Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, December 11, 1994 TAG: 9412120011
SECTION: VIRGINIA PAGE: B1 EDITION: METRO
SOURCE: DAN CASEY AND JAN VERTEFEUILLE STAFF WRITERS
DATELINE: LENGTH: Long
When Roanoke Finance Director Jim Grisso stares into the future of business-license taxes, he sees red - as in ink.
Grisso isn't alone. He and other Roanoke Valley officials are trying to assess the impact of Gov. George Allen's proposal for phasing out the local tax, a major source of revenue for municipal governments.
"What he has effectively done is picked the pockets of local government," said Jim Campbell of the Virginia Association of Counties. "He's [collectively] taken $300 million away. We have to figure out a way to respond to that."
Allen's suggestion would refund the lost income over the next five years. But the subsidy would end after 2000. After then, localities would have to make it up on their own or face budget shortfalls.
Just how painful those losses would be to local government budgets varies. In general, cities depend more on the tax than counties.
If Allen's plan is approved, the tax burden will have to be shifted from businesses to citizens, Roanoke County Finance Director Diane Hyatt said.
Absent a new source of revenue, the bottom line appears to be potentially huge property tax increases for homeowners or cutbacks in vital services such as schools and public safety. Regardless of their political party, local elected officials find both choices equally loathsome.
"Either you have to reduce some services or increase other taxes. For local elected officials, it ends up being a heck of a dilemma," Roanoke Councilman William White said.
In Salem, the business-license tax will bring in more than 10 percent of the city's $23 million budget this year - or $2.4 million annually. That's enough to cover the combined operations of the parks and recreation program, the library system and community development.
If the revenue is wiped out and the burden shifted to property owners, they could see a 27-cent increase in the $1.18 rate - a $270 annual increase for the owner of a $100,000 home.
"It is a chunk of change," Salem Finance Director Frank Turk said. He's waiting for further details to come out of Richmond. Allen is expected to give specifics Dec. 19.
In Roanoke, the tax brings in 6 percent of total revenues - or $8.1 million - and is roughly equivalent to what the city spends annually on Police Department patrol operations.
Without major cuts, the city would have to raise its $1.23 property tax rate by 28 cents to make up the difference. That would cost the owner of a $100,000 house an additional $280 per year in real-estate taxes.
Roanoke Mayor David Bowers noted that more than one-third of the city's business-tax revenue - roughly $3 million - goes directly to its schools.
"The community should come to an understanding that the governor's tax relief proposal, although very popular, may adversely impact our local schools," he said.
"I have some reservations about how we would offer the same quality of services in the face of such a huge tax loss," Councilwoman Elizabeth Bowles said.
The county, which will take in about $2.8 million in business taxes this year, would have to raise its $1.13 tax rate 9 cents to make up the loss. That would cost the owner of a $100,000 home $90 per year.
"I think the citizens would be up in arms if we had to adjust the real-estate tax by that amount," said Lee Eddy, chairman of the Board of Supervisors.
"There's no way we could cut out that amount of money without eliminating services that we're presently providing. We operate on a pretty lean budget as it is," Hyatt said.
To Vinton, eliminating the business tax would be painful. It makes up $235,000 of a $3.4 million budget and would require an 11-cent boost to its tax rate to cover. That means the owner of a $100,000 home could see his real-estate taxes rise $110, not counting any county increases that also would apply to Vinton.
Through the Virginia Municipal League and Virginia Association of Counties, localities are rallying to defend the revenue source in the 1995 General Assembly.
The counties' association on Tuesday polled its members to see how much they collected in the 1994 fiscal year and what impact the tax's elimination could have on local real-estate tax rates.
Meanwhile, the Virginia Municipal League is urging its city and town members to lobby their state legislators against cutting the tax, said Betty Long, the league's fiscal policy director.
The league, which has studied the business-tax system for the past 18 months, has prepared draft legislation that would more uniformly apply the tax across all the state's localities. The bill will be introduced in the General Assembly next year, she said.
Virginia has had some sort of business-license tax since after the War of 1812, but the tax in its present form has been around for 15 years. Allen says it is "despised" by businesses.
But Eddy, a self-employed electrical engineer who pays the tax, said he's heard no complaints from business owners. White, a self-employed accountant, said most businesses have the tax figured into their annual budgets.
The tax, a percentage of businesses' gross receipts, is paid to city, county and town governments. The amount varies according to the type of business and locality.
by CNB