by Jon Baliles

Today we are posting a special edition featuring an email from former restaurateur Brad Hemp that he recently sent to City Council about the meals tax fiasco you have probably heard about as a result of seven years of neglect at City Hall. The Mayor raised the meals tax in 2018 to help build new schools and pledged in return he would also help the restaurants. He raised the tax, and three schools were built, but he forgot about helping the restaurants.

Now, here we are, years later, and the only thing coming from City Hall are vacillating and daily changes and pledges to fix the problem on a “case-by-case” basis (in a vain attempt to get the media stories to stop). As someone who lived and breathed the restaurant business (and could teach the Mayor and Council a few things about it), Hemp has some suggestions to fix the mess. The question is, will the Mayor and City Council finally listen and do something?

RVA 5×5 — PREFACE
The best government is almost always the one that listens. It makes it easier for people to enjoy their lives, better their neighborhoods, open or run a business, and have fun. The worst government is almost aways one that pretends to know everything and thus ignores listening to or helping the people by doing things like, just as an example, forcing through a second casino referendum right after the first one lost. Another way to demonstrate bad government is to find straw-man excuses for erroneous billing of residents for personal property, real estate and water, and misapplying payments of meals taxes for restaurants and never notifying anyone when a bill is late while interest and penalties skyrocket. The “leaders” at City Hall say it’s the fault of state code, or the postal service, or bad technology, or the current lunar cycle. Don’t look inward to see if it’s an internal problem, blame it on everyone and everything else.

Ignoring the problem is no longer an option. Neither are band-aids. We have story after story about insane $68,000 and $37,000 tax bills with interest and penalties that would humble a payday lender or a mafia boss. What should a government, when it finally realizes that it is an issue and can no longer be ignored, do to fix it?

It can listen. It can act. It can offer relief and act and doesn’t even have to admit much wrongdoing; just clean it up and show you are really cleaning it up (and not just to get the media to go away). Even if it costs a little in the short run, the long term gain to build confidence and trust is well worth the investment. But you can’t keep swerving around like a drunken sailor and changing answers every few days to respond to media reports when the problem requires a more lasting solution. Fix the problem, and the media reports go away — pretty simple.

So today’s special edition by former restaurateur Brad Hemp is not to rail and throw darts, but to offer a reasoned and cogent proposal that City Council could listen to and embrace that would help the estimated 1,000 small businesses that are restaurants and employ thousands of people and fill the city coffers with tens of millions annually. It offers a possible pathway to stop the ongoing hemorrhaging of erroneous billing as well as offering longer term suggestions and solutions.

Hemp knows all too well about what he speaks. His restaurant had a $300 bill that originated in the city’s Finance Department that he was never informed about, which grew into a bill of more than $10,000 with penalties and interest (and he only discovered it by accident or it would have kept growing.) But Hemp wasn’t one of the restaurant owners you have read much about in the last five weeks — his story goes back to the Fall of 2019 (and was in the papers back then but ignored by City Hall). He was lucky because he was quickly on top of the city’s error and fought it early. He successfully proved to the city it was in error and wiped out $3,000 of fees, but it took another ten months until January of 2021 to have the city return the other $7,000 it improperly charged his business.

When he sat down with the city and tried to resolve the issue, the city chose to fight Hemp and his partners and tried to deflect blame instead of resolving the issue. And because they did not resolve the issue, it festered behind the scenes for years and the exact same problem has now reappeared and happened to dozens more restaurants (that we know about), and even the city finally admitted last week it needs to review 500 accounts to see if there are similar errors with erroneous penalties and interest. That’s half of the estimated number of restaurants in the city — and many are small mom-and-pops that are likely too scared to speak out. Restaurants aren’t asking to remove or not pay the tax, they just want to be treated fairly and be notified if something is amiss. So will the city look to fix the problem and help these small businesses or let the blister boil?

Hemp has a well-thought-out proposal from someone who knows the business; and like all proposals, I am sure there is room for adjustment and improvement. But it’s a better response than anything we’ve heard from the city so far. But to take any proposal and make it better, you have to actually embrace the willingness to do something. Lead, follow, or get out of the way.

If you were a term-limited mayor running for higher office, you might want to show that you fixed a major problem with decisive and resolute action (especially after saying “my administration is all about the fix” just last year, when clearly, that is not the case). If you were a member of City Council seeking reelection in an election year like 2024 (or running for higher office), you might consider not waiting around for the Mayor and Chief Administrative Officer (CAO) Saunders while they dither (since they will both be gone in ten months) and insist that action be taken now.

City Council can push an amnesty through with or without the Mayor’s support (of course, the Mayor and CAO would say they don’t have the staff to handle it because of the pandemic and the dog ate their homework, etc.), but if Council wanted to take a stand, it could.

