Text of PWC Cmte. of 100 Presentation on "Flat or Higher Taxes: Which is Best for Prince William?"

By Riley, Wednesday, February 20, 2013

Following is the text of the prepared remarks that I delivered tonight at the Prince William County Committee of 100 meeting on “Flat or Higher Taxes: Which is Best for Prince William?”:

Good evening.  I would like to thank the Committee of 100 for this opportunity to address the community on this topic of importance to all of us.  My thanks also go out to Supervisors Covington and Jenkins and Dr. Lateef for joining me in this timely discussion.  And thank you to Ms. Donaldson for moderating this event.

We’ve been told that our property taxes have been going down. That is true . . . from a certain point of view, as Obi-Wan Kenobi would put it.  FY 2009 saw a significant spike in general property taxes.  This is the date the county uses as its benchmark to claim that they have lowered taxes.

 

Why is this date significant?  Because it was an anomaly – based on the assessed values from the 2007 calendar year, the last year of the housing bubble.  As a result, practically anything would look good in comparison.  Yet total general property taxes for FY 2012 rank only behind FY 2009 despite home values remaining diminished and the housing construction sector lingering in the doldrums.

The Board should have reduced the tax rate in FY 2009 even more than they did, but instead chose to opt for the tax windfall that the height of the real estate bubble generated for them.

Note here that general property taxes are growing exponentially faster than the population.  General property taxes are the more accurate barometer rather than total revenue because general property taxes are what hit residents the hardest.

 

Despite all the recognition of our county ranking among the top ten wealthiest in the nation based upon median household income, the average weekly wage in the county is actually the third lowest in Northern Virginia – only $1 more than Fauquier County and $33 more than Manassas Park.

Remember, the median is the number dead center between the top and bottom numbers while the average is what you get when you total everything together and divide it by the number in the set.  This tells me that there are a lot of people here who are struggling to make ends meet if our average is so significantly lower than the median.

 

For all this, the county has managed to secure an average surplus of $31.4 million per year over past six fiscal years. That is nearly $75 for every one of the 419,006 men, women and children that the last U.S. Census determined are living in the county – $300 for the average family of four. After a few years of such consistently large surpluses, you would think that someone would have caught on and adjusted the budget accordingly.

 

Given the failure to do so, I am left with only two possibilities, neither of which I want to entertain.  Either these surpluses are intentional or they are the result of incompetence.

 

Our first graders in the county are learning what the essential functions of local government are — parks, libraries, schools, roads, fire rescue, water management, home inspections, and police.

 

Yet we leave many of these core services underfunded while we handout money to equestrian centers and museums, not to mention performing arts centers that are supposed to be self-sufficient, but for which county taxpayers now find themselves on the hook indefinitely.

 

Our residents are struggling financially, cutting back on life’s extras as their paychecks shrink and gas prices soar.  It is unconscionable that raising their county tax bills is even being considered.  Some supervisors are even suggesting 10 percent or more tax increases to address “unmet critical needs.”  Ironically, the total for such needs is less than what the average county surplus for the last six-years has been.  County government needs to learn lessons from the family budget.

 

Meanwhile, our county’s tax base remains disproportionately residential.  We haven’t even been able to meet the all-too-modest goal of a 75% / 25% residential to commercial split.  And that includes counting apartment complexes as commercial property rather than residential.

I didn’t come here to talk about tables, graphs or pie charts, though.  I came here to talk about pie.  How do we grow our economic pie – or better yet, how do we bake more pies?

The Prince William Board of County Supervisors is currently debating the FY ’14 budget and what the corresponding property tax rate should be for residents.  While the main focus is on whether the rate should result in the average tax bill remaining level or increasing by nearly 4 percent, the real question at hand is what should the size and scope of our local government be going forward.

What is not being discussed to the degree that it should be is the role that economic growth can play in the equation.

Our county’s over-reliance on residential housing, the retail/hospitality industries, and government has created an economic house of cards.  A stiff wind, such as what sequestration will bring in just a matter of days, could bring it all tumbling down.  Unlike the last-minute resolution to the year-end fiscal cliff crisis, it would be foolhardy to count on such a deal this time to avoid these budget cuts.

Sequestration is going to happen. That is straight from three congressional committee chairmen I spoke with just 2 weeks ago.  People I know are already getting furlough notices.

A leading economic indicator that I have learned to pay close attention to is the delinquency rate for residents in my homeowners association. The reason for this is simple.  One of the first things that people cut from their monthly budgets – even before entertainment expenses – is paying their HOA dues since they figure that they will be able to catch up later with minimal consequences.  Too often, though, that is the start of a slippery slope for them that usually ends with court dates and collections attorneys.

The 2012 calendar year marks the worst delinquency rate that I have seen in my 10 years on our HOA Board – even worse than the rates in 2008-2009 at the depth of the Great Recession.  Needless to say, I was not surprised when I learned that the nation’s gross domestic product for the fourth quarter of 2012 actually shrank by -0.1 percent.

Then there is the news that Walmart is reporting this month’s sales are “a total disaster” and represent the worst start to a month in more than seven years.  Keep in mind, the definition of a recession is two consecutive quarters without economic growth and we are heading in that direction.

