PALMYRA — Commissioner of Revenue Mel Sheridan explained how the projected revenue of fiscal year 2013 error was discovered and how he thinks it happened in an extended conversation with Fluco Blog.
“The records in my office have been and are now accurate to the penny. They weren’t a problem last year,” said Sheridan.
The budget process starts with the Commissioner of Revenue sending taxable values to the finance director, who at the time was Renee Hoover. The finance director along with the county administrator, who at the time was Darren Coffey, build a budget that the Board of Supervisors use as a base for budget deliberations.
“There was no error presented to the finance department for them to use with respect to planning their budget. The information they were given was spot-on, to the penny accurate. What they chose to do with it and how they chose to use that information is really the issue,” said Sheridan.
Sheridan insists the data the Commissioner of Revenue’s office possesses is correct and always has been correct. The revenue projection problem came up because of how the data he gave Hoover was interpreted, according to Sheridan.
“Our previous finance team operated in a vacuum. They did not include the people in this county that could be a part of that team and really wanted to,” said Sheridan.
Sheridan recollects the process starting as designed with a request for property values in January as county administration prepared the county administrator’s budget. He gave the values of taxable property in the county. All taxes are based on property ownership on Jan. 1 of any year.
As he gave the information, he noted some things would change, according to Sheridan. The major change to real property values was relief the county gives to elderly and veterans. Residents have a period to request such relief and it wraps up in the first quarter of the year. Those subtractions were not included in the January data Sheridan gave because the application process had not be completed.
“Applications (for tax relief) are submitted from January through the middle of March. People will be coming in for the next two months to be part of that. Some will qualify, some won’t. Probably by the third week in March we’ll know the tax relief program,” said Sheridan.
The relief given to elderly and veterans was not included in the budget, projecting revenue by $224,740.
Unaccounted for county specific breaks
Other issues are how the county accounts for certain property differently than how the state accounts for the same property. The first example that caused a discrepancy is single-wide mobile homes.
The state issues a title as if the mobile home is a vehicle and thus it is considered personal property and not real property, by state definition. The county however grants reprieve for mobile home owners because the unit is used as a home and homes are taxed as real property.
The difference to the mobile home owner is paying $4.15 per $100 assessed (if it was priced as a vehicle) to $0.5981 per $100 assessed (if it is priced as real property). Fluvanna County taxes it as real property even if it is technically personal property.
Another anomaly from the data was machinery businesses use. It is personal property but not taxed under the personal property rate. For business use, machinery is taxed at $2 per $100 assessed. It was budgeted as being taxed at $4.15 per $100.
“[The finance department] didn’t want our revenue number, they just wanted the value. Then the finance director took that, and apparently applied the $4.15 rate to the entire value which was a mistake,” said Sheridan.
Public utilities causing problems
A third issues in the handling of the budget process was understanding the public utilities. The error relates to public utilities’ personal property; this includes things like cars and trucks.
One large example is Central Virginia Electric Co-op because the company ‘garages’ trucks on property owned in the county. CVEC’s tax bill was $37,000 for personal property taxes at a rate of $4.15 per $100. All public utilities’ personal property was projected as being taxed at $0.5981 per $100 assessed.
The second public utilities issue was not a county made error. The state assesses public utilities each year, normally late in the calendar year. In September the State Corporation Commission granted tax relief for certain corporate owned items. Sheridan used the example of emission control getting a tax break.
Sheridan said because of additional tax breaks, Fluvanna lost $36 million of taxable real property for public utilities in FY13. In 2012, the state commission adjusted Fluvanna’s public utilities to $496 million. The assessed value was $540 million in 2010 and $532 million in 2011.
The budget presentation
When the FY13 budget was being discussed openly in March 2012, nothing caught Sheridan’s eye because he wasn’t involved in the process deeply. Plus, the budget shows projected revenues more collectively than broken down to each category. The errors resulted in about an one percent difference of total expected revenue from county taxes.
“When the budget is presented, they don’t go back to values. They just say here is what we have for personal property revenue, here’s what we got for real estate revenue. Unless you are a part of the process that built the budget, you don’t know how they got that. This is a direct result of not working as a team,” said Sheridan.
There is some good news for the county. The $531,600 figure is a worst case scenario. The county will regain some money because of the revenue-neutral tax rate will be applied to public utilities’ real property without those properties getting a reassessment until after July 1. It will be greater than an additional 20 cents per $100 assessed.
Also, the county is sending supplemental billing for items purchased near the end of the year that might not have been included in the Jan. 1 taxable property figure.
More than likely, the figure of revenue shortfall will be around $250,000, using current estimates from Sheridan.
Other good news is the county administration and constitutional officers are working more closely together. In fact, that’s how they discovered the problem.
“What we are doing this year is we are very much a part of a team. Linda Lenherr (Treasurer) and I, the finance director (Barbara Horlacher) and her deputy (Eric Dahl) and the county administrator (Steve Nichols) have spent more time the last four days this week than we did in the last five year with the previous team members,” said Sheridan.
As the four departments (finance, county administrator, Commissioner of Revenue and Treasurer) discussed the FY14 budget including revenue streams thoroughly, Sheridan noticed categories were missing. As they dived deeper into it, he noticed the FY13 budget was off.
“They wouldn’t know this was an issue if Linda and I wouldn’t have sat down with them this week,” said Sheridan.
“Part of the process for FY14′s budget. We looked at [FY]13 and asked what they used for the revenue start points and when they said, ‘We used these amounts.’ I said, ‘What a minute. Those aren’t right. Those were not adjusted for something.’”
Over the course of last year Hoover was fired as part of five department heads, including interim county administrator Coffey, for giving unauthorized bonuses. Attempts to reach Hoover are ongoing. An after working hours email was sent to her on Jan. 17. A phone call to her last known place of employment went unanswered. Fluco Blog will update if she becomes available.