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Car-tax proposal worries officials

Va. localities wonder how a full phaseout would affect budgets






Hundreds of local government officials will converge on Richmond this week to visit the state Capitol and take their legislators out to dinner.

The continuing debate over the car tax -- specifically, its impact on local governments -- is sure to be on the menu.


Last week, Republican leaders in the House of Delegates announced they would push for the full phaseout of the car tax. But they did not give details, and that has some local officials worried.

"Phasing-out, meaning what?" said Cheryl Beagle, Stafford County's budget director.


An informal survey of local government officials last week indicated general satisfaction, to date, with the phasing out of the car tax but a certain anxiety about what lies ahead.


Much of their concerns center on the $950 million annual cap imposed by the General Assembly last year and due to take effect next year.

The state currently reimburses each locality 70 percent of the car tax due from a vehicle owner on the value of personal vehicles up to $20,000. The owner is responsible for paying the remaining 30 percent due and the full tax on the value of the vehicle above $20,000.


"It's been a steady, stable, reliable source of revenue," said Mark Jinks, Alexandria's chief financial officer.

Starting in 2006, the state is to pay a fixed annual amount -- the $950 million divided among all localities -- regardless of the inevitable registration of more vehicles.


"By creating a cap, the tax source from the state is no longer inflation-proof," said Virginia Beach Treasurer John T. Atkinson.

The flat reimbursements are expected to especially hurt localities with fast-growing populations.


"Our population is growing. Our tax base is growing. But state participation is not growing," Atkinson said.


Local officials, especially in those fast-growing areas, predict the cap will prompt localities to raise personal-property rates above what the state is reimbursing, raise other tax rates and/or create new fees to help offset the diminishing role of the state reimbursements in city and county budgets.


"We're going to get it back, but at the cost to our taxpayers," Stafford's Beagle said.

Amherst County Administrator Bryan David said officials there already have raised the personal-property rate for the percentage that county residents pay to help make ends meet.


The state's 70 percent reimbursement to Amherst comes at $2.50 per $100 of assessed value, which was the county's rate in 1998 when the phaseout began. A few years ago, the county raised its rate to $3.25 cents per $100.

County residents must pay the 75-cent difference on the 70 percent value of the car that the state reimburses, as well as the full $3.25 rate on the remaining 30 percent billed to taxpayers.


For example, Amherst's total tax calculation for a car valued at $10,000 is $325. The state would reimburse Amherst $175 for the first 70 percent of the value. The taxpayer would owe $97.50 on the remaining 30 percent, plus $52.50 for the 75 cents' difference on the 70 percent for which the state reimburses at the lower rate of $2.50.


"The elasticity of the real-estate tax had really gotten to its upper reaches," he said. "The Board [of Supervisors] had to look at some other means to generate revenue."


To some extent, a locality's losses under the flat state reimbursement will be offset by the escalating value of newer vehicles, many of which cost more than the $20,000 threshold.


Some officials wonder what a full phaseout of the car tax means, particularly whether the state will maintain the reimbursements in hard times.


"There's always been trepidation about the long-term commitment of the state to send dollars back to local governments," said R. Michael Amyx, executive director of the Virginia Municipal League. "The car tax continues to be an expensive proposition. . . . It remains to be seen whether the state can afford that."


Local officials say the state's reimbursements have been timely. About 40 localities that send their tax bills in the spring, however, are concerned about the impact on their budgets in 2006 because legislators last year chose to delay reimbursements until after July 1, 2006.


Legislators changed the schedule as a way to free up about $250 million for schools and other needs. They suggested at the time that localities could dig into local rainy-day funds or use short-term loans until receiving the reimbursements, but local officials said doing so could hurt their credit ratings or mean higher interest rates.


In the Richmond area, Chesterfield County faces a potential $42 million shortfall, while Henrico County and Richmond are looking at $17 million each.

The VML and the Virginia Association of Counties, which are sponsoring Thursday's annual local government day in Richmond, are working with affected spring-billing localities to push for a change in the reimbursement schedule during the current legislative session.


Amyx, of the VML, said he believes legislators are sensitive to the importance of the car-tax revenue stream for localities.

"I think the General Assembly realizes how important those dollars are," he said.

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