We can no longer simply copy what other surrounding counties are doing. They’ve been doing for years what we should have been doing all along. We’re already too far behind them. It isn’t even good enough anymore to “think outside the box” because that is what everyone else is trying to do. We need to disregard the box altogether.

Apple cofounder Steve Jobs had a motto for his company that they used in advertising campaigns. “Think different.”  We need to think differently if we are going to broaden our county’s economic base and generate the type of revenue required if people want local government to be able to expand beyond fully funding its necessary functions and either fund the things that are nice to have, but not required, or provide additional tax relief to attract more business and ease the burden on homeowners.

For example, I don’t mean simply attracting an Apple retail store to the county (although we should have one given our economic ranking). I’m talking about attracting Apple to our county to build one of their massive iCloud server farms that they are instead locating in North Carolina.

We’ve done things backward in this county. Had we focused on bringing high-end industry here, the residential construction boom, restaurants and shops would have naturally followed. Want evidence?  Just look at Loudoun. That’s precisely what happened there.

We may be ranked #7 nationally in terms of wealth, but Loudoun is ranked #1. Their median household income is nearly $25,000 more than ours and even $15,000 more than #2 Fairfax’s. That’s because they’ve cultivated a business sector that isn’t almost entirely reliant upon government.

The waves are just beginning to surge for bio-tech, clean-tech, 3D printing / additive manufacturing, and advanced manufacturing.  We need to be courting these industries right now.  To that end, I do see great promise now emerging from our new Economic Development Exec. Dir. Jeffrey Kaczmarek and his team.  Kaczmarek has shown in less than a year that he knows how to market the county properly, something that was previously sorely lacking.

The wet lab space at the Prince William Science Accelerator located at Innovation has the potential to bring in top-notch biotech companies in the field of life sciences.  Even in this field, however, we are still in direct competition with the wet lab space in Fairfax and Montgomery County, Maryland. 

All the marketing in the world will not help if the underlying structure is not sound, though.  We must make certain that our tax and regulatory policies do not scare businesses off to another nearby locality.

In April of 2011, I was attending a county board meeting when commercial developer Mike Garcia spoke during citizens’ time about the challenges companies face in doing business in the county. According to Mr. Garcia, the county charges $500 just to obtain a permit in order to move a fire sprinkler head in an office building.  That’s per sprinkler head and that does not cover the cost of actually moving it.  Moving sprinkler heads is done in order to accommodate the build-out requirements that companies have for office spaces.  If another jurisdiction just a few miles down the road doesn’t present such obstacles, where do you think businesses are more likely to locate?

I do have some good news, though. The War of 1812 is over . . . and we won!  Now for the bad news.  You are still being charged the tax put in place to pay for it – the Business, Professional, and Occupational License or BPOL tax – although the tax burden was lessened somewhat when the threshold was increased from $200,000 to $250,000 in 2012.  The problem is the tax is on gross receipts, not actual income. Stafford County’s elimination of their BPOL tax is something that their economic development department has used to great effect in luring businesses.  In fact, Stafford even briefly leapt ahead of Prince William on the wealthiest counties list in 2010.

What else can we do?  We can institute “Accountability Budgeting” – Setting clear measurable goals, verifying progress, and making adjustments as necessary.

This is a new twist on zero-based budgeting.  Not only would agencies and departments have to justify every dollar they request each year rather than start from the previous year’s baseline and grow from there, but requests for funds must be accompanied by specific measurable goals against which progress can be ascertained.  This will allow for future budgets to make adjustments based upon what works and what doesn’t work.

We need fundamental reform of our tax structure in Prince William County in order to protect taxpayers as well as to ensure the county’s continued economic development and prosperity.

We should be upfront about what taxes the county collects. County taxes on electricity, telephone service (both landline and cell), and cable as well as the personal property tax decal fee should be abolished and be made transparent by utilizing real estate taxes to raise the same revenue instead. Likewise, special assessments for fire and other services should be included in the real estate tax, not separated out. By doing these two things, taxpayers would know precisely how much they are paying in taxes and would also be able to deduct the full amount from their federal taxes, something which they cannot do now.

We also need to reform the personal property tax, which is one of the most onerous taxes that we have to pay. Every October residents get hit with a bill that they must pay in a lump sum unlike the real estate tax that most people pay each month via payments to an escrow account as part of their mortgage. This is unconscionable and I propose that we eliminate the portion that taxpayers must pay.

Since the state reimburses the county for a portion of the car tax and we should not forgo that, the county should credit taxpayers with the amount they would owe on the tax with money paid by them in real estate taxes. Even renters indirectly pay real estate tax by way of the rent they pay to the property owner, so everyone would be paying their share in one way or another.

Simply put, just as the phone or cable company has been able to bundle your phone, TV and internet into one package for a single price, the county should bundle all the revenue that it needs to raise into one tax and eliminate the rest. It will be simple, fair and easy to understand as well as beneficial to taxpayers.

If we act on these items, we can become the economic powerhouse that I know we are capable of being.  That is how we not only grow the pie, but bake new ones.  That is how we can afford to fully fund local government’s core functions, provide desperately needed tax relief to homeowners and businesses, and still expand the services that the county can offer.  It is time that we begin to think different.

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Categories: Economic Development, Jim Riley, Jobs, Prince William County Politics, Taxes