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The
Quicksand of Tax Reform
Finding
an appropriate tax mix for Virginia's localities is
no easy matter. Legislators should approach the
challenge of restructuring local government taxes
with caution.
The
most perplexing aspect of the tax reform debate -
deciding what revenue sources local governments
should be allowed to tap - is getting very little
public exposure. That may well be because it is so
complex.
Virginia
is not a home rule state and probably never will be.
The General Assembly has the ultimate prerogative to
determine which powers local and regional
governmental entities will exercise. These entities
have no inherent power to tax, although the Virginia
Constitution appears to contemplate that property is
to be taxed by local governments. Even as to
property taxes, the state legislature must enact
general laws empowering local governments to levy
such taxes and classifying which property will
subject to state taxation and which will be subject
to local taxation.
As
Virginia's population became more mobile and the
economy shifted from a predominantly agricultural
orientation, local governments looked to the General
Assembly to broaden their sources of revenue. What
was once a relatively uncomplicated system of local
government finance that depended primarily on real
property taxes plainly could not satisfy the
requirements of a post-World War II society.
When
the General Assembly added new sources of revenue to
the tax base of local governments, new political
problems arose. The independence of cities from
counties led to brutal competition between them for
new business sitings to enhance their respective tax
bases. Localities with high rates of residential
growth dreaded a future of rapidly escalating public
education costs with only the property tax to depend
on.
Central
cities, meanwhile, confronted a dramatic increase in
demand for services while surrounding counties were
drawing ever-larger shares of business growth from
those same central cities. The settlement patterns
in the major population centers were heavily
influenced by these governmental tax policies. As
the more urbanized local units raised taxes to meet
rising demands for services, new commercial and
residential development tended to move farther and
farther from those units, contributing to costly
urban sprawl. Annexation strategies long ago proved
inadequate as a solution to this problem.
As
Virginia entered the 21st century, the problem was
even more complicated than it had been decades
earlier. Central cities still had their daunting
challenges of increasing demands, stressed tax
bases, a disproportionate share of
government-dependent inhabitants and high crime
rates. But surrounding counties were beginning to
experience many of the same adverse conditions.
Virginia localities that were rural only decades ago
are now experiencing growth rates rivaling those of
the nation's fastest growing counties.
When
programs that were formerly financed by local
governments are assumed by state and federal
governments, the total cost has risen substantially.
Public education is a case in point. Federal and
state mandates have contributed to a dramatic
increase in operating expenses and the cost of
constructing new schools.
The
decisions of local governments have also swelled the
burden on state taxpayers. When one county decides
to increase the salaries and benefits of its public
school employees, the state's dollar-expressed
Standards of Quality increase as a result.
The
General Assembly cannot tackle broad tax reform
without entering this thicket. Once it does, it
should be careful not to worsen the overall
situation.
Our
elected officials in Richmond should resist the
temptation to rush into tax reform just to appease
commentators and interest groups who demand
immediate action.
--
August 11, 2003
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