Ripping off the Scab of SOQ Wealth Transfers

Hey, as the General Assembly readies itself for the 2013 session, let’s rip off an old scab and talk about state support of school funding and the inter-regional transfer of wealth! The topic seems particularly appropriate, now that the Joint Legislative Audit and Review Commission has issued a new report to the governor and General Assembly, “State Spending on the Standards of Quality: FY 2012.”

State support for schools peaked in 2009, then plunged after the recession. In 2012, that support increased again for the first time in three years, nudging past  the $4,000-student level at $4,083. State funds are apportioned among Virginia’s localities based upon the local ability to pay as measured through the “composite index,” which is recalculated every two years based upon property value, adjusted gross income, taxable retail sales, student population and total population. The purpose of the index is to ensure that poor cities and counties with a small tax base are able to meet the state’s Standards of Quality dictating staffing ratios and other resource inputs.

A consequence of the SOQ is a massive redistribution of wealth, primarily from affluent Northern Virginia localities to poor, rural counties, mainly in Southwest and Southside Virginia.

I have replicated three charts from the report, showing state contributions to the state’s 10 largest school districts accounting for half the state student population, as well as to the localities receiving the greatest state contribution per student and the lowest. I’m not sure how the city of Williamsburg tops the list of lowest level of state support in the state — it’s not an especially wealthy community. Perhaps the Composite Index reflects the tax base represented by the large number of hotels catering to Colonial Williamsburg. Other than Williamsburg and a few stray down-state counties, Northern Virginia jurisdictions monopolize the list of those getting the short end of the stick. (See the study’s Appendix B for specifics on each jurisdiction.)

This is red meat for those who, like co-blogger Don Rippert, believe that Northern Virginia gets hosed in its relationship with the rest of the commonwealth. Northern Virginia is a net beneficiary of transportation spending, however. (See “Rethinking the Black Hole of Richmond.”) What no one has done is calculate how the SOQ wealth transfer compares. My hunch, when you add up all the numbers, is that Northern Virginia is a net contributor of wealth to the rest of the state — but not by nearly as large a margin as most Northern Virginians believe.

But hunches are no more than hunches. I would love to know if anyone has crunched all the numbers.


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30 responses to “Ripping off the Scab of SOQ Wealth Transfers

  1. there still seems to be a mindset that when the State collects income and sales tax – that is has to be allocated back to the localities in the exact same proportion as it was collected.

    That’s not how States nor the Federal Govt works as a quick glance at NoVa’s status a net recipient of Federal dollars compared to other states.

    None-the-less, NoVa wants it all. They want to get all the Federal jobs that in turn help to supercharge it’s economy but that view turns niggardly when they are asked to turn the other cheek for RoVa.

    So they want all the Federal dollars that come from other states for things like Metro but as far as they helping RoVa, forget it.

    Arrogant, condescending, stingy, hypocritical… etc.. are a few terms to describe their attitude.

    Let’s say this. The lower SOQ reimbursements are a trade for the METRO system they want RoVa and other states to help fund.


  2. I want an accounting of regional wealth transfers – nothing more and nothing less.

    LarryG likes words. I like numbers. I guess that’s the difference.

    Why do we have to guess and have hunches on these matters? This isn’t all that hard to calculate. The government requires that every public company spend a lot of time and money preparing detailed, independently audited financial statements so that current and prospective owners of the company know what they are buying.

    We the people own the government. Why shouldn’t the government provide the financial information required to assure the citizens that they are being treated fairly?

    Now, hypothetically speaking, let’s say there is a material transfer of wealth occurring. That transfer of wealth might be fair – for a while. However, for the same reasons that people don’t like government “handouts” being used as a basis for a culture of dependency we should want to avoid regional “handouts” that go on forever.

    If regional transfers are required until the port can be expanded or Rt 460 can be built – great. That’s a plan. The end game should be financial self-sufficiency for every region. However, if some region cannot become self-sufficient than we should be looking for ways to encourage people to move away from those regions to places where the economy is strong enough to allow self-sufficiency.

