Joint Subcommittee to Study and Revise Virginia's State Tax Code

HJR 60 (2002)
HJR 685/SJR 387 (2001)

TASK FORCE #1

August 19, 2002

Task Force #1 of the joint subcommittee studying the state tax code held its fourth meeting of the year in Richmond. The purpose of the meeting was to hear testimony related to specific issues on the task force list and make further recommendations regarding such issues.

Testimony before the Task Force

The first issue addressed dealt with the creation of a permanent body to review state and local revenues and expenditures issues on an ongoing basis. This proposal originally came from the Morris Commission. From 1968 to 1979, a body known as the Revenue Resources and Economic Study Commission (RRESC) existed. According to the testimony of John L. Knapp, Ph.D., the Research Director of the Business and Economics section of the UVA Weldon Cooper Center for Public Service, RRESC's mission was to study the tax structure and sources of revenue of the Commonwealth and its localities and to recommend reforms. The membership of RRESC consisted of senators, delegates, and the public. Initially, the commission had a staff director, with research assistance provided by employees from the Division of State Planning and Community Affairs, the Department of Taxation and the Division of Legislative Services. It finally had its own five-person staff in 1978.

One of the many topics examined on a continual basis was the long-term outlook for state and local government finances using six-year projections. The commission issued numerous reports and many of its recommendations were adopted into law. As the Senate Finance and House Appropriations staffs, as well as those at the Department of Taxation, the Joint Legislative Audit and Review Commission (JLARC) and the Division of Legislative Services grew, the need for a separate RRESC became less obvious. These additional staff members have been doing much of the research that was formerly done by the RRESC. However, Dr. Knapp believes not enough research is being done to examine the long-term (i.e. six-year) outlook for finances and that a new study commission could take on that task.

Next, the staff directors of the House Appropriations and Senate Finance committees explained that each of their staffs as well as the Department of Planning and Budget routinely conduct technical reviews of funding formulas contained in statutory law and utilized in funding through the appropriations act. When a more thorough examination is required, their staffs rely on the work of JLARC, the State Crime Commission, joint study committees (such as this one), or the Executive Branch.

In addition, legislation was passed during the 2002 General Assembly Session that requires the governor to submit to the General Assembly Session in each even-numbered year a long-term financial plan providing a six-year financial outline consisting of (i) the Governor's biennial budget, (ii) estimates of anticipated general and nongeneral fund revenues for each major program, and (iii) estimates of general and nongeneral fund appropriations required for each major program.

It was the concensus of the task force that, while RRESC served a valuable and useful purpose during its tenure, it is not clear that it is currently needed with the additional executive and legislative branch personnel doing most if not all of the same work RRESC did. Also, with the current economic shortfall, finidng the money to creatine such a commission is highly unlikely.

The 50/40/10 revenue sharing plan proposed in the Morris Commission report as a way to return more state income tax revenues to the localities was the next issue on which the task force focused. Members of the Virginia Municipal League (VML) and the Virginia Association of Counties (VACO) are still tweaking the plan and hope to have more information for the full joint subcommittee at its meeting in September. VML and VACO are also working on the list of local mandates imposed by the state, their suggestions concerning how service responsiblities could be better provided at the state and local levels, and which level of government should pay for the services.

Finally, regarding the appeals process issue, the Tax Commissioner described a number of ways the "pay-to-play" requirement and the creation of a separate tribunal might be addressed. The task force discussed allowing the posting of a bond instead of paying the tax, classifying an appeal to the Department of Taxation as a case decision under the APA, having an appellate officer in the Department of Taxation who deals only with appeals, and creating an external appeals process similar to the current process used by the Board of Insurance regarding managed care. The task force did not make a final recommendation regarding the appeals process.

Future work of the Task Force

Although the task force did not make any further recommendations concerning the issues before it, its members did decide that they should also take a closer look at the service responsibilities of both state and local government and whether some changes should be made in which level of government provides what service. The widely held opinion was that the amount of revenues needed and tax relief available cannot properly be determined without deciding whether some changes in the delivery of services are necessary in order to serve the citizens of the Commonwealth in the best and most efficient manner. Discussion of an additional meeting of a subcommittee of the task force was mentioned but no date was set and no members appointed to the subcommittee. Several task force members expressed concern over the shortfall in revenues of the Commonwealth and suggested that any major tax restructuring might have to be delayed and that the study be continued for a third year. The chairman of Task Force #1 will report to the full joint subcommittee at it next meeting on September 12th in Richmond.

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