The Hidden Agenda

Virginia Governor Mark Warner came into office with big plans to "restructure" the Virginia taxation system. As Republican activist Jim Parmelee has astutely pointed out, no politician would seek to revise the tax system and risk offending the interests whose taxes would go up — unless embedded in the plan is the means to higher taxes.

What They Say

The complaints about the current tax system from the higher tax coalition consisting of Chambers of Commerce, Northern Virginia developers, local governments, Democrats generally, and senior Republican Senators and Delegates generally are these:

1. Local governments are "too dependent on the real estate tax";
2. The tax structure is (allegedly) based on a 19th century agricultural economy and is therefore "antiquated";
3. The income tax isn’t "progressive" enough;
4. Services are untaxed while goods are taxed;
5. Counties such as Fairfax resemble cities but have the restrictions associated with rural jurisdictions; and
6. The "Dillon Rule" (which states that localities are creations of the state of Virginia and have only the powers granted by the state government) prevents government from being close to the people and hamstrings the will of the people in the localities.

What They Mean

That’s what they say. Here’s what they mean:

Regarding the dependence on the real estate tax, Fairfax County has approximately 100 taxes and (non-user) fees right now. They dare not raise any of them very much at any one time. Taxpayers scream about the already sizeable annual real estate tax increases, so the county would like to have taxes that are withheld rather than paid by check and would rather have the state collect money and turn it over to them.

So when you hear that the county is too dependent on the real estate tax, that translates into the county wanting you to pay a local income tax.

On the 19th century tax structure, who knows what this means. It’s simply a way to disparage the current system and generate support for having a different system of their devise. Clearly major changes have been made to Virginia’s taxation since 1900.

"Not progressive enough" means that achievement isn’t being punished enough. It’s not enough that some citizens have to pay more than others. It’s not even enough that some citizens have to pay a higher percentage of their income than others. It needs to be worse in the eyes of the pro-tax crowd.

Humorously, they have found one situation (something like income level at $22,000 and family of four) in which a Virginian pays marginally more income tax than the equivalent person in New York. Governor Warner and his allies are trumpeting this one situation as representative of a big problem, one they would likely solve by having a greater number of Virginians pay more than New Yorkers.

The taxation of services would harm small business such as dry cleaners, chimney sweeps, and what have you, and you can imagine what a sales tax on lawyers fees and tax preparation fees would do to you. There is no talk of lowering the sales tax rate on goods to bring goods and services closer together in tax treatment.

We in Fairfax County are blessed with the requirement that certain taxes must be approved in referendum before enacted. And we citizens have exercised our own form of "local control" by turning down a four percent meals tax in 1993, 58 percent to 42 percent, and turning down an 11 percent sales tax in 2002, 55 percent to 45 percent.

Our county officials resent the fact that cities such as Alexandria can just pass meals, hotels, and other taxes on a whim of City Council. So when they speak of "equalization of city and county powers", you know they’re not pleading for a referendum requirement in cities.

Be Grateful for the Dillon Rule

Last, what about this Dillon Rule? On the face of it, it sounds like these local politicians are conservatives pleading for small local government and opposing big government in distant Richmond. Some on the right are drawn to this view, but the most consistent opposition to the Dillon Rule comes from the left, the people who don’t believe that States ought to be anything more than federal administrative districts.

Why’s that? It’s because not a single power sought by a local government is one that would enhance your freedom — just the opposite. In fact if they had their way, they’d have their own little Dillon Rule at the county level. It would say "Citizens are creations of the local government and only have the rights permitted them by the county".

The Sales Tax Crowd Strikes Again

Warner has had this in his mind since the beginning of his term. He has been scorched by the results of the sales tax referendum last fall, and the recent Alabama vote certainly didn’t embolden him. His coalition is the exact same crowd that tried to shove the sales tax down our throat, and they know the people don’t want higher taxes.

So their strategy is to defer discussing the details of their "tax restructuring" plan until right after the election. Then the legislators can pass their plan and have two years for Delegates and four years for Senators to be immune from voter wrath. In the meantime they all pledge "revenue neutrality", which is a pledge that can only be kept for one year at most, for in their plan is the germ of easy tax increases.

Also, Governor Warner is donating massive amounts of money to opponents of anti-tax incumbents.

What the Governor Will Propose

People seemingly in the know describe the Governor's plan as follows: The death tax, BPOL tax, and car tax would be eliminated (which is good). The income tax would have many more rates, and the graduation would be much steeper.

Localities would either receive a portion of the income tax or would have the power to impose an income tax (and other taxes) without referendum. Services would be taxed. To the extent that federal law allows, the Internet would be taxed. Possibly taxation powers to school boards would be included. "Sin taxes" would be tremendously increased. In particular the cigarette tax would be increased over 1600%!

