SUMMARY:  Elected officials like to brag that they've "brought home the bacon." But sometimes the price is a lot higher than what we get for it. That was the case with the 2004 sales tax increase that taxed Fairfax residents more . . . brought back less for our schools . . . and sent your money to other parts of the state, where your money was used to reduce those localities' support for their own education.

Legislative actions have consequences.

But sometimes they don't become visible for a year or two, and that's precisely what happened with the 2004 tax increase heralded by many Northern Virginia political leaders for its "increased aid to education."

For while aid to education did increase, the larger effect was a massive redistribution of taxes from Northern Virginia to other areas of the state – where localities used Northern Virginia's funds to reduce their own local spending on education. Here's how it happened.

Following a bitter battle during the 2004 General Assembly session, the General Assembly passed Governor Mark Warner's proposal to raise the state sales tax by a half cent. Half of those funds were put into a Public Education Standards of Quality/Local Real Estate Property Tax Relief Fund and distributed to each school system.

What was unusual about that year's arrangement was a change in the formula for distributing these new funds – a change that acted to the detriment of Northern Virginia's public schools. Local school systems typically receive their share of sales tax distributions based on the number of school-aged children within its boundaries. Local governments, on the other hand, receive their revenue on the basis of where the sales tax is paid.

But the 2004 bill did neither. Instead, it distributed only half of the new education revenue using the standard school-aged children distribution. The other half was distributed only after first running the monies through the Local Composite Index (LCI). The LCI discriminates against high-income areas like Northern Virginia by using personal income as a measure of wealth and assuming that wealthy localities will underwrite more of their own education expenses – even though localities are not empowered to tax personal income.

The result was profound. For example, Fairfax County taxpayers were expected to pay $61 million more in sales taxes dedicated to education over the first two years. The usual school distribution formula would have given them back $53 million in new funds for education; under the revised formula, they were expected to receive only $37 million.

The reality was even worse: Fairfax County records indicate that the County's taxpayers paid nearly $70 million in new sales taxes in Fiscal Years 2005 and 2006, and received back only $32 million in new education funds.

The measure not only continued using Northern Virginia tax dollars to sustain other areas of the state, it exacerbated the trend by changing the formula to make the transfer even more dramatic.

Sending NOVA Dollars Elsewhere

Governor Warner and the General Assembly intended the new tax scheme to be used to reduce local property tax rates. In creating the Public Education Standards of Quality/Local Real Estate Property Tax Relief Fund, both the revenue and budget bills that year specified "Any amount paid to a county, city, or town from the Fund shall be taken into account by the governing body of the county, city, or town in setting real estate tax rates."

But reducing the real estate tax rate is not the same as cutting the local contribution to K-12 education. With skyrocketing property taxes, tax rates can be reduced while still increasing local public education funding.

However, many localities cut both the tax rate and education. In fact, 49 of 136 school divisions, nearly 40 percent, saw their own per-pupil contribution for educating their own children reduced. To do that, the local Board of Supervisors used the large increases in state aid made possible as a result of higher taxes on Northern Virginia.

The localities listed in the table at the end of this report reduced their per-pupil funding following the tax increase of 2004. These ranged from the City of Martinsville, which reduced its local support for education by fully $1,016 per pupil while seeing increased state aid of $409 per pupil, to the City of Radford, which reduced its local contribution by $19 per pupil while enjoying state aid increases of $514 per pupil.

In a number of localities, the money swap was nearly even: Accomack County reduced local support by $484 per pupil when its state aid increased by $504 per pupil; King William County reduced its local support by $260 per pupil as state aid rose by $270 per pupil.

This was not the first time localities had used increased state funds generated by Northern Virginia to lower their own local support.

The same thing had happened during the administration of Governor Gerald Baliles when many localities drastically reduced their local support for education as state aid increased. It was an action that led to creation of a "maintenance of effort" clause when Governor James Gilmore signed a K-12 education increase into law to ensure that localities did not use increased state aid to reduce their local support.

But neither Warner nor the General Assembly proposed such a clause in 2004. Nor did any member of the General Assembly propose such a clause on either the Senate or House floors.

Virginia citizens have a right to expect that legislators elected to serve them in Richmond will work to represent them in key budget and tax battles. Yet no Northern Virginia legislator from Arlington, Alexandria, Falls Church City, Fairfax City, Fairfax County, Loudoun County, Manassas City, Manassas Park City, or Prince William County stepped forward to try to correct the imbalance inherent in the 2004 tax increase.

By a margin of two to one, Northern Virginia legislators voted to approve the tax and its companion spending bill – a tax and distribution measure that proved to be nothing more than another withdrawal from the Bank of Northern Virginia.

Copyright Forward Fairfax and Chris Braunlich, 2007