Time to Reform Virginia’s Relationship with Local Government
By Shaun Kenney | Wednesday, April 27th, 2011 | Magazine, Politicsby Shaun V. Kenney
[Ed Note: This article originally appeared in print in Bearing Drift's May 2011 issue. To subscribe, join our mailing list and get a first peek in print every month.]
So at the very last minute, Richmond gave her localities a $75 million reprieve when it came to public education. Yet the cuts to the Virginia Retirement Service, CSA funding, deputies, and virtually every other layer of government all came crashing down and around Virginia’s localities.
Local governments across the Commonwealth are now dealing with the ramifications of both federal and state reductions in tax revenue, as well as a sour economy back home. To make matters worse, some localities have their own added headaches whether from a reliance on a booming housing market, to bonds for infrastructure projects unfathomable at any other time but sold as sound thinking in a boom market.
Thus are localities in Virginia trying to meet responsibilities to public education, public safety, and social services — as well as a host of unfunded or partially funded mandates from either Washington or Richmond.
Conservatives are now stuck with a dilemma of sorts. Those who have beaten the Reaganesque mantra of government being close to home are now discovering their constituencies have little thrift for paying more in taxes for the same level of services. Likewise, many conservatives are railing against the increased property taxes required to maintain level funding for county services.
What the heck is going on here?
For Virginians, it’s important to understand precisely how your government works and doesn’t work. Too often people preach constitutional restraint without having flipped to page one of their Virginia Constitution. Therein lies the problem — Virginia’s relationship with her local government is confined within the boundaries of outmoded and outdated expectations, including the oft-cherished Dillon Rule, that while it provides one set of rules for all localities in Virginia, woefully under prepares them to operate in a 21st century environment.
The catch then becomes this: Richmond’s elected officials, desperate to avoid a tax increase while dealing with macro-economic pressures, will shift many of their responsibilities back onto localities in order to balance the books.
140 legislators slap backs and shake hands on a job well done, being able to promise the same services while the responsibility of paying for them is left to countless elected officials in 134 different localities across the Commonwealth. After all, what’s the political careers of a few county supervisors, right?
One concrete example is public education. In Virginia, public education isn’t a mere privilege as it might be under the U.S. Constitution. Thanks to the heritage of Thomas Jefferson, a free and quality public education is, indeed, a basic right:
ARTICLE VIII, Section 1. Public schools of high quality to be maintained.
The General Assembly shall provide for a system of free public elementary and secondary schools for all children of school age throughout the Commonwealth, and shall seek to ensure that an educational program of high quality is established and continually maintained.
Let’s re-emphasize the words “an educational program of high quality” right there.
What does this mean for John Q. Taxpayer? It means that, no matter how the money is spent, no matter what the money is wasted on, if Virginia’s school boards say it costs X to maintain “an educational system of high quality” then you’d bloody damn well pay for it. QED.
For most localities in Virginia, public education costs can run as high as 70% or 80% of the locality’s total budget. And like every locality in Virginia, there are only handful of ways to pay for it, the foremost of which is the real estate property tax.
Property taxes have to be the most ridiculous, crude, barbaric, and regressive form of taxation known to mankind. They make you a permanent lessee of your property and a permanent serf of your home, irrespective of your income or ability to pay. This means that families with two incomes and no kids pay just as much as the mother with four children struggling to make ends meet. And every increase in the property tax is one more step away for working families to achieve the American dream.
Of course, this is not the only tool in the 18th century medical kit that localities may use to carve up the taxpayer. Real estate property taxes, personal property taxes, machinery and tool taxes, and Business and Professional Occupancy License (BPOL) taxes are just a variety of frightening concoctions we can devise.
But wait — there’s more!
Sales taxes are automatically imposed by Virginia, for which a locality derives 1%. But there are other considerations such as meals taxes (as high as 8% or more in some localities), hotel taxes, land use taxes for farmers, merchants capital taxes, utility license taxes, cable TV taxes, motor vehicle license taxes, minerals taxes, refuse and recycling taxes, impact fees and public right of way fees, bank franchise taxes, communications taxes, short term daily rental taxes, and even a tax on legal records.
Some localities are even taxing mopeds ($15 per moped in Bedford County) and bowling ($0.05 a game in Falls Church).