Therefore, check candidates' rhetoric about taxes. If they speak of "insufficient revenue", "underfunded schools", "antiquated tax code", "overdependence on the real estate tax", or "equalization of taxing powers", then you know that they want to raise taxes.

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March 2, 2003, email regarding Fairfax County Property Reassessments…

Dear Mr. Purves.... We just received the reassessment on the small townhouse that my wife and I have owned for the past 31 years and in which we have retired. The assessment went up 24%!! I'm afraid that us retired folks, living on fixed incomes in Fairfax County, are literally going to be taxed out of our homes and forced to move to outlying areas away from good medical care. The small property owner can't continue paying taxes to Fairfax County in these ever-increasing, double-digit amounts. This is to wish you all the best in your work.

-Stan Matelski

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Taxpayers defeat major tax increase bills
FCTA lobbyist's report from the 2003 Virginia General Assembly
By John Toivonen, FCTA Lobbyist

The 2003 Virginia General Assembly Session was a triumphant one for taxpayers. Every major tax increase was defeated, and both houses of the legislature voted for repeal of the death tax.

Del. Robert Tata (R-85, Virginia Beach) and Sen. Thomas Norment (R-3, Williamsburg) offered bills to repeal the death tax. These bills passed by margins of 69-29, and 33-7.

The major threat to taxpayers came from Del. James Dillard (R-41, Fairfax). This perennial patron of pro-tax legislation introduced HB2433, a bill to add a penny to the state sales tax for government schools.

Despite the crushing defeat of the NOVA sales tax referendum, Dillard and his comrades in the government education unions believed that they had a shot at passing this bill. The 41 Virginia Education Association lobbyists worked overtime to give this bill a chance. They almost succeeded as the bill almost made it out of the House Finance Committee.

At least ten education lobbyists spoke in favor of the bill. I was the lone lobbyist to testify against the bill. But we did hold our ground defeating this bill 12-10.

Other bills designed to raise taxes for education include: HB2472, HB1018, and HB1019. These were all defeated in committee.

Legislators also introduced several bills to raise the state tax on cigarettes. The most damaging would have been HB2796, which would have raised the state tax to 60 cents. Every tobacco tax increase was defeated in committee.

After defeating all legislation designed to raise taxes for the government schools we took aim at SB1166, a bill sponsored by Sen. Phillip Puckett (D-38, Lebanon) that would have added a one- percent fee on all auto insurance premiums. The fee would have been paid by the insurer but the added cost would have been passed on to the consumer. While the bill passed the Senate, it did not even receive a motion in House Commerce and Labor.

Most Courageous Delegate

Delegate Mark Cole (R-88, Fredericksburg) showed a willingness to speak out on budget issues that is rare in the Virginia General Assembly. He was the only legislator willing to mention the fact that the Virginia DOE Budget had increased almost ten times faster than enrollment. He cited this fact from the Joint Legislative Audit and Review Commission's (JLARC) June 2002 Report in his column in the Free Lance Star. The column "Propagandists Aside, Virginia Does Not Under Fund K-12 Education," attacked the dishonest and misleading statements of the government union lobbyists with facts from the U.S. Census and the JLARC.

Government Unions, Education Spending, and Changing the Debate

Government education lobbyists played a major role in both pushing pro-tax legislation and attempting to define the debate about dollars and schools. Many legislative assistants confided that the pressure on their legislators to vote for tax increases for schools was intense.

Part of our mission this Session was to change the debate on taxes and the budget. Pro-tax legislators claimed that the Commonwealth is not spending enough money on public education. But the JLARC report demonstrates that this is false. During testimony on tax increase bills I informed legislators of the actual increases in the Virginia Department of Education spending. I also spoke privately with numerous legislators about the spending trends and shared detailed fact sheets and graphs with them and their assistants. None of our opponents had an answer to the facts from the JLARC report.

We are making headway on changing the debate. Delegate Cole’s excellent column is one of the more obvious examples of how a legislator not only understands budgetary issues but also is willing to speak up for taxpayers.

House Finance Members Who Stood Their Ground for the Taxpayers

Del. Sam Nixon (R-27, Richmond), Del. Scott Lingamfelter (R-31, Woodbridge), Del. Mark Cole (R-88, Fredericksburg), and Del. Johnny Joannou, (D-79, Portsmouth) all received 100 percent FCTA ratings for their votes on tax-related bills. Nixon’s thoughtful questions often exposed the truth behind the pro-tax agenda. Joannou must be noted for a question he asked during discussion of death tax repeal. He asked an opponent of the repeal," Do you believe that the role of government is to redistribute the wealth?"

The Most Pro-Tax Republican on the House Finance Committee

Del. Winsome Sears (R-90, Norfolk) was the most pro-tax Republican on the House Finance Committee. She recorded more negative votes than any Republican on the committee and was as pro-tax as most Democrats on the committee. She voted for HB2796, a bill to raise the state cigarette tax to 60 cents, because she liked the fact that 30 cents of it would have gone to education.

