Hoover tax increases likely prevented revenue decline, records indicate

If the Hoover City Council had not raised sales, use, leasing and lodging taxes last year, city revenues from those taxes likely would have declined this fiscal year, city records now indicate.

Instead, 10 months into fiscal 2019, revenues from those taxes were $9 million higher than they would have been under the old tax rates, and $8.6 million higher than actual tax receipts through the first 10 months of fiscal 2018, city financial records indicate.

Mayor Frank Brocato was a proponent of the tax increases, saying they were necessary for Hoover to remain a first-class city with outstanding police and fire departments, parks and other city services.

A majority of the City Council members agreed, when they voted 4-3 in July 2018 to raise several taxes.

Effective Oct. 1, 2018, the city sales and use tax rate went from 3% to 3.5%, putting the overall sales and use tax rate at 8.5% in the Shelby County part of Hoover and 9.5% in the Jefferson County part of Hoover.

Similarly, a tax to lease items also went from 3% to 3.5% on Oct. 1. Then on Jan. 1, the city began requiring people staying in lodging facilities to pay a $2 nightly room fee.

Altogether, records indicate if those tax increases had not been passed, revenues from those taxes would have declined by about $437,000 through the first 10 months of the fiscal year.

However, it’s impossible to know exactly what revenues would have been without the tax increases because it’s possible the tax increases impacted buying decisions by some shoppers and the choice of hotels by some guests in the metro area.

Actual revenues from those taxes from Oct. 1, 2018, to July 30, 2019, were very close to amounts projected by Chief Financial Officer Melinda Lopez at the beginning of the fiscal year.

Lopez had projected the city would receive about $71,385,000 from sales, use, leasing and lodging taxes in the first 10 months, and the actual revenues came in at $71,334,028 — a difference of only about $51,000.

Brocato said that without the additional income, the city would not have been able to implement a new pay scale with raises for most employees or pay for basic capital projects, replacement vehicles for the police and fire departments, and normal inflationary expenses.

The new salary schedule cost about $1.3 million to implement, plus about $200,000 more in step raises than otherwise would have happened in 2019, City Administrator Allan Rice said.

The new pay schedule, approved unanimously by the council, was needed to maintain the city of Hoover as an “employer of choice” when compared with other Birmingham area municipalities and private employers, Brocato said.

The 2019 budget also included about $838,000 for new positions and upgrades, including 13 new full-time employees, four new part-time or temporary positions and five job upgrades.

Most of the new full-time jobs were in public safety. Those included eight additional firefighters, four additional police patrol officers, two school resource officers, two public works crew workers and an accountant.

Also, four part-time school resource officer jobs were converted into two full-time SRO jobs, and the city added two part-time park patrol officers, two part-time couriers and two seasonal public works crew members.

Some of the new jobs were made possible by the elimination of five other full-time positions, including an assistant library director, senior public safety telecommunicator, court analyst, risk management claims adjuster and senior administrative assistant.

Brocato originally requested only four new firefighters in 2019, with plans to add more in the future, but several council members felt strongly that the Fire Department needed to go ahead and hire eight new firefighters in 2019.

The city likely would not have been able to afford new capital projects in 2019 without the tax increases, the mayor said.

The 2019 budget included $2 million for paving streets and more than $1 million for a fire engine, hazardous materials unit and nine Chevrolet Tahoes for the Police Department. The capital budget also included more than $1 million for improvements at Hoover Metropolitan Stadium (including a new scoreboard), about $1.5 million for improvements to Valleydale and South Shades Crest roads and other projects to improve traffic, information technology, building maintenance, parks, drainage and the sewer system.

The tax increases that were passed were not designed so city officials could go out and buy a bunch of new things, but rather to help the city keep up with growth from a manpower perspective and provide the level of service that Hoover residents expect, Brocato said.

The city also has to deal with normal rising costs of things such as health insurance, fuel and utilities, he said. And the city has some critical infrastructure needs with its buildings and parks, he said.

The mayor originally had proposed greater tax increases, including a full-cent increase in sales, use and leasing taxes and an increase in city lodging taxes from 3% to 6%.

That big of a tax increase — in addition to helping the city maintain current operations — was designed to fund new initiatives, such as a $4 million-per-year increase for Hoover City Schools, the city’s portion of funding for a new Interstate 459 interchange, a performing arts center and a library branch in eastern Hoover.

However, the City Council objected to that large of an increase.

John Lyda was among the three council members who voted against all the tax increases. Lyda said he still thinks they were a bad idea. The need for them was based on financial projections that since have proven to be incorrect, Lyda said.

The city’s general fund revenues in fiscal 2018 ended up being $3.7 million better than projected, and expenditures were $3.4 million less than projected.

The projects funded in the 2019 budget and proposed in the 2020 budget are not necessarily “bad spending,” Lyda said. They were good projects, but not all necessary ones, he said.

“Government always grows to the level citizens are willing to fund it,” he said.

The mayor is correct in saying the new pay plan with raises for city employees would not have been possible without the tax increases, but the other alternative was to maintain the current pay levels and have city officials keep a closer eye on spending and live within their means, he said.

The hotel industry successfully fought the lodging tax increase and suggested the nightly room fee instead.

Steve Varieur, the regional director of operations for Triad Hospitality Management, which manages the Holiday Inn on John Hawkins Parkway, the Homewood Suites on Riverchase Parkway and eight hotels in Fultondale, Pelham and Tuscaloosa, said the nightly room fee has not hurt Hoover hotels because people don’t pay much attention to fees such as that when booking.

For those that do consider taxes, they usually pay more attention to the percentage lodging tax, he said.

As a Hoover resident, Varieur said he completely understands that the city needs additional income if it’s going to continue to grow and people expect the city to make improvements in accordance with that growth.