The problem with all of these varieties of taxation is that none of them keep up with the true economic power of the locality where they were levied. Sure this worked in the 19th century when property and agriculture were the true powers of wealth. In today’s Virginia, all of these modes of taxation are woefully regressive and grossly punitive.
Worse, for local City Councils or Boards of Supervisors, the entire weight of responsibility for the tax rates — whether hiked or decreased — is entirely on their shoulders, while the mismanagement of these resources is largely within the hands of many school boards across Virginia. These school boards are responsible for one charge alone — providing a quality system of education. They are not responsible for fiscal mismanagement… and so even in the best run locality, the schools spend… the council or board sets the rate.
How do we fix this problem? The problem in my mind remains three fold: (1) Richmond is slouching on her constitutionally mandated responsibilities to local governments, particularly with regard to education, (2) school boards need to be made accountable for their spending behaviors, and (3) the system of taxation with regard to localities needs to be massively overhauled.
The answer? Virginia is a state wedded to tradition, and very cool to radical change. Yet is is abundantly clear that the current alchemy is unwieldy, unfair, and generating massive amounts of waste and duplication in effort. Surely there is leadership in Richmond willing to contest with the Leviathan?
If so, may I offer a few generalized points of solution?
First, Richmond needs to clearly demarcate her responsibilities and meet them accordingly, and clearly draw lines where the localities should be expected to meet their requirements. Localities in turn need to understand clearly which areas of local government need to be funded strictly by the locality and which ones are not. If the demarcation line is that the state picks up the total cost of education according to either the LCI (or a more equitable formula) and allow localities to pick up the rest, so be it. But the current guessing game only helps those lobbyists who squabble for the largest slice of the pie from Richmond — and certainly not our students or constitutional officers who must bear their ultimate cost.
Second, either Virginia’s school boards require the taxing authority independent of their local governments in order to bring direct accountability for their spending habits, or they need to be completely abolished and consolidated with the local executive. That way, should local Boards of Supervisors or City Councils have the dual authority, they will also have the direct accountability needed to reform and streamline Virginia’s schools to the benefit of both teachers and students alike.
Third, localities desperately need the latitude to abolish their current methods of taxation and replace them with a fair, even, and balanced method of taxation — starting perhaps with a flat tax consisting of either sales or income along with an abolishment of the system of property taxation. Virginia can still maintain her Dillon Rule, but legislators in Richmond should be absolutely clear that property taxes et al. will disappear in favor of a fair, equitable tax system in which every taxpayer and small business in the locality will be gainfully invested.
Next, Virginia’s government needs to take on the mandate of Governor Bob McDonnell and aggressively abolish the practice of unfunded mandates to localities. Such as system is decried at the federal level when it is done to states; it is the height of hypocrisy for Virginia to then turn around and do the same to 134 counties and cities under her stewardship.
Finally, Virginia’s political activists need to understand quickly that this system of federal taxation compiled with state taxations trickles down to the local level where the treads of government ultimately touch the pavement. Take your total county or city budget and divide it by the population. In Fluvanna, that commitment translates into $5,800 per person. Are you seeing a similar impact from your local government? If not, why not?
Further, take the time to read your state constitution. Understand why those laws exist. Understand your local budget, and why the entire system is wrapped up in public education. Many folks rail against the U.S. Department of Education without realizing that in Virginia, we are totally committed as a constitutional right for a free and quality system of public education.
There are many who would argue that we no longer have that guarantee of quality, though the price tag for education has skyrocketed over the 15 years. As a homeschooling father of six, even if Virginia met Jefferson’s standard, I would more than likely continue to educate my children at home where I can be promised a Catholic classically-based education. Regardless, we exist in a community, and such an education system that promotes the common good offers both my children and my neighbors the best opportunity of living in a free and prosperous society.
Most importantly, get involved in local politics. There are many who would like to treat your local government as a philanthropic society. It is most certainly not. Government, no matter what its form, is force — brutal and unfeeling. Our friends on the left do not understand this concept, and while there are voices on the right who would love nothing more than to reduce government to bare bones, a properly formed conservative conscience recognizes that sort of libertinism for what it is — reckless and survivalist.
Education, public safety, constitutional officers, and all of these things are the vigilance we pay to create the sphere where public liberty can thrive where it matters most — at the local level. Virginia’s relationship to her localities should be built around this principle, and when it is not, voters should challenge their state leadership in the most direct and respectful terms possible.