A Notable Pro-Tax Democrat Who Tried to Restore the Car Tax

While most Democrats on the Finance Committee registered a poor voting record on tax issues, one legislator, Mitchell Van Yahres (D-57, Charlottesville), must be noted not only for his attempt to increase taxes but for his strange logic. His crowning moment came when testifying for his bill to repeal the car tax rollback, HB1605. He said that during the 1990’s, "We cut taxes like drunken sailors," and that the Virginia General Assembly had a record of "unbridled tax cutting." Thankfully this bill was knocked out on a 20-2 vote.

Van Yahres also introduced HB2796, a bill to raise the state cigarette tax by 60 cents. This bill was shot down 17-4 in the Finance Committee.

Fee Increases in the Budget

While all major tax increases met defeat, there were several fee increases in the current budget. They include an increase in the driver’s license fee from $15 to $20, an increase in the commercial license fee from $30 to $35, an increase in court fees, and a five percent increase on alcohol at ABC stores. We argued that because taxpayers are already paying an additional $8 billion in taxes above the rate of population and inflation growth that citizens should not have to shoulder the burden of fee increases. Granting any type of tax or fee increase to the Commonwealth is also a reward for reckless spending brought about by overly optimistic budget forecasts.

An Overview of Recent History and the Future of the Tax Wars in Virginia

Two years ago the FCTA decided to send a taxpayer lobbyist to work in the Virginia General Assembly. At the time I was the only anti-tax lobbyist who worked full-time during the Session in the entire Commonwealth. This Session I was still the only full-time anti-tax lobbyist.

During the 2001 Session we were able to defeat a combined education and transportation sales tax referendum 49-45. The pro-tax legislators were two votes short of a majority. Last year we were able to keep the education component off of the referendum.

Our ten-point victory in the fall of 2002 on the referendum shifted the political ground. Now more legislators are willing to vote no on tax increases. But Virginia taxpayers are still burdened with a near-record budget that is driven, in large part, by a state education budget that has grown many times more than the rate of enrollment. Meanwhile, little has been done to address the state’s transportation needs.

What we need are legislators who are willing to address these facts and stand up to the government education unions. A no vote on a tax increase bill is a welcome thing, but we will need more courageous men and women who will question the size of the budget and how taxpayers’ monies are used.

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76 cents: A reprise

During the Fairfax County Board of Supervisors elections four years ago, County Chairman Kate Hanley told reporters that she did not foresee raising taxes after the election. Supervisor Gerry Connolly, who is now running for County Chairman, also told the Times Community Newspapers that raising taxes after the election was "pure fiction" and a "fairy tale" ("Tax hike rumor spreads like wildfire", 10/14/99, by Amena H. Saiyid).

Then, using higher assessments as political cover, the supervisors started raising real estate taxes right after the election. Last year they raised taxes while lowering the tax rate a token amount. This year, the supervisors again announced that they were lowering the rate from $1.21 to $1.16, which again did not begin to offset the increase in assessments.

In fact, given the sixty percent increase in assessments since 1999, the supervisors would have had to set the real estate tax rate at 76 cents to keep their campaign promises. Therefore, the Fairfax County Taxpayers Alliance decided to remind Supervisors Hanley and Connolly of their campaign promises and placed red and white "76 cents" signs along County roadways. The signs generated considerable comment and coverage in local newspapers, which told how the supervisors would have had to set the rate at 76 cents to honor Hanley's and Connolly's promise to not raise taxes.

Chairman Hanley then fought back, saying that setting the rate at 76 cents instead of $1.16 would reduce county revenues by $1/2 billion and said that such a cut would result in the firing of 5000 teachers and the doubling class size. Hanley ignored, however, a list of $400 million in budget cuts that the Taxpayer's Alliance had proposed in public testimony the previous year and which neither laid off 5000 teachers nor increased class size. In fact, of 21,000 school system employees, only 13,500 are teachers and only 7,400 are regular-classroom K-12 teachers.

Hanley and Connolly, in effect, supported a $1/2 billion tax hike after saying they would not raise taxes.

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Vote NO on bonds

Each year, Fairfax County voters are asked to approve bond referenda, and they do so in overwhelming numbers. In so doing, voters perpetuate a system that chronically underfunds school and public safety construction while bilking the taxpayers of millions of dollars in interest.

Because of a commendable desire to maintain a high bond rating and thereby reduce interest costs, the County has never been able to raise enough capital construction money through bond sales. Even with a high bond rating, the interest cost for bonds is expensive, increasing the cost of a construction project by fifty percent. A $24 million school paid for with bonds costs $36 million.

