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The end of the car tax as we know it – revisited

The Top Story by Chris Graham

Tim Williams doesn’t like passing the buck to taxpayers any more than he has to – particularly when Richmond is awash in money from those same taxpayers.
“The state has a surplus, and here they are passing this onto us. I don’t understand that. They made the promise, and now they’re reneging on it. They should step up and fulfill that promise that they made,” said Williams, who voted against a resolution ultimately adopted last month by Waynesboro City Council that will in effect pass to city taxpayers the burden for making up the difference between what the state is actually reimbursing localities under the Personal Property Tax Relief Act of 1998 and what it is supposed to be returning to localities.

“For us to pass this onto the taxpayers doesn’t make sense to me. We’re asking our taxpayers to do a lot already, and now we’re going to add to that. It just doesn’t make sense to do things this way,” Williams told The Augusta Free Press.

The difference – in the area of 8 percent on the average River City personal-property tax bill – is the result of a cap that was put in place by the Virginia General Assembly in 2004 as part of a budget compromise agreed to by state legislators in the spring of that year.

The $950 million cap on the reimbursements for personal-property taxes was supposed to reflect an amount equal to 70 percent of the total bills to be paid by taxpayers statewide. But with new cars being added to the tax rolls every day, localities – and private citizens – across the Commonwealth are beginning to face the dilemma that Waynesboro leaders themselves had to face recently.

“The car tax is a promise broken to the taxpayers of Virginia, and I know that the taxpayers that I represent are furious about that broken promise, among many others,” said Del. Ben Cline, R-Rockbridge, who voted against the cap on reimbursements that was adopted in 2004.

Cline has been working with other fiscal conservatives in the House Republican Caucus to come up with a plan for lifting the cap – so far to no avail.

“Unfortunately, the problem that we’re running into is that the same hypocrites who promised to work to keep taxes low for their constituents and who then voted to freeze the car tax are still there – and they oppose efforts to remove the cap. They’d rather push the tax burden back onto taxpayers than try to save it by working to cut wasteful government spending,” Cline told the AFP.

It’s not that cut-and-dried to the leader of the Republican caucus in the House of Delegates, Weyers Cave Del. Steve Landes, who voted for the cap as part of the ’04 budget compromise “because it was one key ingredient that the Senate really wanted, even though a lot of us were not enamored with it, or some of the other parts of the tax-package compromise.”

“The budget situation, obviously, was not as bad as Gov. Warner and some folks made it out to be in 2004,” Landes told the AFP. “We’ve had record surpluses since then. They won’t last forever, but it does make sense to invest those dollars in things like making good on the promise of the car tax or investing in transportation and some of those other things – and that’s what we’ve tried to do.”

Landes said House GOP leaders want to lift the cap and finish the phaseout of the car tax – “and I think we will be able to do that.”

“The thing that we as Republicans need to express more is the promises that we’ve made and the promises that we’ve kept. When we promised the abolition of parole, we made good on that. When we talked about juvenile-justice reform, we’ve made good on that. When we talked about doing something like phasing out the estate tax, we’ve made good on that,” Landes said.

“There are all sorts of things that we’ve looked at and promised in various campaigns, and I think there’s still enough of us on the Republican side who want to phase that out to try to make good on that. But it’s probably going to take another governor to come forward and basically say, I want to do this, once and for all,” Landes said.

“Right now, the Democrats and some members of the Senate and the governor are still saying that we don’t have enough money, and we need to go back and ask people for more money. That’s what the debate over this comes down to – whether people want to pay more taxes, or they don’t,” Landes said.

Landes’ counterpart at the head of the House Democratic Caucus, Alexandria Del. Brian Moran, agrees with Landes and the House GOP that the state needs to make good on its promise to get rid of the car tax.

“The problem is, it’s expensive to eliminate,” Moran told the AFP, noting the additional $400 million to $500 million in annual monies that would be needed in addition to the $950 million in annual expenditures already budgeted for under the ’04 cap to complete the phaseout of the local tax.

“This is a sword of Damocles hanging over us – because financially, it’s expensive to eliminate, and politically, it’s unpopular,” Moran said. “It’s certainly imminent, and we need to address it. Because it really is a sword of Damocles.”

Moran said he has been involved in discussions with legislators from his home region of Northern Virginia who, like him, have been told repeatedly by their constituents that they want to see the tax done away with.

“The thing is, we’re devoid of ideas about how to do it,” Moran said. “The money has to come from somewhere – it has to come from the state budget. And no one is standing in line to have their budget reduced.

“We need to address it, but it takes money – just like transportation,” Moran said, referencing the ongoing debate over transportation funding that also seems to have no end in sight. “It’s difficult. There is no silver bullet – because it takes money, and we just fought over money for transportation, unsuccessfully. And funding the entire car-tax elimination means taking money from other services – and nobody’s standing in line to have their budgets cut.”

In the meantime, people on the front lines of local government are left to deal with the consequences – a feeling that Lt. Gov. Bill Bolling, a former chairman of the Henrico County Board of Supervisors, knows all too well.

“We need to get rid of the cap,” Bolling, a Republican, told the AFP. “If we say we’re going to refund 70 percent, we need to refund 70 percent. But right now, it’s a facade – because we say we’re refunding 70 percent, but we’re really not, because we’ve capped the amount of money that we’re putting in it. Localities are upset about that, and they have every right to be upset about that.

