The ins and outs of homeowner tax relief

The Top Story by Chris Graham

It sounds like magic. The state comes in and guarantees that homeowners aren’t forced to bear the brunt of the tax burden for local governments, and, voila, it is done, and everybody is happy.

Except for local-government officials, who have to figure out how to balance their books without access to a key source of revenues.

And business and industry leaders, who effectively are forced to carry the weight of the day-to-day operations of local governments on their backs, because after all, somebody has to.

But the dueling homeowner tax-relief plans of Tim Kaine and Jerry Kilgore aren’t about good government as much as they are about good politics. Right?

“This is something that most homeowners would like to see, and of course, homeowners tend to vote more regularly than non-homeowners. So they have targeted a good audience as far as the possible impact at the polls is concerned,” University of Virginia Center for Politics analyst Matt Smyth said.

“What we’ve seen over the years is an evolution of the promises made on tax issues. In 1997, it was the no-car-tax. In 2005, it’s tax relief for homeowners. It’s a nuance, but an important one,” Smyth said.

Kaine, the presumptive Democratic Party gubernatorial nominee, fired the first shots in the tax-relief war with the introduction of his proposal that would give localities the power to exempt up to 20 percent of the assessed value of owner-occupied homes and farms from taxation. Kilgore, the frontrunner in the battle for the Republican Party nomination, followed with a plan that would cap assessment increases for homeowners at 5 percent per year unless the property has been sold or improved.

Critics have charged that the schemes would hamstring local governments and dampen the state economy by shifting the tax burden to business and industry.

“Not only did we lose the ability to levy the car tax at the local level, but the state came in and promised to make up the difference, and then didn’t. It’s very frustrating to see this happen, and then see people talking about wanting to do more of the same,” Waynesboro mayor Tom Reynolds told the AFP.

“We need to be able to carve out our own tax base so that we can continue to provide services to our citizens, but it gets harder and harder to keep up when you have the state taking away our ability to raise money,” Reynolds said.

“It sounds like a good idea, but it’s going to end up biting us in the end,” Reynolds said.

Kilgore said that doesn’t have to be the case at all – as long as local governments are honest with their constituents about what they are doing.

“The dishonest approach to this has been to let property tax assessment go up by 20 or 30 percent, as they have across the state, and then you go in and cut the real-estate tax rate by a penny or two. That’s not tax relief for your citizens. That’s not being honest with your citizens. Ours is an honesty play that guarantees that assessments are going to be held in check,” Kilgore told the AFP last week during a campaign stop in Staunton.

“We’re dealing with the assessment side, not the tax-rate side,” Kilgore said. “We’re dealing with the assessment side in saying that you cannot raise your property tax assessments by more than 5 percent unless it’s sold or improved. And that’s akin to what’s going on in many other states across the nation to protect the assessment to not force people out of their homes.”

Kaine defended his plan by making it clear that he would see to it that revenues lost to local governments are made up by the state.

“What I’m saying to local officials and local taxpayers is this. I’m always going to fund K-12 education and higher education as per the state formula. I’m not going to short education. I’m not going to short cities and counties,” Kaine told the AFP last week in Staunton.

“The first thing that we’ll do to cut homeowner taxes is we’ll make sure that the state is doing what we need to do to fund the primary budgetary responsibility of every city and county, which is public schools,” Kaine said.

Everything could very well be fine – as long as the state would come in and do as Kaine says it should do. Not that many people in the local-government and business and industry sectors expect that to take place as the lieutenant governor has laid it out.

“My gut reaction to it is that it is likely that we will see a shift in the tax burden from residential property owners to business and industry. When you take away one source of revenue, or do something to reduce the amount of revenue from that source, the money to make up for that has to come from somewhere,” said Laurie Peterson, the president of the Richmond-based Virginia Retail Merchants Association.

“Either that, or you have to see a cut in services. How this is going to be done, I don’t know. It could be a tax on consumers to make up the difference. Or it could simply be something that is placed directly on businesses. Whichever it is, it is something that is a concern to those of us in the business community,” Peterson told the AFP.

“The chamber has regularly and actively opposed both of these ideas when they have been presented in the past,” said Stephen Haner, the vice president for public policy at the Virginia Chamber of Commerce.

“We have opposed efforts to grant homestead exemptions, as we did this past General Assembly session, successfully. And we have made it clear that it is our position that if you’re going to tax real estate, if you’re going to tax business, if you’re going to tax industry, it has to be done evenly across the board. It has to be done at 100 percent of full market value, and it has to be done at the same tax rate. This is a bedrock principle for us, right up there with right-to-work laws and other bedrock principles,” Haner said.