Borrowing is necessary for homeowners since the cost of house is many times larger than the homeowner’s annual income. However, the situation is different for Fairfax County, whose annual construction expenses are about one-tenth the size of the county’s annual income.

Since 1985, Fairfax County has raised $3.5 billion (in inflation-adjusted dollars) from bond sales and owes $2.3 billion on those bonds. Over the same period, the county spent $3.2 billion on debt service. In almost every year the revenues from bond sales were about the same amount as the cost of debt service for the bonds.

If Fairfax County had not sold bonds but had used the debt service funds for construction, it would have been able to fund almost as much construction ($3.2 billion compared to $3.5 billion) as it did with bond sales but would owe nothing. Instead it owes $2.3 billion. Paying for construction without borrowing is called the "pay-as-you-go" policy, which is what the County should do.

New bonds should never be sold until all old bonds are paid off. This maximizes "leverage," which is the ratio of revenue from bond sales to the cost of debt service. With bonds it is possible to borrow an amount that is ten times the debt service, for a leverage of ten. The County, however, sells bonds every year and is getting no leverage at all.

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FCTA Annual Membership Meeting
Chairman of the Northern Virginia Technology Council warns against Internet taxation

On Saturday, October 25, 2003, thirty-five members and guests of the Fairfax County Taxpayers Alliance gathered at the Marco Polo Restaurant in Vienna to elect District Directors and to hear featured speaker, Mr. Sudhaker Shenoy, chairman of International Management Consultants, located in Tysons Corner. Mr. Shenoy is also chairman of the Northern Virginia Technology Council.

Mr. Shenoy first expressed his opposition to the inheritance tax. His research indicates that the inheritance tax originated decades ago to thwart the concentration of wealth in a few dynastic families that dominated American railroads and steel. However today the tax will affect a large portion of the population as home values continue to soar.

He warned against Virginia Governor Mark Warner's likely proposal to tax services (haircuts, dry cleaning, legal, accounting, and software, etc.) He stated that neighboring states do not tax services and that such a tax would drive consulting and software businesses out of the state. Taxing services is not a good idea in an economy dominated by services.

Then Mr. Shenoy warned against Internet taxation.

There are, he said, throughout the United States 17,000 different state and local government tax codes. To expect small business to correctly compute and pay taxes to 17,000 jurisdictions would be an unfair burden

Instead, Mr. Shenoy recommended that the Governor declare Virginia a tax-free state for Internet businesses. This, he said, would attract technology businesses to both the Dulles Corridor, which has a high commercial vacancy rate, and to southwest Virginia, which desperately needs new jobs.

At the meeting, David C.F. Ray, Tom Barthelemy, David Swink, Jeff Dircksen, Jim Turbett, Walt Barbee, Marie Schumacher, Brad Butler, and Chuck McAndrew were unanimously elected as District Directors to the FCTA Board of Directors. Mr. Turbett is a former FCTA president.

FCTA bylaws stipulate the election of District Directors in odd-numbered years and President, First and Second Vice-Presidents and At-Large Directors in even-numbered years. All terms are for two years. There are currently two vacancies on the FCTA Board, both for At-Large seats.

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Officers of the Fairfax County Taxpayers Alliance

President: Arthur G. Purves
First Vice President: Connie Bedell
Second Vice President: Peter Ferrara
Treasurer: Kent Webber
Secretary: Perry Young

At-Large Directors
Kent Webber
Perry Young
Howie Lind
Phil Rodokanakis
Jim Crumley
Sam Kanaga
Mark Jesten

District Directors
Braddock: David C.F. Ray
Dranesville: Tom Barthelemy
Hunter Mill: David Swink
Lee: Jeff Dircksen
Mason: Jim Turbett
Mount Vernon: Walt Barbee
Providence: Marie Schumacher
Springfield: Bradford Butler
Sully: Chuck McAndrew

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The Fairfax County Taxpayers Alliance
P.O. Box 356
Fairfax, Va. 22030
703-642-5567
www.fcta.org
postmaster@fcta.org

Have you renewed your membership for 2003? Please renew if the date on your mailing label is before November 1, 2003.

The Taxpayers Alliance supports lower taxes, less spending, and restrained borrowing by our government as well as citizen participation in government through initiative, referendum and recall. We testify at public hearings, disseminate voting records of elected officials, write 'op-ed' articles and letters to newspaper editors, provide speakers to civic groups and analyze and disseminate information on budgets, taxes and borrowing.

We need volunteers and dues-paying members. We would like to hear from you. Please take the time now to return this membership form along with your dues and a contribution. We thank you for your past and continued support.

_____Please enroll me as a new member of the Taxpayers Alliance ($15 per family for 12 months)

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Name(s)____________________________________ Mail To: The Fairfax County Taxpayers Alliance

Address___________________________________ P.O. Box 356

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