The cost of homeowner tax relief: Will the burden be borne by business, industry?

The Top Story by Chris Graham

What’s good for residential property owners is not so good for business and industrial property owners. Not to mention local-government officials charged with the responsibilities of providing public services and balancing the books at the end of the day.

“The net result of having differentials in the tax rate for residential property and for business and industry property is that the books end up getting balanced on the backs of business and industry. That’s the bottom line with this,” said Stephen Haner, the vice president for public policy at the Virginia Chamber of Commerce, referring to the dueling homeowner tax-relief plans rolled out in the past week by gubernatorial candidates Tim Kaine and Jerry Kilgore.

Kaine, a Democrat, has offered a proposal that would give tax relief to homeowners by means of a constitutional amendment that would allow localities to exempt up to 20 percent of the assessed value of owner-occupied homes and farms from taxation.

Kilgore, a Republican, has endorsed a reform package that would cap local residential assessment increases at no more than 5 percent per year unless a property has been sold or improved.

Both ideas would seem to appeal politically to those who own their own homes – important because those who own their homes tend to vote at higher rates than those who don’t.

The problems with the two tax-relief schemes come in the details.

“To me, the biggest problem is that these plans would both clearly benefit certain areas of the state. If you’re in Fairfax County, for example, or Chesterfield County or Henrico County, it would clearly benefit you, because the effect of this is going to be to shift some of the burden from residential taxpayers to business and industry taxpayers,” James Madison University political-science professor and political analyst Bob Roberts said this week.

“And if you’re in one of those larger areas, it won’t be difficult at all to make that happen because of the volume of business and industry interests that you have. But if you are, for example, Augusta County, how do you make up the revenue that you might lose if this goes through and the state doesn’t follow through on its promises? Do you tax Hershey to death?” Roberts told The Augusta Free Press.

The money would have to come from somewhere, said Jim Bailey, the chairman of the Augusta County Board of Supervisors.

“Our number one source of revenue in Augusta County is real-estate taxes. Without that tax base, I don’t see how we could provide the services that we do,” Bailey told the AFP.

“We in Augusta County have been fortunate that we have been efficient in our day-to-day government operations. That’s why we’ve been able to maintain our low tax rate (58 cents per $100 assessed value) at the level that it’s been for some time now,” said Bailey, a Republican.

“That doesn’t mean that the pressures aren’t there,” Bailey said. “If we’re going to be faced with having to make up some of those revenues because of something being done at the state level, we could be forced down the road to either cut back on the services that we provide or increase taxes on our citizens. Either way, I don’t see what that accomplishes.”

Staunton mayor John Avoli, also a Republican, sees “more of the same” with the homeowner tax-relief plans that have been brought forth as that which was handed down to localities in the form of former governor Jim Gilmore’s car-tax relief program of the late 1990s.

“This is how the state has dealt in recent years with local governments. Just look at the car tax and where that left us,” Avoli told the AFP.

“The bulk of the revenues that are used to support local-government operations come from real-estate taxes. This would seem to strike at the heart of our ability to do provide public services,” Avoli said.

Kaine has attempted to bridge the revenue gap by promising to eliminate unfunded mandates handed down from the state to localities in addition to pledging to fully fund the state’s share of local public education as mandated by the Standards of Quality.

“Yeah, right,” was Avoli’s reaction to that part of the Kaine relief plan. “We’ve heard that tune before.”

“I don’t think these plans will get a whole lot of support from local governments,” Bailey said.

“It’s absolutely terrible the way these kinds of things get handed down to us. Everybody talks about unfunded mandates. We also hear a lot in terms of promises from the state that don’t get delivered,” Bailey said.

“I believe in the idea of if it ain’t broke, don’t fix it,” Bailey said. “I think the system that we have in place now and have had in place for decades is working well. There’s no need to fix it.”

There might be more fixing to be done in the future should one or the other of these proposals end up being adopted.

“If the burden is effectively shifted over to business taxpayers, which seems to be the case with this, that’s clearly not going to go over too well,” Roberts said. “It’s not going to sit well with existing business and industry citizens, and it’s not going to help attract new business and industry to the state.”

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