When local government ceases to function properly, that’s when the winds of change blow… for ill or good. It remains for Richmond to have the courage to reform the relationship, or step aside for responsible leadership to govern.
I have every reason to be confident that we’ll see progress in Richmond on these matters, and in the near future. Taxpayers will run out of supervisors, city councilmen, and school boards to blame. The fiscal vise we have placed our taxpayers in by way of local government cannot feasibly survive under its current framework much longer.
Richmond needs the courage to fix where our government has the closest contact to its citizens. Should the powers-that-be in Richmond choose otherwise, neglecting this defective relationship will only made things much, much worse for taxpayers and local services alike.
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About the author
Shaun Kenney is the Chairman of the Fluvanna County Board of Supervisors, former Communications Director for the Republican Party of Virginia, and an active blogger since 2002. Shaun lives in Thomas Jefferson's backyard with his wife, six children, and a modest attempt at a farm in Kents Store, Virginia.
Comments
29 Responses to "Time to Reform Virginia’s Relationship with Local Government"
Wow, powerful piece Shaun; much food for thought. Best piece I have ever seen you author.
But I am left undecided whether you are in favor of a progressive tax system or against it. You decry at times the unfairness to the most needy of our present tax system but do not whole heartedly endorse a system where those who most benefit pay more.
You have got to decide.
I’m in favor of a progressive tax system, but (1) it desperately needs to be simplified and flattened, and (2) it needs to ensure that everyone pays into the system.
What we have now is highly regressive and unfair. This must change as soon as is humanly possible.
“It means that, no matter how the money is spent, no matter what the money is wasted on, if Virginia’s school boards say it costs X to maintain “an educational system of high quality” then you’d bloody damn well pay for it.”
Is there a court or administrative law ruling on that? I ask because I’ve never seen nor heard of one. There is one in New Jersey – and its common knowledge, but even there the School Boards don’t get everything they want, finally spending authority is shared by the voters and the township committee, borough committee, or city council (depending on what the locality calls itself).
Shaun,
My position is a little bit complicated on this issue, but I think someone coming at me from your position is someone I could work with.
Neither one of us serves on Capitol Hill and we both better keep our fingers crossed that our interests are served by the Gang of Six.
Yes, much food for thought, but frankly, those who have advocated for no new taxes, yet now want to reform the system of taxation because local governments suffer, get short shrift from me. The republican strategy in Virginia for the last ten years has been to cut, cut, and cut some more. To advocate for low taxes is to win in Virginia. Reppublicans have created this mess, and citizens have let them do so by voting for them. I prefer to fix this by electing competent and responsible leaders, not by reorganizing which will do nothing other than kick the can down the road for another decade.
Mike just benched himself (again) from rational discourse. Surprise, surprise.
@LittleDavid –
Completely agree. I hope it’s a tough, hardcore solution that meets needs honestly. I will be greatly disappointed if it is not.
For my part, I can only be encouraged that someone of Senator Tom Coburn’s quality is matched with Senator Mark Warner. I like the Ryan plan, but we need a plan that does more than treat the symptoms. We need a bold cure.
Shaun says Conservatives are now stuck with a dilemma of sorts. Those who have beaten the Reaganesque mantra of government being close to home are now discovering their constituencies have little thrift for paying more in taxes for the same level of services.
Shaun I think the issue is that with a Fed government grower in the WH it is unlikely that states and localities are going to be delegated power and funding and that the Fed government is going to reduce its bite on the GDP. I am a big supporter of transferring more of the domestic services out of the Federal government to the states and localities. Yes that means that the tax share of states and localities should rise. However, that also means that the Fed share should decrease accordingly and stick to being the umpire rather than the manager and the owner and the players. People know in the current environment that one tax will be raised and the rest will go up to keep pace.
Shaun,
My first reaction to this piece was the same as D. J. McGuire’s–who says that the BOS has to pay whatever the School Board demands? The BOS is accountable to the taxpayers and voters, just as the School Board should be, not to some (probably) unconstitutionally vague description of “an educational program of high quality.” BTW, as I have posted on Bearing Drift in the past, there have been numerous studies in the United States over whether school budgets are better managed by elected or appointed school boards, including one in Hawaii, one in San Diego County, and one right here in Virginia where we have both elected and appointed school boards. The studies found that there was no significant difference in spending per student between elected and appointed school boards. The controlling factor, it would seem, is the Board of Supervisors, City Council, or whoever approves the overall budget.
