Study: Local governments may face tougher times

By Bob Brickhouse

Virginia’s severe financial crisis means that local governments as well as the state face tough times ahead. But while state coffers overflowed during the boom of the 1990s, now it is the localities that are in better shape than state government, according to a new study by the University of Virginia’s Weldon Cooper Center for Public Service.

“So far, local governments have weathered the current recession better than in the previous recession, when a poor housing market diminished real-property tax collections,” said economist John L. Knapp. “However, in the near future, Virginia’s local governments will face difficult times, as the state reduces aid and as local tax revenues reflect the slow growth of the economy.”

Knapp also warned that “if the so-called housing bubble were to burst, this would cause a sharp drop in real-property tax revenue” for local governments and add to their problems.

The 270-page study, “Tax Rates 2002,” contains detailed information on tax rates levied in all of Virginia’s 95 counties and 39 cities and in most of the incorporated towns. The study is based on a comprehensive annual survey conducted by the Cooper Center.

As the state has cut local aid, city and county officials have protested that the unpopular job of raising taxes to maintain services may fall unfairly on them alone, with their main option being the real estate tax.

Virginia’s law providing car tax rebates makes it politically difficult for local governments to increase tax rates on cars, Knapp said. The state reimburses car owners on the basis of 1997 local rates and no large jurisdictions have increased their rates since then, he noted. In contrast, 19 counties, most of them rural, have increased their rates.

Information about ordering the Cooper Center’s “Tax Rates” is at:
http://www.ccps.virginia.edu/publications/new.html