In her July 1, 2000, budget letter to the citizens of Fairfax County, Chairman Hanley stated, "... General Fund direct expenditures for County operations increased just 4.42 percent over FY 2000." This would mean that county expenditures did not increase faster than population and inflation. Unfortunately, her figure ignores county transfers to other funds, including the public schools, and does not show the increase since last year’s adopted budget. The truth is that county total General Fund Disbursements, which is the sum of transfers and of the direct expenditures referred to by Hanley, have increased 9.6 percent over the FY2000 Adopted Budget. This is more than twice as much as the increase in population and inflation.

Virginia state taxes and spending are also at record highs.

Both local and state tax increases are driven primarily by school and social spending, which in turn divert money from badly needed transportation improvements. No matter how much a thriving economy drives up tax revenues, schools and social programs always claim to require more than is available, thus precluding overdue tax cuts. Neither schools nor social programs offer accountability measures to justify their spending sprees. On the contrary, the public school advocates are lobbying to eliminate the Virginia Standards of Learning tests, which are the state’s very first attempt to set academic standards for school accreditation and meaningful standards for high school graduation.

Not withstanding recent tax increases, schools, business, local, and state government are poised to lobby for more tax hikes. The Transportation Coordinating Council of Northern Virginia, an advisory group of locally elected officials, has approved the "Northern Virginia 2020 Transportation Plan", which advocates higher income, sales, and gasoline taxes plus more tolls to pay for $14 billion of new highways and rail.

In December of this year, the Commission to Study Virginia’s State and Local Tax Structure for the 21st Century will probably recommend tax increases to the state General Assembly.

Moreover, the Virginia Baseball Stadium Authority just released a study trying to justify $300 million of state bonds to build a 48,000-seat baseball stadium with 5000 club seats and 100 suites.

This issue of the FCTA newsletter will address these issues in greater detail. The quick reply for politicians, business leaders, and newspaper editors who demand higher taxes is to ask them what we have gotten for the enormous tax increases we have already had.

Stadium Analysis is Off-base

By Perry H. Young

Dr. Stephen Fuller of George Mason University recently released his study of the economic impact of building and operating a Major League Baseball stadium in Northern Virginia. He claims that a public subsidy of such a stadium would make a good investment for Virginia citizens. Under closer scrutiny, many of his arguments are not as strong as they may first appear.

Dr. Fuller claims that over the thirty year span of the stadium’s proposed financing by public bonds, the revenue generated by direct taxes on stadium operations and induced economic activity in the area of the stadium would more than pay for the cost of the bonds that financed it. His analysis does not anticipate the unavoidable ups and downs in game attendance as the fortunes of the team change, nor does he mention the well-established "honeymoon effect" that predicts a sharp drop-off in fan attendance at games after a period of high attendance early in the stadium’s operation. He also does not seem to anticipate the inevitable requests for additional funding for improvements to the stadium. His paper does not include one example of a stadium that consistently generated enough revenue to pay for the costs of bonds issued to finance the stadium. Many counter-examples exist. For example, according to Bruce W. Hamilton and Peter Kahn’s article, "Baltimore’s Camden Yards Ballparks", included in the book Sports, Jobs & Taxes: The Economic Impact of Sports Teams and Stadiums, edited by Roger G. Noll and Andrew Zimbalist, "the state of Maryland spends approximately $14 million a year to attract approximately $3 million a year in job-creation and tax-import benefits." In addition to whatever Baltimore Orioles fans pay to attend games, Maryland citizens, whether they attend games or not, are being forced to pay $11 million a year to keep the team in town.

Even if it were a safe assumption that revenues would be fairly constant over the thirty year period that the stadium would be paid for with public funds, Dr. Fuller may very well overestimate the induced economic impact of having a stadium in Northern Virginia. He makes the well-worn arguments that having a stadium in or near a community will result in increased spending in the community. He neglects to mention that much of this spending is entertainment spending made by consumers that are choosing between competing alternatives. If baseball were not available in the community, these consumers would have spent their entertainment dollars elsewhere in the community. Many of the jobs that are supposedly created by the building of the stadium are, in fact, jobs that are shuffled from other places that would have benefited from entertainment dollars being spent elsewhere. Much of the supposed economic impact of a stadium is also greatly dependent on where it is built. However, a proposed site has not even been selected. Dr. Fuller bases his analysis on hypothetical locations and on assumptions that zoning regulations, land development, and transportation will come together in a favorable manner that will lead to an ideal outcome.

It is interesting to note that one of the prime arguments for building a stadium is that it would induce economic growth. This has led to a competition of sorts between the neighboring areas of Northern Virginia and the District of Columbia to attract a baseball team. Michael Frey, a member of the Fairfax County Board of Supervisors and the chairman of the Virginia Baseball Stadium Authority, states on the authority’s web site that "Since 1971: …Personal income in Northern Virginia -- $68.4 billion in 1998 -- has shot up by 194 percent, when adjusted for inflation, while the District’s $19.3 billion grew by only 8.7 percent." This seems to be an argument that Northern Virginia already has plenty of economic growth without a baseball stadium. It would seem to be a prime argument to locate a new or relocated baseball team in the District of Columbia, which needs economic growth much more keenly than does Northern Virginia, and which already has RFK Stadium available to accommodate a team. RFK stadium is also conveniently located near a Metro station, and would therefore lead to increased ridership of Metro outside of rush hour. This could even mean a decrease in the subsidy to Metro currently paid by Northern Virginia residents.

