In March 2010, the Roanoke City Council took a bold step to support K-12 education, unanimously voting to increase the local meals tax by 40 percent at a time when anti-tax fervor was sweeping the Commonwealth of Virginia. Then the city worked with community and private organizations, using the tax increase to rally the public, encouraging them to eat at local restaurants in support of K-12 education. The program succeeded, in large part because of the clear and timely financial information provided to local media and the community
DECIDING TO FOCUS ON SCHOOLS
About a year before the recession struck, the city, the city council, and the school board started down a path to improve the performance of the city's public schools. The school board increased its level of commitment to improving school performance. New school administration was hired, and the city council increased its support.
The performance of Roanoke city schools was poor. The graduation rate was less than 50 percent, and almost 70 percent of students received free and reduced-rate lunches. Numerous schools were unaccredited, and some failed to achieve federal Adequate Yearly Progress standards. People who lived and worked in the Roanoke Valley often hesitated to send their children to Roanoke's public schools because of these performance issues, as well as social and behavioral woes within the schools.
Faced with deep cuts in funding from the commonwealth, coupled with a reduction in funding from the City of Roanoke under a local tax-sharing formula, Roanoke City Public Schools was expecting budget reductions of up to 10 percent from fiscal 2010 to 2011--in the range of $10 million to $14 million. Though the city council had provided funding above and beyond the tax-sharing ratio the year before, in an effort to maintain school funding, the cuts expected for fiscal 2011 appeared to be damaging to recent efforts to resurrect the schools.
Roanoke City Council members knew that for Roanoke's success in the arenas of economic development and quality of life, school performance had to improve. City council members feared that such progress would be impossible without adequate funding and that if funding to the schools was reduced, it could have permanent devastating effects.
TWO CENTS FOR TWO YEARS
During the early part of the fiscal 2011 budget cycle, one of the city council members came up with an idea to address the problem: a meals tax increase that would be dedicated to the city's public schools. After looking at the revenue that would be generated and the tax rates of surrounding jurisdictions and other Virginia localities, he made his case. He proposed increasing the existing meals tax by two percentage points, to 7 percent from 5 percent, effective from July 1, 2010, until June 30, 2012, at which time the rate would revert to 5 percent.
This idea immediately won praise from K-12 supporters, and it drew little criticism. Other alternatives were examined, but none provided as sizeable an impact on revenue--approximately $2.2 million per percentage point of tax increase. Other attractive features were that this plan taxed those who had the ability to pay for restaurant meals, and the tax was funded in part by non-resident visitors to Roanoke. As a city, Roanoke had the authority to increase its local tax without approval by the commonwealth and without holding a voter referendum. Roanoke leaders did not believe that this revenue initiative would have a major affect on people's dining habits, but some parties were concerned that this could be a risky move at a time of economic challenges because it would make Roanoke's meals tax rate the highest of any city in Virginia.
During Roanoke's budget season, city officials considered a number of alternatives to provide additional funding to the schools. One of these was an increase in the real estate tax, which would generate approximately $750,000 for each penny of increase. …