However, I can help you solve your problem in Fluvanna County. Your real estate tax rate is 54 cents. In Virginia Beach it is 89 cents, in Arlington County it is 96 cents, in Fairfax County it is $1.09, and in Loudoun County it is $1.30. Bring your property taxes into alignment with the rest of the state and your schools will have more money than they can spend.
@HisRoc –
That’s $0.54 in 2006 assessment values… our real numbers are closer to $0.87 — right about where Virginia Beach is.
Shaun,
Then you might want to tell your County Treasurer to update his cobweb site.
“(current rate: $0.54 per $100 of assessed value for 2010)”
http://www.co.fluvanna.va.us/treasurer.htm
Shaun,
I just read your note again. Are you saying that you don’t do property assessments annually and that the effective tax rate now is based on higher assessments before the real estate slump? If so, your citizens are still paying the same dollar amount that they were paying in 2006. And property values in Fluvanna have dropped 61%?
Well, perhaps you just don’t want to acknowledge the effect of the state mandates passed down to local government without the funds to pay for them. The republicans who have signed the no tax pledge are most pleased to tout all the programs and services they have “cut” although in your role you now have to meet the expectations of your constituents without the benefit of those state funds. Anti tax republicans can’t have it both ways, no matter how your attempt to obfuscate the matter by recommending reorganizing the way local taxes are levied.
That’s precisely what I’m saying. Although staff believes property values have only dropped 20%.
We built a $67 million high school with a $77 million bond (used the extra $10 mil to pay the interest while the county slowly raised taxes to pay for the bond). We have the 12th largest debt per capita in the state… and we’re still paying down the debts of the previous BOS.
Next year we do our reassessment. Of course, the net revenue will not change, but for those hardest impacted by the slump, they will see a cut — for those least impacted by the slump, a tax hike. Fun times…
@Mike –
You know that old saying about it being better to say nothing and let folks wonder you’re a fool rather than speak and remove all doubt?
Just a thought.
@HisRoc –
As for the schools, I guess to me this is a determination of how seriously one takes a constitutional oath of office. In Virginia, we’re duty bound to a free and quality public education.
The governing bodies can keep them free, but only the school boards can keep them quality… and should they fail in doing so, the constitutional requirement is still beholden to local BOSs and City Councils.
It’s a Catch-22 without an easy solution until we bring spending and revenue under one head.
Shaun definitely a thought provoking piece. It is a real issue and I am glad that more people are starting to think about it. Not sure I agree with all your proposed solutions but getting the conversation started is an important step. Also, your reference on school boards needing to either have taxing authority or be responsible to the executive is good. I would add that school boards appointed by the BOS or city council would also work far better than the current system.
It might also help if more members of the General Assembly (regardless of party) had previously been elected officials in local government
Not saying they are perfect solutions either… but it’s more important to get that ball rolling and start asking the tough questions to folks in Richmond. Much thanks!
its easy to pound away at the Dillion Rule but the fact of the matter is that state legislatures without Dillion serve the same purpose of Dillion by publishing laws that spell out in great detail what their localities may not do. It makes for messier lawmaking as you can imagine.
Sorry to have struck a raw nerve Shaun, but if you help create a bed of thorns, don’t complain about having to sleep in it.
“Property taxes have to be the most ridiculous, crude, barbaric, and regressive form of taxation known to mankind. They make you a permanent lessee of your property and a permanent serf of your home, irrespective of your income or ability to pay.”
Not to mention they are the only area of taxation where we tax unrealized capital gains. You pay real money in taxes on the theoretical value of your home. Some folks in Northern Virginia paid property taxes for years on homes “assessed” at $400k, only to learn since the real estate bubble burst that their home is really worth only a fraction of that. They didn’t get a refund for all those years of paying taxes on the false value. Think about this, unless you’ve taken a mortgage loan on the “increased value” of your house, is it really worth any more to you if its market value goes up? Not really. It still serves the same function.
I’d propose that the value of property for the purpose of real estate taxation should be the last price sale price or the value of the last lean taken against it, whichever is greater.
Local governments, of course, would hate this.
Shaun,
I wish to applaud all of the Gang of Six for their involvement in trying to come up with a bipartisan solution. This type of thing is going to be necessary to break the partisan logjam and I describe their willingness to attempt it as exercising leadership.