    Here’s another hypothetical – let’s say the federal government decided to move to Kansas City. I would expect that the Commonwealth of Virginia would devote a lot of money to trying to reorient Northern Virginia to a post-governmental world. But only for a while. Either NoVa would transform or it wouldn’t. If it did, NoVa would continue to provide economic growth and a tax base for the state. If it didn’t transform then the people in NoVa would need to move someplace where economic benefit could be achieved – perhaps Kansas City.

    This isn’t all that hard:

    1. Publish an honest accounting of all tax receipts and all state and local spending.

    2. Establish economic development programs for regions that are not carrying their own weight, tax wise.

    3. Fund the economic development projects through regional wealth transfers.

    4. Set a timeline for success.

    5. If the deficit regions get to neutral or better – great. If not, there needs to be a plan to de-populate the region in favor of places where more economic development is possible.

    If LarryG had his way there would still be 1 million people living in the City of Detroit. Over half would be spending their days waiting for a check from others with no real hope in sight. Fortunately, the people of Detroit are more self-sufficient than LarryG. When the economic opportunities dried up they went in search of opportunity elsewhere.

    That’s the American way even if it isn’t the Virginia way.

  3. Isn’t Williamsburg’s school system unified with James City County?

    I can’t imagine Williamsburg, with its college and retiree population, has a significant number of school children that need to be educated, so even with a smaller tax base because of the size of the locality I wouldn’t expect it to need much help.

  4. There’s a compelling argument that downstate localities are going to under investment in public education. They pay the costs upfront to educate, but usually don’t reap the rewards as well educated children go off to college and adulthood elsewhere. You could argue that the parents should pressure for more education spending, but outside of the major metropolitan areas like Richmond and Hampton Roads the local populace is going to represent the lower income, less educated workforce that hasn’t relocated. Successful, educated workers that can be role models for the youth of the community are less plentiful. Ironically it’s similar to the negative effect that the end of housing segregation had on perceptions of education in the African American community.

    Instead, these localities are going to have incentives to throw tax dollars away on subsidies and other public private partnerships that try to draw manufacturing and similar jobs.

    Virginia has an interest in ensuring a well educated citizenry, even if the localities aren’t up to the job. The Commonwealth also has an interest in providing a fair and level playing field between localities, which argues that the Commonwealth needs to do more to clamp down on this race to the bottom in terms of corporate subsidies to lure temporary jobs downstate.

    • Freedem makes excellent points. The “other” inter-regional transfers of wealth that occur in Va is Welfare and MedicAid to the poorer, less-educated, less prosperous parts of RoVa and the most cost-effective way to address this is to provide a quality education to the children so that they will be able to migrate to areas with jobs – and successfully compete for those jobs – and become net taxpayers instead of the next generation set up to receive welfare and MedicAid.

      One would think of all the folks in Va who might actually see this better path away from poverty towards a better life as a taxpayer – would be those who live and work in NoVa rather than the “it’s all mine and I’m going to keep it all” mentality of some in NoVa.

      Here’s something else that we all should support – as a more cost-effective way to provide education to all kids – regardless of geography:

      Virginia State Virtual School; established as statewide school division, report.

  5. There needs to be some minimum local tax effort imposed by every locality in Virginia as a part of the state program to finance education.

  6. re: transfers of wealth, inter-generational, inter-regional, inter-blah blah blah, et al, ad nauseum.

    I do not know of a single state that collects statewide sales and income taxes that then lists out for each locality how much the state sent back to those localities.

    I’m not saying that some enterprising group could not do it but that for most folks – they do not see the collection of income/sales taxes at the State level and then the spending of it across the state – for education, law enforcement, environmental protection, etc – to be the dreaded ‘inter-regional” transfers of wealth.

    I do not see the US approaching things this way either but there ARE no shortage of think tanks that will take available data and calculating things like which states are net donors and which ones are net recipients.

