![[HOMESTEAD EXEMPTION]](http://hamptonroads.com/files/images/35241.jpg)
House Speaker Bill Howell admitted to Chamber of Commerce leaders last month that a plan to discount property taxes would penalize Virginia’s businesses and harm its communities.
In the same breath, however, Howell said he would do nothing to stop a bad idea from becoming law. His reasoning: “My guys are up for election next year.”
State legislators this winter are giving constitutional and statutory permission for the most sweeping changes in a half-century to the way residential property is assessed and taxed.
Real estate taxes are the largest source of revenues for local governments and the largest source of complaints from taxpayers. As the housing boom widened the gap between the value of a home and the income to pay the property taxes, the complaints became a cause across the commonwealth.
Now it is being propelled to passage by a popular myth and bad math. Theoretically, it would allow local governments to grant every homeowner a real estate tax discount of 20 percent. But as a practical matter, the expectations for tax breaks would greatly exceed the ability of government to deliver them, and any savings would at best be short-lived.
Unfortunately, many lawmakers have only a shallow grasp of such details, of the corrosive effect on municipal services, or the unintended consequences of shifting the tax burden from the wealthiest homeowners to the poorest.
Those who recognize the dangers, including Speaker Howell, are afraid to back away because it is wildly popular with constituents. In short, the homestead exemption is bad policy, but good politics.
When Gov. Tim Kaine first broached the idea during his 2005 campaign, it hit a nerve, particularly in Hampton Roads and Northern Virginia. Housing values flared upward across the state — 50 percent in Norfolk, cradle of the homestead movement — in just two years. Homeowners across the state demanded relief.
Republicans proposed a fixed annual cap on assessment increases, an idea that has forced dramatic cuts in services and caused havoc in other states. Many local officials rallied around Kaine’s homestead proposal, hoping it would inoculate them from demands for the more pernicious caps.
The homestead exemption was largely forgotten as it jogged through the process to revise the state constitution, the first step in the journey to enactment.
Now that it’s on the verge of becoming reality, housing values are stagnating, calls for an assessment cap have dissipated and the abnormal conditions the homestead exemption was designed to address no longer exist.
What was once the lesser of two evils is now the only evil left standing in the state Capitol. But killing it off means someone must volunteer to be the executioner, and no one is eager to shoulder that career-ending task.
Opposition was late in organizing, and only now are objections being raised. Religious organizations worry about the trickle-down effect of higher rents on poor Virginians. The Virginia Education Association fears cuts in the classroom. And small businessmen foresee an extra expense that will cut into profits.
But those groups are out of favor with Republican legislators. And Democratic legislators feel obligated to help Kaine fulfill his campaign promise. The main reason legislators are willing to let this slide through, however, is that they will not be the ones facing the consequences.
Sen. Phillip Puckett summed it up this way: “We’re giving away something that we don’t have the money to pay for, and we’re putting that back on localities.” Those kinds of misgivings prompted a Senate committee to kill one version this week, but the House version has already passed.
Buffeted by their own political pressures, local governments are divided. Norfolk remains one of the exemption’s most enthusiastic supporters, viewing it as a way to attract more homeowners. An across-the-board tax cut for all residences in Norfolk would affect only 2.5 percent of the city’s budget, according to policy analysts with Richmond-based Fiscal Analytics, less than some of its more suburban neighbors.
Virginia Beach has remained neutral, but leaders are quietly anxious about the effect on the city’s tax base. A 20 percent reduction would shrink revenues by 4.5 percent, or about $60 million.
While politics is fueling the debate over the homestead exemption in Richmond, the real political wars are yet to come, and they will play out across the state, in each city and county.
If legislators endorse the tax plan, voters will approve it overwhelmingly in a November referendum. They will expect their municipalities to promptly adopt the full 20 percent tax cuts, forcing local governments to reduce services or raise the tax rate. Those are the real consequences if politics, not prudence, continues to shape this debate.
Before it is too late, lawmakers should pause and ask themselves whether this reshuffling of the tax system solves a problem or just creates new ones they can’t even see.
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Souns to me ...
like BAH is way too much. $1600 a month?! Jeez, where do I sign? One of the reasons the military has such a hard time keeping people is because of the discriminatory pay structure. For instance, it's crazy to pay a sailor more just because he's married or because his wife squeezes out a few kids. Everyone (of equal rank) should be payed the same. No wonder these kids are engaging in sham marriages.
Lines???
You would expect that a City Council would reflect the views of all it's people and the cross section of the community. But when you go to get your property re-assessed they laugh at you unless you're a judge. They tax you on the Blue Book value of your car instead of whole sale but you have to drive there to prove that your car and harley are not in the shape of the Blue Book value (I've done it before...). So you know as well as I do that any stumbling block the city can put in-between the home owner (remember, the one that is taxed and does not receive benefits for building like a developer does and risks having his house taken because in one persons opinion is blight) they will. If home owners got the same kind of incentives that your company gets for building the average home owner in this area would have a 4 thousand square foot house. But this is not the case. Virginia Beach will become another Detroit if it continues to raid the pocket of the average citizen thinking they're an endless wallet of pet projects. This is not fear mongering, this is fact...