The question is, will Council make that stand to fix it if the Mayor does not? Given the popularity of the food scene in Richmond not to mention the revenues generated by restaurant patrons (that’s us!), you might think it was an easy answer and be a source of motivation for Council to call the Mayor to immediate action.

And that’s especially a shame since Hemp’s experience suggests a solution for the city that is knowledgeable and pretty simple — let’s get our house in order, offer relief for those small businesses negatively impacted, and we will not only make it right for those hurt by this but prevent the same thing from happening again and again — because if we don’t change it, it will most definitely will happen again and that will drive more business and more diners out of the city.

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Hemp’s email to City Council is printed in its entirety below, with his permission, with a few minor edits for clarity.

Subject: A New Meals Tax Penalty Amnesty

Richmond City Council,

My name is Brad Hemp, until recently I was owner of two restaurants in Richmond: Brenner Pass and Metzger Bar and Butchery. In 2020 my restaurant, Brenner Pass, was saddled with thousands of dollars of penalties for ALM [meals taxes] payments made in full and on time. This is the same practice that, we now know, has affected hundreds of Richmond restaurants. VPM just reported on my experience if you want to know more.

I applaud the proposed ordinance that will come up for a vote next week. The requirement that Finance assign ALM payments as submitted should prevent much of the problems of rolling penalties going forward. However, the ordinance does not address the hundreds of restaurants saddled with millions of dollars in improper penalties.

To this end I am proposing that Council consider a new Meals Tax Penalty Amnesty. Such an amnesty would waive all ALM penalties assessed for partial meals tax payments from 2017 until ORD. 2024-024 goes into effect. All such penalties already paid would be refunded to the affected business. The amnesty would only affect penalties from partial payments because, in almost all cases, partial payments only occur if Finance has modified an ALM payment without the knowledge of the business. This is the payment modification process mentioned by Lincoln Saunders in last week’s memo. The amnesty would not cover penalties accrued when an entire ALM payment is made late. The wording on the amnesty could be patterned on previous bills.

Why do we need a new amnesty? Here are a few reasons:

1. This is a city-wide and industry-wide issue. Although Lincoln Saunders stated on January 4 that this problem affected only a few restaurants, he admitted last Wednesday that Finance is now looking at about 500 cases. This is almost half of the restaurants in Richmond.
2. The facts demonstrate that all affected restaurants should be eligible for a waiver, based on the Administration’s own criteria. At the meeting last Wednesday evening [January 31], Lincoln Saunders stated that restaurants would be eligible for a waiver or refund if there was a defect in the notification about bills. We now know that, for all cases, there either was no notification or very inaccurate notification. Again, Lincoln Saunders has changed his story on this matter. On January 4, he stated that notice of bills was only stopped during COVID, and resumed in July 2022. This is clearly contradicted on page 11 of the Auditor’s report last April. In his memo of last week, Saunders dropped this story and now says that notice only began because Sheila White took over as Finance Director in July 2022. This is absurd, as Ms. White took over as acting head of Finance in February 2021. In reality, page 11 of the audit report states there was no notice prior to July 2022 and thereafter such notices often provided incorrect and unhelpful information. The audit clearly shows that every affected restaurant either received no notice or defective notice, and thus should be eligible for a waiver.

3. Finance’s manipulation of ALM payments may have violated state law. Section 58.1-3919 of the VA Code requires that a taxpayer be notified if they have failed to make a payment when due. As shown above, Finance failed to do this at least up until July 2022. Since Finance was creating short payments on a monthly basis for hundreds of restaurants, there are thousands of potential violations of section 3919 prior to July 2022. All of the current trouble stems from process change made in September 2019, where Finance decided to deduct money from ALM payments to apply to older bills, ostensibly to follow Section 58.1-3913. Unfortunately, in trying to follow state law, Finance ended up violating it. As meals taxes are actually paid by the patrons of a restaurant, not the restaurant itself, Finance was misappropriating payments made by diners to pay a restaurant’s tax bill. This action is not permitted under section 3913.

4. The Administration’s review process is not transparent and there is no accountability. The current policy is for Finance to review affected restaurants on a case-by-case basis. However, there is no measure in place to make sure that they are applying a uniform standard fairly for the cases under review, or that they will review all or even most of the affected restaurants. In fact, restaurants that do settle with the city are being required to sign a confidentiality agreement. A new amnesty ordinance would supply a clear standard, require the administration to abide by it, and make it clear to the public what this standard is.

