Worth. In our program, the sliding scale only uses Annual Household Income (not Net Financial Worth):
· 60% (or $1,800) if earning $40,001 to $50,000
· 80% (or $2,400) if earning $30,001 to $40,000
· 100% (or $3,000) if earning $30,000 or less
Since our tax rate is 86 cents per $100 of taxable value, the $3,000 maximum is equivalent to a taxable home value of around $349,000. If you own that “typical” house, and you are in the 60% maximum relief category because of your household income, you will qualify for $1,800 in tax exemptions. This means you are responsible for paying the other 40% of your real estate taxes (which is $1,200 per year, or $100 per month).
The Maximum Relief is typically where local jurisdictions adjust their tax relief programs from time to time. Fredericksburg did it recently in 2021 when it was raised from $2,000 to $3,000. Sometimes local government will raise the Net Financial Worth. Fredericksburg raised it from $200,000 to $300,000 in 2019. The final measure that can be adjusted is Household Annual Income (currently $50,000 in Fredericksburg), which we haven’t changed in awhile.
Creativity
I think this is where the magic happens. The fifth way to expand our programs is to creatively mix those four approaches. Loudoun County is one example. They have a sliding scale of three measures: Net Financial Worth, Household Annual Income, and Percentage of Exemption. In Loudoun County, if your Annual Household Income is on the low end of the scale, you can still qualify for a 50% tax exemption even if your Net Financial Worth is quite significant (up to $920,000).
This in effect rewards fiscally responsible families, folks who have worked hard all their lives to build significant savings to get them through their autumn years. It encourages them to NOT raid their savings and investments, keeping those funds untouched in case they ever need to go into assisted living or a nursing home someday. This is extremely important when you consider that the cost of assisted living can easily exceed $75,000 annually in the Fredericksburg area, and it will only increase over time.
If we can encourage more elderly and disabled folks to age in place and not touch their savings (as Loudoun County does), it’s a win-win for households and their families. Which, in turn, strengthens families, the community, and helps preserve our low-income housing market.
I’m not saying that expanding our Tax Relief Program will solve Fredericksburg’s equitable housing crisis, but it is one arrow in our quiver and we should update it to better meet the needs of seniors and disabled folks.
