10/04/12: The state shirks its responsibility

This op-ed appeared in The Virginian-Pilot on the date shown.

THE IMAGE of a tortoise graces the opening section of the latest State of the Region report. Slowly, our regional economy is growing.

In his presentation Tuesday, James V. Koch, professor of economics and president emeritus at Old Dominion University, highlighted some of the trends that led him and his team to this conclusion.

Median household income continues to rise, even as the number of jobs has declined. Our unemployment rate is below the national average, although slightly higher than the state average. The port, a vital part of the economy, is making progress. Residential housing value decreases appear to have bottomed out, unsold inventory is down and housing is more affordable than it has been for at least 30 years. Tourism is rebounding. Overall, the economy in Hampton Roads is expecting to grow 1.97 percent in 2012. With defense spending accounting for almost 46 percent of our regional gross domestic product, Hampton Roads has not suffered as much as other areas. Such a lack of diversity in the economic base, though, comes with a price: Already announced spending cuts will have an unmeasurable effect. Should sequestration take effect, Hampton Roads is likely to lose at least 26,900 jobs — and as many as 42,450.

It is easy to look to Washing-ton as the source of our fiscal strain, so my ears perked up when, nearing the end of his presentation, Koch mentioned the Dillon Rule and its effects on localities.

Within the report, which is available online at http://bpa.odu.edu/forecasting/sor2012.php, is a chapter devoted to the question, “Does the commonwealth balance its budget on the backs of local governments?”

I didn’t have to look at the data to answer that. It is, of course, yes.

The Dillon Rule constrains localities to do only those things expressly allowed by Richmond. Among those is the power to raise taxes.

According to the report, while “there are at least 20 different taxes that some or all local governments” are allowed to enact, only three have been imposed by all 134 localities in Virginia: real estate taxes, personal property taxes and the 1-cent sales tax. Combined, these three comprise more than 80 percent of the local tax revenue.

A reduction in money from the state to the localities simply shifts the burden, forcing the localities to raise revenues locally. State aid to localities has decreased over the last 10 years from 34.8 percent of local government revenues to 30.6 percent, while the share of local revenues has risen from 58.3 percent to 61.4 percent. The remainder was made up by an increase in federal revenues, from 6.9 percent to 8 percent.

The biggest tool in the local taxes toolbox is real estate taxes, which generate a whopping 63 percent of local revenues. The report concludes that “some (though not all) of the property tax increases that the region’s citizens have experienced in recent years effectively have been manufactured in Richmond.” The increases in other taxes, such as consumer utility taxes, can also be laid at the feet of Richmond.

I have no love for the Dillon Rule. But I don’t see it changing any time soon. That being the case, the report makes an important point about it: “The oftentimes neglected flip side of the Virginia General Assembly assuming all power and parceling out limited authority to local governments is that it means the state has to be willing to assume responsibility for cities, counties and towns having the resources needed in order to effectively govern their communities.”

Further, “Reality is that the commonwealth is best situated via its income and sales taxes to raise the revenue needed to support local services.”

After 10 years of decreasing contributions to its tightly controlled localities, it’s time for lawmakers in the General Assembly to step up and do what the people of Virginia have entrusted them to do.