5. The Administration has ignored this problem for years, so cannot be trusted to implement a solution on its own. Below you will see a forwarded email that I sent to Lincoln Saunders on September 10, 2020 [see below]. It clearly outlines the problem that has come to light in recent weeks and asks that he implement an ordinance exactly similar to the one that will be voted on next week. This is one of at least four similar emails I sent him in September 2020. In 2022 and 2023 I worked with Katherine Jordan’s office to notify Finance of possible state law violations and again push for legislative changes. No action was taken. The only reason that action is being taken now is because the problem has reached crisis level and garnered media attention. When this attention fades, I have no doubt that any urgency to compensate restaurants for Finance’s failings will fade with it. This is why we need a new amnesty that legally requires penalties to be waived or refunded.

I apologize for the long email, but this is a complicated and long-running problem. I ask that you consider it thoughtfully. If you want further documentation or have any questions, do not hesitate to contact me.

Thank you for your time,

Brad Hemp

PS: Just FYI I’ll be forwarding this email to multiple media outlets.

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Email from Brad Hemp to Lincoln Saunders; sent September 10, 2020.

From: Brad Hemp
Sent: Thursday, September 10, 2020 2:08 PM
To: Gray, Kimberly B. – City Council <Kimberly.Gray@richmondgov.com>; Saunders, Lincoln – Mayor’s Office <Lincoln.Saunders@richmondgov.com>
Subject: Tax Assessment and Notification Reform

Hello Ms. Gray and Mr. Saunders,

I apologize that you both got caught up in the back and forth between myself and Mr. Wack. I had hoped to keep my discussion with you separate from my attempt to get the Finance Department to abide by their legal obligations.

I wanted to try and get an answer from both of you about whether you are willing to sponsor a forward-looking solution to the problem that has cost my business over twenty thousand dollars. Are either of you willing to sponsor an ordinance requiring the Department of Finance to apply ALM payments as specified in the return submitted by the business? Are you willing to also include in the ordinance a requirement that the Department of Finance notify the taxpayer when it creates a tax bill or penalty? If so, how soon can you put that before the City Council?

Apparently the Director of Finance thinks that he can create tax bills at will yet has no obligation to ever tell the taxpayer. His position is, I think, quite clearly insane. What’s worse is that Finance is exploiting this absurd position to cost businesses large sums of money without their knowledge. One would think Finance would want to actually collect tax bills by notifying the payer. Perhaps this explains the large amount of delinquent taxes left uncollected by the City of Richmond.

Finally, if you want an easy way to get support and good will from restaurants and other businesses in this election season, putting forward a simple solution to Finance’s misbehavior would seem to be low-hanging fruit.

As always, thanks for your time and patience and the help you have provided so far.

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RVA 5×5 — WHAT’S NEXT?
Ordinance No. 2024-024 is a change of City Code that could have been made at any time in the last seven years by the Stoney Administration and/or City Council and certainly after the problems with erroneous billing were discovered with Hemp’s case in 2019. CAO Saunders and the Mayor have been trying to blame the problem with the Finance Department applying absurd penalties and interest on restaurant bills and not notifying anyone because of the way state code is written, without acknowledging that THE SAME SENTENCE of state code allows any locality to easily fix the problem whenever it wants.

And that is EXACTLY what the Council will vote on Monday evening to change. That legislation will make the city apply a meals tax payment to the month is which it is paid (so, for instance, a meals tax payment for May has to be applied to May; the city can not apply $100 of the May payment to a delinquent balance from April which leaves the May payment in arrears and hit with penalties and interest which then snowballs — and the restaurant is never notified about so they have no idea they are ever in arrears).

This legislation finally up for a vote is a change to City Code, not state code (which the city obviously can’t do). City Hall has simply chosen to ignore the easy fix for years to instead focus on the important things like arenas and casinos. Only after a slew of derisive stories appeared in the media pointing out the city’s indifference was the city finally forced to act. So that is the easy and long overdue change that will be done Monday night.

The more important question is will City Council also make a stand and also call for an amnesty to fix this problem and look at the suggestions Hemp has made to rectify the problem for the long term? Or will they just continue to defer to the “leadership” of the Mayor and CAO that put the city and the restaurants in this position? Will we see more of the same or real, substantive change? Falsely promising that an online payment portal will fix everything in the next 12 months (after Stoney and Saunders are gone) is neither a realistic answer or a solution.

These changes and opportunity for change would never have happened without these small businesses standing up and saying “Enough!” Many kudos have been well-earned to all of those in the restaurant community as well as the I’m-fed-up-with-this-City-Hall community for pushing back and standing up and speaking out.

Monday night, we will see if anyone at City Hall is listening, and more importantly, willing to do something — or anything — about it.

Jon Baliles is a former Richmond city councilman.