“I thought it was a mistake to put the cap in place,” said Bolling, who voted against the 2004 cap as a member of the Virginia Senate. “State law says that we’re reimbursing at 70 percent – so we ought to be reimbursing at 70 percent. When you put the $950 million cap on it, what you do over time is that reimbursement rate goes down. We’re not reimbursing at 70 percent any longer – so localities either have to eat that, or they have to make it up. And I can’t blame them for wanting to make it up – because we’re not fulfilling our commitment.”

Waynesboro mayor Tom Reynolds is sounding a similar message in his analysis of the vote last month in his city.

“The state promised something that it then decided that it didn’t want to deliver. And so now, instead of being subsidized by the state at 70 percent, the local taxpayer is only being subsidized at 62 percent here in Waynesboro. And this is happening obviously in every locality in Virginia,” Reynolds told the AFP.

“People that are upset because they’re going to have to pay a few more dollars out of their own pocket when they had gotten used to the state paying it on their behalf – they need to go to the state and talk to those people. Because the localities had nothing to do whatsoever with what happened – either at the beginning or not,” Reynolds said.

“This personal-property tax was a local tax – one of the few local taxes that we’re allowed by the state. And when Jim Gilmore came into office, they took that away and then gave the money back – calling it aid to localities. So they took a local tax away, called it aid and then counted it against the aid that they’re providing. So in fact the localities ended up losing in this deal with the state,” Reynolds said.

Reynolds is far from being the only elected local-government official in the Old Dominion upset with the way things have worked out with the car-tax relief plan.

“We’ve all sort of been fearful of it since its inception. And now, as the state so often does, they’re going to pass the buck back to the localities to handle this thing. I don’t like it, and I don’t think the taxpayers are going to like it. I just honestly don’t know what we’re going to do about it,” said Dickie Bell, a member of Staunton City Council, which also voted last month to pass the difference between what the state is reimbursing localities under the car-tax plan and what it is supposed to be returning to localities to Staunton taxpayers.

“It would be nice if the state would give you something to hang your hat on – and they tend to time after time come up with this legislation, and it sounds good, and it gets people elected, and then they just sort of leave us holding the bag when it doesn’t work,” Bell told the AFP.

“It wasn’t a good action in the first place. It sounded good – and it got one man elected. But as far as the localities were concerned, it was a bad idea from the very beginning – because the state didn’t have a solid plan in place to replace those revenues that we were going to lose,” Bell said.

“What has happened is that this car-tax promise that was made turned out to be one of those 300-pound gorillas that kept getting bigger and bigger and bigger,” Reynolds said. “And it was becoming unmanageable, and the costs just kept on escalating almost geometrically. Because every time somebody buys a new car, how much more does the state have to provide to localities? It just got out of hand, and went beyond what the initial concept was. So they decided that the only way to keep this thing from just continuing to run amok was to cap it.

“They didn’t look 10, 15 years into the future to decide what was best to do. Now, this group has decided that the only way they’re going to be able to handle this is to just go ahead and put a cap on it – and that way, whatever happens happens, and they’re not going to have to worry about it continuing to grow and grow and grow,” Reynolds said.

Reynolds emphasizes that Waynesboro City Council’s action relative to the reimbursements to local taxpayers was something that was forced on city leaders.

“We didn’t mess with the tax. The state of Virginia pays a portion of the tax on your behalf. It’s a tax relief, not a tax cut. There’s no change in the tax. It’s just a matter of a change in the tax relief. A change in tax relief is not a tax increase, despite how some people are trying to characterize this,” Reynolds said, referring to talk around town that the tax vote could surface again in 2008 when the city holds its next city-council elections.

The car tax could very well be an issue for voters in Waynesboro, Staunton and other localities in ’08 – but between now and then there is another election involving all 140 seats in the Virginia General Assembly that will take center stage next year.

“At the state level, taxes and funding are already a big issue – with the recent transportation session, and the off-year elections coming up in 2007, with the Senate and the House seats up. It’s going to be one of many topics. I doubt it’s going to be the defining issue – but it’s another point on the list for both sides, really, to talk about either why it should be improved on, why it should be extended, or why it should be gotten rid of,” University of Virginia Center for Politics analyst Matt Smyth told the AFP.

“This has been somewhat controversial since it first came up – so my feeling is that until it’s either completely phased out or otherwise gotten rid of as an issue, it’s always going to be a big political football that’s going to be tossed around,” Smyth said.

Taking a different view on this is James Madison University political-science professor Bob Roberts, who doesn’t think the car-tax issue is “going to cause a great uproar” in ’07.

“The issue is that there’s so much pressure to raise more money – and there’s essentially no money to give back,” Roberts told the AFP. “So I doubt it’s going to be a driving issue again anytime soon. Because what are you going to get rid of the car tax with? There’s no money. When they’re fighting about finding millions of dollars for highway construction, neither party can afford to say, Let’s add this to our plate, too.”

This is a point of concern for Bell, among others in local and state government in Virginia.

“I’ve had mixed feelings about this from the beginning,” Bell said. “If they had gone in and eliminated it altogether, people would have certainly felt good about it. I think what we’re seeing now with this is it’s very hard to give people something and then take it back – whether that’s a tax cut or a refund. That’s when people really get upset – because they feel like they’ve really been cheated by that kind of action. And I can understand that thinking.

“I think we’re at a point right now where we need to decide what we’re going to do with it,” Bell said. “Are we eventually going to do away with it, or are we going to reinstate it? What’s going to happen? Because if we just make a political football out of it, the only people that lose are the taxpayers – and of course, we at the local level have to listen to that. And we can’t even give them any satisfaction, really. Our hands are sort of tied on this.”

(Originally published 10-09-06)

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