Commission on State and Local Government
Responsibility and Taxing Authority
July 24, 1997, Richmond
The tangible personal property tax, the personal income
growth outlook for citizens of the Commonwealth, and budget
pressures were the main topics of discussion during the commission's
meeting in Richmond. Lieutenant Governor Donald Beyer
presented his personal property/income tax credit plan, followed by
three economists who discussed their outlooks for personal
income growth over the next five years. The assistant commissioner
of finance for the Virginia Department of Transportation
(VDOT), discussed VDOT's mandatory expenditures, priorities, and
funding for the next two biennia. Finally, staff from the House
Appropriations Committee updated the commission regarding
budget pressures, particularly in the area of public education.
Under the Lieutenant Governor's plan, single taxpayers
with annual adjusted gross income up to $40,000 would receive
an income tax credit of up to $150 for personal property tax paid
on one motor vehicle. Married couples with annual adjusted
gross income up to $75,000 would receive a tax credit up to $250.
Individuals who do not pay income tax would not receive the credit.
Like former Attorney General James Gilmore's plan, the
credit allowed would only apply to personal property tax paid on
privately owned vehicles.
The cost of the Beyer plan is estimated to be $202
million annually or $808 million over the next four years.
Economists from George Mason University, the Weldon
Cooper Center for Public Service at the University of Virginia,
and the College of William & Mary offered their best estimates
regarding the outlook for personal income growth among
Northern Virginia Forecast
While a strong economic performance in Northern Virginia does
not necessarily mean the state's economy will also prosper, it is difficult for
the state to maintain expansion without continued growth in
Northern Virginia's economy. Northern Virginia's share of Virginia's
total personal income was 35 percent in 1996. Strong job growth during
the last five years has resulted in low unemployment, with the highest
area unemployment rate in May being 3.7 percent in Warren County, while
the state rate was 4.2 percent. Because Northern Virginia's economy is
expected to continue a strong expansion pattern for the next three years at
a minimum, the state's economic expansion is also expected
to continue for the same period.
There are some unknowns, however, which could affect
the state's economic performance. They are federal spending,
the labor market, interest rates and inflation, the national
economy's performance, and global stability. Any negative change in
these factors would most likely reduce expected growth.
Predictions for average statewide personal income
growth rate over the next six to eight years ranged from 5.2 percent
to 5.6 percent. Both economists' predictions included inflation
as a factor, both took into account historical rates of growth,
and both examined forecasts by the WEFA Group and NPA
It was also brought to the attention of the commission
that even if personal income growth does continue for the next
few years, the localities do not directly benefit from such growth.
It is logical to assume that along with personal income
growth comes an increase in state revenues due to an increase in
the amount of income taxes paid. There are, however, no
local income taxes. Will taxpayers consume more, thereby
causing an increase in sales tax collections, a portion of which is
returned to the localities? Will taxpayers spend their money
on more real and personal property, thereby increasing real
and personal property tax collections? There is no way to be sure.
So what is good for the Commonwealth may or may not be
as good for its localities.
VDOT Expenditures, Priorities and Spending
VDOT is responsible for maintaining and constructing
the third largest state maintained system in the nation, with
over 65,000 miles of highways (interstate, primary, secondary,
frontage and urban). It is financed from federal, state, and
local taxes and tolls and other revenues. Ninety-five percent of
state sources are produced by the motor fuels tax, motor vehicle
sales and use tax, motor vehicle license fees and state general
sales and use tax.
The Commonwealth Transportation Funds have grown
an average of 3.1 percent annually for the last 10 years. They
are expected to increase at an average annual rate of 2.5
percent over the next six years, from $1.6 billion in fiscal year 1998
to $1.83 billion in fiscal year 2003. Total federal
transportation funding for distribution nationally, depending on currently
pending federal legislation, is expected to be between $19
billion and $21.5 billion in 1998. For Virginia, current revenue
estimates assume an average of $500 million per year for
fiscal years 1999-2003.
According to a recently completely needs assessment,
VDOT identified total highway needs of $46.7 billion. This
assessment is an update of the 1994 Moderate Needs Inventory,
which identified $34.7 billion of highway needs.
Budget Pressures Update
Little change in the bottom line occurred since the last
meeting of the commission. Required cost increases for the
1998-2000 biennium are still expected to total approximately
$1.0 billion. This does not include salary increases and capital
outlay, which would raise that amount to over $1.5 billion.
Regarding the area of public education, the Department
of Education's preliminary request is for $299.6 million for
the biennium. This is actually about $110 million less than
the 1996-98 biennium. School enrollment is still growing, but
the rate of increase is slowing down as is the increase in
special education students. Also, the per-pupil cost actually
declined for textbooks, health insurance and instructional support.
However, these preliminary numbers do not include some areas
in which costs may increase, such as the K-3 reduced class
size program, preschool for at-risk four-year-olds,
truancy/safe schools, English as a second language programs, reading
instruction and remediation, homebound programs, and
hospitals, clinics and detention homes instruction.
Ms. Eva Tieg, Chair
Legislative Services contact: Joan E. Putney