Effect of the Homestead Exemption
The problem is that if Council grants a 20% tax exemption to owner occupied residential property in Virginia Beach, which results in the loss of $60,000,000 in real estate tax revenue starting on July 1, 2009, then Council can make $60 M in cuts, which simply will not happen, or they can raise that $60 M in some other way. That way will most likely be an increase in the real estate tax rate. To make up the $60 M and 5% more generally needed for increases, the tax rate will need to go up from $0.89 per $100 of assessed value, to $1.13 for everyone. So those who do not qualify for the exemption will be paying a higher rate on the full value of their assessment. Plus, since there are some 106,000 owner occupied homes in the city, imagine the line at the assessors office to apply for the exemption, prove you are the owner, prove you are who you say you are, and prove you don't rent the property to someone else. Plus, after all that, since the rate will increase so much, you will still pay more than the year before. General Assembly, think again!
And Mr. Barrett finaly reveals his true alliance...
You state "...and that of Commercial Use"... You don't care about Navy families. You know that BAH will be adjusted for any tax increase that the owner of a property would experience. And actually, if there is a 20% exemption and that rental owner does not get the 20% exemption he is not getting a tax increase of 27% because he never realized the reduction. He would still be paying the same amount. BAH is evaluated each year. If there was any increase in the cost of living in this area the BAH would reflect that. And before you say anything to the contrary my wife is 10 years Navy and an E-5. We've seen the dollar amount of our BAH go up to reflect the current cost of living. So your theory is what you once said, nothing more then fear mongering and a shell game to protect the developers against tax increases...
Let me explain it to you
There seems to be some confusion about the effect on military families. For those who rent a home, a condo, or a single family home on the beach, their rent will likely go up by the increase in the tax rate made necessary by the loss of revenue from the exemption. This applies as well to the families who rent the new housing off base developed by PPV. The reason is that the exemption only apples to owner occupied residential real estate; if a Navy family rents a home in town from an owner, that owner will not receive the exemption, so his property tax rate, and that of other commercial uses, will rise as much as 27% if Council has to raise more real estate tax revenue from those who don't get the exemption. Confused? Think of it this way; this exemption is one gigantic shell game that makes it look like the General Assembly is doing homeowners a favor when it fact other sources of revenue, like increases in personal property taxes, utility taxes, machinery and tool taxes, or even fees for garbage collection will need to be imposed. This initiative is not ready for prime time.
Correction:The FED..
.."is trying to give money to stimulate the economy". Well yes, they are "printing" out 150 billion more dollars. But you really didn't think that printing more paper was going to be free do you? It's ok! Your children will be paying for todays debt long after your gone.
The Fact of the Matter Is
That if you stop local council leaders from spending on non-essential pet projects and get them to focus spending on core essential infrastructure, maybe just maybe they would not have to contiually look for increased revenue from property taxes, to support these pet projects. At a time when the FED is trying to give money to stimulate the economy, the localities are counter productive to those efforts by increasing the tax burden on citizens. The homestead act will not be effective on its own. I support the idea of a Cost Of Living Adjustment aligned property tax policy, this policy would benefit a large spectrum of citizens. The working middle class, senior citizens and disabled people on Social Security, would see an increase in property taxes that is equal to the increase in their income. It would also eliminate the abundence of revenue to local council members, who act like a kid in a candy store, and give just enough revenue to localities to support the essential needs of the city, an just enough of an increase to support a minimal amount of non essential projects.
Mr. Barrett, get "YOUR" facts straight...
If a military family has to rent out in town there are numerous avenues to get reductions in rent. Plus BAH for this area is fairly high. 1600 a month was my wife's BAH. We rented a two bedroom Town home 300 yards from the beach for 975.00 dollars a month. That left 600 a month for utilities, water, and other needs that are normally provided by Base Housing. So we did not hurt by renting out in town. We had money left over from just the BAH. And you know as well as I that if rents went up the BAH for this area would reflect the increase. So please, stop the fear mongering that you do so well at...
The Public Interest
The most chilling part of this first in a series of editorials about the effects of this initiative is the chilling statement by Speaker of the House Bill Howell that he knows the negative consequences of this initiative, but he will support it because it may help more members of his caucus get elected. Has the leadership of this Commonwealth sunk so low that they are willing to pass this exempton knowing that it has the same negative consequences for local government that the "No Car Tax" debacle had for the Commonwealth?" Apparently, that matters little given the House republican play book designed to keep them in power rather than serve the public interest. How does a delegate like Terrie Suit, formerly one of the chief proponents for military families, push this initiative on behalf of her caucus, knowing that it will result in higher rents for military families who rent apartments, condos, and homes? The Pilot has done us a tremendous service in raising the issue of unintended consequences of this exemption, but how do we deal with political leaders who know of these consequences but support it anyway?
Democracy
Aren't our represantives suppossed to reflect our views and desires? If the voters want less wasteful spending and less taxes, why not listen to us? We elect candidates based our what we want in government.
A sure sign of the apocalypse
I am in agreement with the Pilot's Editorial Board on an issue. Though you are late to the party, see TidewaterLiberty.com "Homestead Trojan Horse"
The homestead exemption is tax concealment, not tax reduction. Shifting the apparent tax burden to business simply raises prices and fees, hiding the cost of government in the general cost of living without reducing it.
Our prosperity is a function of our purchasing power, not just our tax bills. We need to reduce the size and cost of government, and the first step to doing that is to keep the cost visible and spending transparent. Measures like this, which hide the true cost of government, make it easier for government to overspend and grow. In the end, the Homestead Exemption is nothing more that a ruse for localities to hide their unrestrained spending.
Uh, why again is the Pilot opposed?
Funny thing
Funny how the Pilot ed board NEVER EVER thinks that city or state government spends too much. Virginia Beach could find 60 million of waste to cut in a New York minute. Boy, I sure can't wait for this paper to be sold. If an outfit like CBN buys it, the first thing they'll do is clean house of all the socialist editors.