    The info is available in Va too for those so inclined to publish that data but again – in every state in the Union – you’ll have prosperous areas and not so prosperous areas and one of the traditional legitimate purposes of the state is to afford each child access to equivalent equitable educational resources.

    The data for Va is pretty accessible. We know (for instance) how much NoVa generates in sales taxes and getting the 1% number is no big trick. And the total amount of money they get is SOQ is know also.

    But again, that 1% that the state levies on a statewide basis – does not belong to NoVa (or any other locality) any more than the income tax collections do either.

    Why we characterize it as “taking” from NoVa is in the minds of those who think that way but as I said, every one of the 50 states does exactly the same thing… there are statewide taxes collected and they are not re-allocated precisely in proportion to their geographic sources. Only in NoVa do you really hear this.

    • LarryG:

      You ability to be consistently wrong is impressive.

      “I do not know of a single state that collects statewide sales and income taxes that then lists out for each locality how much the state sent back to those localities.”.

      “Only in NoVa do you really hear this.”.

      From Illinois:

      “A regional analysis of state expenditures versus state revenues hasn’t been done in many years. The General Assembly’s Legislative Research Unit has refused to conduct a new study because of the uproar created the last time it did one.

      That last LRU report, in 1987, found that the suburbs (including suburban Cook) paid 46 percent of state taxes, but got back just 27 percent of state spending.”.

    • By the way, it took me about 90 seconds to put through a Google search that brought back the article about the situation in Illinois.

      You need to get out of your basement and start seeing how things really work outside of Virginia.

  7. Personally, I think it was dumb luck guy. It’s probably the only state report done ever…. and you stumbled onto it.

    besides.. I still do not understand your mindset on this.

    Every state has areas that are more prosperous than other areas and every state tries to insure that each child gets access to equitable education resources

    and that’s a GOOD THING that actually HELPs the more prosperous areas that WILL ALSO pay for Welfare and Medicare for the less prosperous areas if they don’t provide a quality education for the kids.

    why in the world would you begrudge this?

    • “why in the world would you begrudge this?”

      Do you think it would be wise policy for the state of Michigan to subsidize the City of Detroit to such an extent that the 500,000 people who have moved out of Detroit could continue to live there forever?

      Or, would the state of Michigan be dooming itself by propping up a city of one million people with only enough economic potential to support 400,000 people?

      There is nothing wrong with the people in economically depressed areas. The problem is the economy in those areas. The economy should be fixed if it can be fixed. But if it can’t be fixed then people should be encouraged to move to locales where more economic opportunity exists. Perpetual economic subsidies do not encourage the movement of people to areas of opportunity.

      Why is this hard to understand?

  8. this whole deal is about kids and their ability to get a quality education that would allow them to grow up and become taxpayers.

    I cannot imagine anyone arguing against a policy that the intent was to provide kids with such a quality education.

    the discussion about knowing the “numbers” is relevant but only in a ancillary sense. I mean what would you argue? that $100 more or less per kid is too much? You’d deny funding for that kid because you’d think the locality should fund more an they do not?

    How much money are we really talking about – per kid?

    my bigger concern would be if they really were getting a quality education (defined as one that enables them to compete for 21st century jobs).

    but that seems almost independent of the SOQ issue as some school systems in Va – even in the poorer counties seem to do a pretty good job – even better than some urban area schools and which I would say is money well spent if it ends up with those kids being able to move to NoVa and get a good job.

    • Things change. Places that once had great economic potential sometimes lose that potential … forever. When that happens, people need to move to areas with more economic potential.

      Building an unending culture of dependency is no more appropriate for so-called welfare mothers as it is for welfare counties. The goal in both cases is to get off welfare.

    • “How much money are we really talking about – per kid?”.

      Nobody knows. That is the first problem.

      If something isn’t being measured, it isn’t being managed.

      This is just another example of the Imperial Clown Show in Richmond running amok.

