Posted: January 15, 2010

by Philip Newswanger

philip.newswanger@insidebiz.com

To pay for a 1 percent increase in the income tax that goes toward the $950 million a year the state gives localities to compensate for the loss of car tax revenue, Tim Kaine offered a bit of financial legerdemain to get General Assembly approval.

The outgoing governor wants localities to pay for the salaries and benefits of the staff of the constitutional officers - the commissioner of the revenue and the city treasurer.

Under Kaine's proposal, the state would still pay for the salaries of the constitutional officers, but not their pensions or health insurance.

Kaine submitted his budget to the money committees of the General Assembly in December.

Legislators and the new governor, Robert McDonnell, will decide whether to accept or reject Kaine's budget amendments.

Virginia's budget, a two-year system, is enacted in even-numbered years, and amendments are enacted in odd-numbered years.

The General Assembly convened Jan. 13 and will adjourn March 13.

McDonnell said he will reject any proposal that has a whiff of taxes attached to it.

Kaine has said that the state needs to close a projected $3.5 billion budget gap and that nothing is sacred.

Constitutional officers are opposed to his proposal to shift costs of their offices to localities.

City treasurers and commissioners of the revenue are elected every four years. The last elections were held Nov. 4.

Norfolk Commissioner of the Revenue Sharon McDonald said Kaine's proposal would usurp the citizen's right to have an independent tax body.

Only a change in Virginia's Constitution could alter the powers and duties of constitutional officers and that would take a referendum.

"The Constitution provides for very clear checks and balances," McDonald said. "You have no checks and balances. There is no assurance to any citizen or taxpayer they are being treated fairly."

Portsmouth Commissioner of the Revenue Franklin Edmonson said his job and that of his office will change dramatically if the costs are shifted to the localities.

"Unfortunately, if passed, it will take the power away from the people to make decisions on local tax administration," Edmonson said. "It will change the way we have checks and balances and separation of powers with regard to tax administration."

Edmonson said the present system would be dismantled.

"No one likes taxes," he said. "But if you have them, you want to know that they are administered fairly, equitably and accurately."

The state expects to save $29 million a year on pensions and life insurance it now pays on the salaries for the staff of the constitutional officers, according to state budget documents.

The state would also save about $20 million in salaries for staff of these offices, a burden that would shift to localities, the documents said.

"The end result is creating an unfunded mandate on all localities, forcing them to raise real estate taxes to offset the funds the state will never pass down," said Virginia Beach City Treasurer John Atkinson. "The only choice for the localities is to raise taxes."

But he said the state hasn't relieved the functions of these positions.

"There's no elimination of work or jobs," Atkinson said. "Whatever the state cuts, the city will have to make up in increased real estate taxes. The constitutional officers are studying how to deal with it."

Norfolk's McDonald also addressed the privacy issue.

"There's also no assurance with our business community that no one is looking into confidential tax records and using that for an ulterior motive," McDonald said.

"We are sworn to secrecy on our tax records," she said. "Twelve years ago, we routinely had inquiries from departments and outside entities asking for tax records.

"There are checks and balances in the system and there's a reason for that."

McDonald said there is "no accountability at all when it's absorbed into one central area. I'm not sure if there will be a significant savings for any locality."