THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, January 22, 1995 TAG: 9501230192
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: By MAC DANIEL, STAFF WRITER
LENGTH: Long : 150 lines
Cities in Hampton Roads could face a financial crisis as Gov. George F. Allen and the General Assembly consider phasing out a substantial local business tax.
Norfolk could lose up to $13.3 million a year, enough to fund the city's Parks and Recreation Department.
Virginia Beach could lose $19 million; Chesapeake could lose $10.3 million, and Portsmouth, $4.4 million. That's about what each city budgets annually for libraries, and parks and recreation departments.
Suffolk stands to lose $1.6 million, more than it spends on 45 police officers and their vehicles.
Officials from almost every city have said they will need to hike real estate taxes or severely cut services to make up the difference.
The Business, Professional and Occupational License tax, known by the acronym BPOL, or ``bee-poll,'' is used and controlled by all cities, most of the towns and half the counties in the state.
Businesses pay taxes on their gross receipts to the localities.
The tax generates about $300 million a year for local governments. It is also one of a handful of taxes controlled by the cities.
The tax has been around for about 100 years. In some localities, such as the town of Herndon, it accounts for about 11 percent of the general fund.
The Allen administration first proposed phasing out the tax over a five-year period. The governor called for state stipends to the cities during that time to offset some of the lost revenue.
The proposal was embraced by Republican legislators, who must now weigh their allegiances to the administration against the wishes of their localities.
Last week, Gov. Allen agreed to some major modifications, including an option that would allow localities to reinstate the tax if, after the first five years, the state would fail to provide adequate replacement funds.
Two state legislators are expected to sponsor a bill this week that would require the modified plan. Ken Stroupe, press secretary for the governor, said Allen supports this legislation.
``If the future General Assemblies and governors are willing to step up to the plate,'' said Stroupe, ``this tax will remain at zero.''
Allen said last week that he now favors setting aside a state fund to permanently offset the lost revenue. He has also talked of extending the phase-out beyond five years. However, Allen has never said where the replacement money will come from. That has been left to the General Assembly, which is responsible for enacting and repealing taxes.
Allen's attack on the tax comes from a belief that it is a burden on small businesses as well as large companies. An outcry against the tax was first raised in Northern Virginia, where companies in the Washington suburbs complained of being overtaxed compared to businesses in Maryland, which has no similar tax.
Eliminate the business tax, Allen contends, and businesses as well as city coffers will grow.
But localities argue that much of the new revenue will go to the state and there will be less left locally to pay for the services that a growing business community will demand.
David J. Holland, owner of the Southern Oil Co. in Suffolk, welcomes the end of the tax.
``Losing that will cut out a major expense for our company,'' said Holland, who owns six retail locations in Suffolk as well as a heating oil business. ``Hopefully, there can be something else put in to capture that income back for the localities. But it ought to be called a tax, and it should be something that everybody sees. It's just a cost of doing business. And the retailer pays a lot of it.''
Last year, Holland said, he paid the city of Suffolk about $15,000 in the business tax alone.
The Hampton Roads Chamber of Commerce has officially supported the governor's attempt to eliminate the tax. The organization says the tax is unfair because it is based on receipts rather than profits, and that it is particularly tough on new businesses that often have a slender profit margin.
``We think it serves as a disincentive to new business looking to locate in Virginia, since no neighboring states have BPOL,'' said Lin Smith, general manager for marketing with the chamber.
But Hampton Roads cities have denounced the elimination of the tax, saying it will overburden their citizens.
The nonpartisan Virginia Municipal League estimates that losing the business tax revenue could cause real estate taxes to jump an average of 17 cents per $100 of assessed value in Virginia.
``Make no mistake about it,'' wrote R. Michael Amyx, executive director of the municipal league, ``this proposal before the General Assembly amounts to Richmond telling hundreds of cities, towns and counties that it knows what is best for every community across the common-wealth.''
The cities have two main reasons for wanting to retain the tax.
It is a local revenue source that they can control. Localities can set their business tax rates without going to Richmond for approval. Other locally controlled taxes include the personal property tax, real estate tax, and machinery and tool taxes.
Since the business tax is based on gross receipts, it is also a source of money that expands along with a growing economy.
For example, Norfolk officials have projected that their business tax revenue will increase next year by a half-million dollars.
But if the tax is cut, said Darlene Burcham, an assistant city manager in Norfolk, ``I don't think there are any choices left for Norfolk.
``The governor thinks that there is room to cut in government. But Norfolk happens to be a community that, for the last eight years, has been on a reduction mode. We've eliminated 841 city jobs over those eight years.
``. . . I would say it's almost impossible for us to make further reductions. You either have to cut major services or you have to raise taxes, and neither one is real feasible right now.''
Norfolk, which has the highest real estate tax rate in the region, could face a 14-cent increase in its real estate taxes.
And because 46 percent of the property in Norfolk is tax-exempt, Burcham said, ``there's a bigger burden borne by those people who pay the tax.''
Claude Wright, budget director for the city of Chesapeake, says officials there expect to lose $16.4 million if the tax is phased out over five years, and the City Council has pledged to hold the line on taxes.
Without additional sources of revenue, Wright said, ``we're talking about major effects on service levels.'' MEMO: Staff writer Warren Fiske contributed to this report.
ILLUSTRATION: Graphics
SHOULD BUSINES TAX BE ENDED? [For complete graphic, please see
microfilm]
STAFF
BUSINESS, PROFESSIONAL AND OCCUPATIONAL LICENSE TAX
SOURCE: City officials
Hampton Roads cities could stand to lose millions of dollars in
revenue if the General Assembly kills the state BPOL Tax. Making up
the difference could mean an increase in real estate taxes for city
residents.
Cents on
BPOL tax real estate
revenue* in tax rate to
millions of equal BPOL
dollars revenue
Virginia Beach $19.0 12 cents
Norfolk $13.3 19 cents
Chesapeake $10.3 13 cents
Portsmouth $4.4 17 cents
Suffolk $1.6 9 cents
* For fiscal year 1994
by CNB