Throughout the report, Dr. Fuller states that economic benefits of the stadium would be of enough real value to Northern Virginia citizens to justify a large public subsidy, but a closer look at the facts presented and not presented in the report would indicate otherwise. Virginia taxpayers should not be asked to fund a baseball stadium when a large body of evidence, evidently overlooked by Dr. Fuller, shows that it is a poor public investment.

A Commission to Raise Virginia’s State and Local Taxes for the 21st Century?

Virginia taxpayers can expect a new impetus for higher taxes when the Commission to Study Virginia’s State and Local Tax Structure for the 21st Century makes its report on December 1, 2000. Not only will its report be completed just in time for the next General Assembly, it may also frame the issues for next year’s gubernatorial elections.

The Virginia General Assembly established the Commission in February, 1999, through House Joint Resolution No. 578 and Senate Joint Resolution 401. The resolutions’ 19 "whereas" clauses note that "... the local real estate tax was first imposed in 1645 under the reign of England's King Charles I, the personal property tax was enacted in 1654 under Lord Oliver Cromwell, and the Business Professional and Occupational License (BPOL) tax was first imposed on a blacksmith to fund the War of 1812." The clauses also state that the sales tax was established in 1966 and the current income tax was adopted in 1971. Nowhere, however, do the clauses state that during the 1980s these antiquated taxes increased Fairfax County’s per capita revenues 50 percent, when adjusted for inflation.

The joint resolutions charge the commission to "... examine what other states have done to assist their localities with raising revenues paying particular attention to those states in which a local income tax is imposed." There is a caveat that: "The commission is specifically directed to develop revenue-neutral recommendations that will not increase Virginia's per capita state and local tax burden." However, partially replacing a property tax with a new local income tax may be "revenue neutral" when implemented, but it will lead to higher taxes if income continues to increase faster than property values.

The commission consists of 13 members, none of whom are elected officials, who were selected by the General Assembly. One citizen was chosen to represent each of eleven Congressional districts and two were selected at-large. One of three members from Northern Virginia is James W. Dyke, Jr., Esq., recently head of the Fairfax County Chamber of Commerce and a long-time advocate of higher taxes.

"Listed on the commission’s website (www2.institute.virginia.edu/taxstudy) are proposals from the Commission on the Condition and Future of Virginia’s Cities. Two of their proposals are to enable regional sales taxes and to create regional transportation districts with the authority to levy regional taxes for transportation."

Since its appointment in August, 1999, the commission has held seven meetings and four public hearings.

Among the presenters at the public hearings was Delegate Robert D. Hull from Falls Church, who urged the commission to allow Fairfax County to implement a county income tax. Delegate Hull counseled the commission, "... if you feel that additional taxes are needed, then feel free to say that, regardless of the political climate against that idea."

Another presenter was French Slaughter, Chairman, Tax Policy Commission, Virginia Chamber of Commerce. Mr. Slaughter opposed taxing authority for school boards. However, he gave a green light to ‘local taxing authorities’: "Likewise, ‘local option’ taxes are not the optimum means of addressing the problem. Local option taxes can increase the tax compliance burden for businesses. However, if the General Assembly is unwilling or unable to provide adequate funding to alleviate the growing transportation and infrastructure needs of Virginia’s fastest growing localities, then the creation of local taxing authorities may be the only viable alternative."

It appears that the commission is ignoring the real issue, that school and social spending are consuming enormous tax increases without offering any accountability for results.

By Arthur G. Purves

The Northern Virginia 2020 Transportation Plan: A Plan for Higher Taxes and Crowded Highways

Contrary to popular belief, personal property taxes (the "car tax") are not being eliminated. The county still assesses all cars at a rate of $4.57 per $100 of book value. County revenues from the car tax are at a new high of $417 million this year. What has changed is that the tax is being paid from soaring state income taxes instead of from personal property tax bills.

Where are the tax increases being spent and why is there not enough money for transportation?

The answer, shown in the pie chart, is that school and social spending absorb 85 percent of county tax and spending increases.

As this newsletter has frequently reported, Fairfax County Public Schools spending has increased twice as fast as enrollment and inflation since 1975. This year the schools received a 9.8 percent increase in county funding, which was almost twice as much as was required to keep up with enrollment and inflation.

The Community Services Board received a 12 percent funding increase. The board provides mental health, mental retardation, and substance abuse services.

The county’s Health and Welfare Agency got a 14 percent funding increase, more than three times what was required to keep up with population and inflation. To fund transportation and cut taxes, the county must control school and social spending.

By Arthur G. Purves

ANNUAL REVENUES FROM VIRGINIA TAX INCREASES SINCE 1979 NOW EXCEED $8 BILLION

In 1979, the Virginia state budget was $4.783 billion. By 1999 its budget was at $21 billion. If the state’s spending and revenues had increased no faster than population and inflation since 1979, its 1999 budget would have been $12.5 billion, or $8.5 billion less than the 1999 budget.

In other words, tax and spending increases over 20 years have almost doubled the size of Virginia’s budget and give the state an extra $8.5 billion per year. This is substantially more than the extra $700 million per year that is needed to implement the Northern Virginia 2020 Transportation Plan.

As the above chart of per-capita (i.e., per resident) revenues shows, the tax increases have occurred every year since 1983 except for 1990..

So if twenty years of tax increases now give the state of Virginia an extra $8 billion per year, why is there not enough money for transportation?

As is the case with Fairfax County, school and social spending drives the tax increases and diverts funds away from transportation. In the case of Virginia, spending increases (above what was required to keep up with population and inflation) for public schools, public colleges and universities, administration of justice, and individual and family services account for 70% of the tax increases.