Military families' tax break will hit cities at a tough time

Just when local officials thought they couldn't get any more bad news about shrinking tax revenues, they must now deal with a new federal law that will take away even more from city coffers.

The act, passed on Veterans Day, will extend residential benefits to spouses of military personnel, allowing them to retain residency in their home state for tax and voting purposes.

The change is a major help to military spouses, some of whom have been forced to move because of a service member's job. Because of the act, they'll no longer have to change their residency each time they relocate.

For local cities, however, it will mean less in personal property taxes to collect next year. And it's coming at a time when other revenues - everything from real estate tax to food and beverage taxes - are shrinking.

Norfolk Commissioner of the Revenue Sharon McDonald said her office estimates that the change will result in the city losing $65,000.

"Which doesn't sound like a lot, but in the whole context of losing money, that's probably two people," McDonald said. "It's the equivalent of two positions. It's going to hurt the city, like everything else."

Warned by the Virginia Municipal League that the losses would be especially hard in Hampton Roads because of its concentration of military families, local commissioners of the revenue started looking at the issue about a month ago.

"The impact is going to be skewed," said Neal Menkes, director of fiscal policy for the municipal league. "A Virginia Beach certainly is going to feel the impact more than Richmond would."

Virginia Beach officials said it is difficult to figure the change's impact, but they don't expect the hit to be drastic. Tax revenues from vehicles brought in $113 million last year, and only a small percentage of that is from military spouses' vehicles, said Eric Schmudde, that city's chief deputy commissioner of the revenue.

Portsmouth officials said most military spouses have their vehicles titled in the name of the service member, so they have been receiving the tax-free status.

"Most of them are getting that benefit already," said Frankie Edmondson, Portsmouth's commissioner of the revenue.

Others have said even a small hit this year will be painful.

"A hundred thousand dollars in a prior fiscal year may have been able to be absorbed," said Frank King, chief deputy in Chesapeake's commissioner of the revenue's office.

"After all the hits that have been taken, anything else is difficult."

The federal bill also allows relocated military spouses to pay income tax in another state, which could divert state money that trickles down to cities, McDonald said.

By the time the Virginia Municipal League heard about the effects of the changes, it was too late to lobby against the bill, Menkes said. The federal government made helping military families a priority, but then the bill hurt others, he said.

"It's something that they have no control over," he said of the local cities. "It's not that the cities are anti-military. But somebody else is making the policy choice for them, and it just rolls downhill."

Meghan Hoyer, (757) 446-2293, meghan.hoyer@pilotonline.com