I also want to single out Senator Kent Conrad’s (D-North Dakota) involvement for special praise. He has announced he is not going to run for reelection and some might say he has nothing to lose by getting involved. I say he also has nothing to gain through it, and in my opinion during the time of his service in the Senate, he has always been one of the finest Democrats in it.
Yes Steve, they would hate it, but then the rates would just be higher. I think this forum is missing the fact that one tax should not be seen in a vacuum; that is, to make the system fair, taxes should be levied broadly, and effect citizens differently, so that in sum, the system is fair and balanced. Property implies the need for service; of course it should be taxed. Sales taxes benefit local government, so does the BPOL tax and the personal property tax. Gilmore and the republicans could have done local government a real favor if he had abolished the hated car tax but replaced the revenue stream with a portion of the income tax, but that would not fit on a bumper sticker.
Mike Barrett,
I am a progressive income tax kind of guy and I see the problem with the BPOL tax. Businesses have to pay that tax even if they are losing money to keep their business licenses.
I’ll give myself as one of the best examples. I have a Va Beach business license. As fuel prices go up, I have to charge my customers more so that I can yield a reasonable profit (subject to competition). Even if I lose money on my business, I have to pay a gross receipts (BPOL) tax to Va Beach. As I charge my customers more for my money losing business, the amount of my taxes goes up.
This is not a strawman example, it is what I am facing in real life. As I attempt to get my new trucking business started, I am having to face the real prospects that my business might run out of money before it starts making money. Having to pay taxes on the gross instead of the net is especially painful. I might lose money, but still I have to pay.
Yes littledavid, I agree, and the Virginia Chamber, and our regional chamber, the HRCC, has always supported a revenue neutral switch to a business tax which solves that issue, perhaps a tax on net profit instead of income. Regretfully, the general assembly has heretofor not authorized this change. That is exactly what we has supported on the car tax, but Gilmore could not resist. Regretfully, this anti tax posture, which prevents rational reform, still prevails in the House of Delegates.
Little David,
Just how much is the BPOL tax in Virginia Beach? In Fairfax County your type of business would pay $1,100 per year on $1M in gross revenues. If your margins are so lean that you can’t afford that, well you should be asking yourself why you are in that business in the first place.
Not trying to pick on you, but one of my pet peeves about discussions of tax policy is that too many people want to focus on the philosophy of the tax and not address the actuality. Government is not free. Businesses create economic activity that is beneficial, but they also create needs for public services. As long as the services can be paid for by a rational and reasonable tax, then there is no harm or oppression.
BTW, the problem with basing the BPOL tax on profit rather than gross revenues is that it is too easy to legally hide profit and pay no tax at all. And that violates the economic principle of TANSTAAFL.
What about a real estate tax system where the last arms-length sale of the property is used for tax purposes? The idea being that the longer a person owns and pays taxes on a property the less burden they have placed on goverment services. If the property is determined to have been sold for less then its fair value, the locality could select from a pool of local appraisers to set the value. This would eliminate the cost of keeping assessors on staff or paying hundreds of thousands every 2-6 years to a contractor for a process that generates much animosity and misunderstanding about how assessments work. Let each property owner set their own taxes.
Thanks for a very thought-provoking post. I do have a policy question for you. I have always believed that one of the worst features of the Virginia system of government is the constitutional officer system. To me, it’s idiotic that in a lot of localities the County or City pays 70% or more of the office budget and yet the Board of Council has zero say over policy or performance. I know of many situations throughout the Commonwealth in which Commissioners, Treasurers, Clerks and even Sheriffs pretty much run lackadasical organizations. And there is nothing the Board and Council can do except cut funding. I definitely think the offices of Treasurer and Commissioner should be abolished. I think the Circuit Court Clerk should be appointed by the Circuit Court Judge just as the General District and J&D clerks are…for a lot lower salary. Just some thoughts….
HisRoc,
According to what I saw when I googled, Fairfax County taxes are much higher then you claim.
I was searching through my tax records, and when my wife saw what I was up to, she climbed all over me for being willing to disclose private information.
Let me explain my biggest beef with the BPOL. It does not make any difference on what you net, you pay on the gross. Under the income tax, I only pay on the net and if I lose money I do not pay anything. I do not have a problem with paying my share on profits, but I have a problem with when I am expected to pay taxes on the losses.
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