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Lexington City Council last Thursday voted to approve an extension of the 1 percent discretionary lodging tax for the Virginia Horse Center until June 30, 2029, or until the horse center is able to pay off a loan from CornerStone Bank, whichever comes first.
VHC Chief Financial Officer Sandra Thomas approached City Council about extending the 1 percent tax last December. A similar request was also made to the Rockbridge County Board of Supervisors, which also provides a 1 percent discretionary lodging tax to the horse center for paying off the CornerStone loan. The supervisors approved the extension in January.
Rockbridge County and the city of Lexington have been helping the horse center pay debts with funding from the lodging tax since the dissolution of the Virginia Equine Center Foundation in 2007.
Initially, the city and county approved adding 2 percentage points to the lodging tax for the horse center to help pay off a loan from the United States Department of Agriculture. The loan, initially for $11.5 million, has a remaining balance of $9.1 million as of June 30 of this year. Annual payments of $604,555 are made for that loan. The additional 1 percent tax was approved in 2014 when funds from the 2 percent tax revenues were proving insufficient to cover the loan payments. The additional 1 percent was extended by both the city and the county in 2017, with the city capping its contribution at $61,000 annually.
The horse center took out a $1.5 million loan from CornerStone Bank
, page 11 in August of 2018 to refinance its debt and to begin implementing its master plan.
The city and county both agreed that any funds from the 1 percent tax that remained after helping make the payment for the USDA loan could go toward paying off the CornerStone loan.
Under the loan’s current conditions, the horse center will make regular payments until Aug. 29, 2025, when a balloon payment of $600,000, plus interest, is due. The timing of the balloon payment was based upon when the additional 1 percent tax would expire. The loan balance is currently $750,000.
By having the 1 percent tax extended, the horse center hopes to refinance the CornerStone loan sometime before June 29, 2025, when interest rates are more favorable and extend payments through June of 2029, allowing the payments to remain at about the same level they are now.
Lexington City Manager Jim Halasz recommended approving the extension of the 1 percent tax with the understanding that it would expire either in 2029 or when the debt was paid off, if the horse center was able to do so early.
“They are an economic development engine for our community – one of the largest – also a very large tourism draw, so I believe that, from an economic development standpoint, it’s good for our community to be sure that the horse center, like all of the institutions and businesses in our community that we do support in some fashion, are very attractive and draw people to our community and leave an impression when they do visit us,” he said, adding that he hoped that the horse center would be able to “put this additional contribution to work at the horse center to make sure what we see in the future, what our guests see, is something that we can be proud of.”
Council member David Sigler noted that, in the figures provided by the horse center of the past funds provided by both the 2 percent and additional 1 percent taxes and the projected amounts the horse center is planning to receive from both, that the 2 percent tax is projected to produce between $900,000 and $1.1 million between now and 2029, which would cover the payment for the USDA loan, while the additional 1 percent would generate around $400,000. Payments for the CornerStone loan are currently around $180,000 annually.
“If you want your payments to be roughly $200,000 until 2029, but all of us are passing an ordinance to say here’s $400,000 until 2029, we’re just kind of not understanding that,” he said.
“We’re doing this with the idea that the future is not certain,” Thomas replied. “So we need to make sure that we have the ability to refinance [the loan] and keep those payments where they have been, and if we do end up with that extra money, we either pay the debt off early or we come back to you and say, ‘We have this extra money, is there a project you would want to support?’” Thomas also noted that the horse center has needed to use some of those funds to make the USDA loan payment in five of the nine years since the additional 1 percent tax was approved.
“The horse center, up until recently, has operated on very, very thin margins,” she said. “There are times I had no idea whether we would make payroll or not. I can now make payroll and know that that’s happening, and we cannot put the organization in the position of paying down debt but not making payroll.”
When asked if the horse center would pay off the loan early if they had the funds, Thomas said they would, adding that if actual revenues matched their projections then they could pay off the loan in twoand- a-half years.
Both Sigler and Council member Chuck Smith expressed concern about potentially dedicating an additional $61,000 to the horse center for another five years while the city is planning for a number of capital projects down the road and has recently received a recommendation from Davenport Financial Group to start generating and setting aside $120,000 annually to help cover the costs of these projects.
“That equates to about 2 cents on tax rate, but we don’t want to raise taxes,” Smith said. “So we have to find sources of revenue and $61,000 [would go] a long way toward that, and taking it off the table is hard to justify. It makes for a difficult decision.”
In addition to potentially raising taxes for that money, Sigler noted that the Council has previously discussed implementing a storm water fee and is raising the water rates to help cover costs of capital improvements with the Maury Service Authority’s water system and processing plant, in addition to the upcoming capital projects within the city.
“I have concerns when we hire Davenport and we’re looking at … 25 years of major capital expenses in the city of Lexington, and no one is going to help us pay those costs,” he said. “Tonight is a policy decision and it will set in motion certain things, whether it be personal property taxes or real estate taxes or storm water fee, and if we’re okay with potentially raising those fees and taxes.”
Council member Nicholas Betts argued in favor of the extension, in part because the county already approved extending its part of the additional 1 percent tax, but also since the horse center generates revenue for the community, including the lodging tax it gets a portion of.
“It is, essentially, a source of revenue for the city when people come in for these shows, so I do think it’s helpful to consider giving them some flexibility with this 1 percent,” she said. “If they say in good faith that they will try to pay off the debt, to give them a buffer to try to do that in the next couple of years, because I do think it is a valuable resource to our community.”
Smith moved to approve the extension, with Betts providing the second. The motion passed 5-1, with Sigler casting the dissenting vote. He declared his intention to vote against the motion prior to the vote, saying he was doing it “only to make it interesting, and because I’m concerned with what this is going to do to our FY 2025 budget and beyond. It might have to have an increase. We’re making a policy decision tonight if we’re okay with it.”