  9. Example #2: New York.

    Does “downstate” subsidize “upstate”?

  10. If federal subsidies to rural areas don’t spur growth, why do they exist?

    • Yeah, LarryG – the conversation only happens in NoVa, not (for example) in Washington state.

      “For example, the taxpayers of Seattle are net contributors of taxes in every category – sales, B&O, utility, property – and yet we receive only $0.37 for education spending for every dollar we send to state government. Why shouldn’t where money comes from have an impact on how the cuts are made? They should.”

  11. In Pennsylvania it’s the rural roads that are being subsidized by urban and suburban drivers.

    “If you think about a two lane road – if it doesn’t carry at least 10,000 vehicles a day, it’s being subsidized.”.

    Hey Larry and/or Jim Bacon – why is this true in Pennsylvania but not Virginia?

    Or, maybe it is true in Virginia?

    • Interesting… Are rural roads subsidized? I’m not sure how you calculate that. Perhaps subsidy occurs at the point at which the cost of maintaining the road exceeds gas tax revenues generated by travel on that road. It’s likely that many rural roads in Virginia *are* subsidized. And that does change the equation when people complain about mass transit, doesn’t it?

      It would be nice if VDOT generated those kinds of metrics itself… or if members of the CTB asked to see them. But that kind of analysis simply does not exist.

      • rural roads are not subsidized in states where the local roads are the responsibility of the local county.

        The state is still responsible for “connecting” roads – what we call “primary” roads in Va or Corridors of statewide significance.

        In those 46 other states, the locality often has a road commission that levies a separate tax for roads and they also decide if the county will pay for subdivision roads or they will be HOA maintained.

        VDOT used to publish some information about money spent in the Districts but not by county and DMV publishes transportation tax revenues for the state but also not local.

        the one place where you can get a rough feel for county’s fuel tax revenues is by looking at the VRE 2.1% tax revenues in those counties that belong to VRE. Even that info is not readily easy to lay hands on. But from that money data, you can use a rough average price per gallon to derive the total gallons sold and from that a rough idea of revenues from the 17 cent tax. (and to be fair, you would also calculate the Fed tax in addition).

        You can do this for Fairfax I believe as well as the counties from Arlington south to Spotsylvania since they all collect a 2.1% tax for VRE..

  12. Ok, I give you credit for well-substantiating your point about geographical cross-subsidizing but I already said prior that in other states the more prosperous areas would do that , remember?

    I also asked you why you would begrudge helping to provide a quality education to kids in those less prosperous areas so that they could leave and go find a job in a more prosperous area – as opposed to you continuing to pay for welfare, MedicAid and incentives to bring businesses there (who won’t come if the workforce is not well educated)?

    You have no solutions for any of these other than “I want to keep my own money” and “I don’t care what happens down state”.

    on the roads – remember – in Pennsylvania and 45 other states, the localities are responsible for local roads, not the state, right?

    So they’re not talking about local roads but state roads that connect the geographic areas. VDOT has a similar approach in that it does look at the traffic count to determine what design level the road should be at.

    The problem in Va is that unlike most other States, VDOT has to stretch it’s thin resources to cover local roads including subdivision roads and this forces them into making triage choices.

    again, I stated long ago that more prosperous regions will subsidize the less prosperous regions – where I erred (and you proved it) was in saying they don’t keep track of it and obviously many other states do – but that does not change the fact that they they not proportionally reallocate but instead subsidize.

    your solution to this instead of this is what?

    • Please go back and read my comment from 12:14.

      In Pennsylvania, localities may “run” local roads but the state still sets the gas tax rate. Presently, the gas tax in Pennsylvania is 32.3 cents per gallon, approximately twice the gas tax rate in Virginia and the fourth highest in the nation. Still, the state has a transportation funding issue. The answer? Raise tolls on the Pennsylvania Turnpike. Sound familiar?

      Someday, I’d love to hear your theory of how taxation would work in Virginia if localities were responsible for local roads. Today, cities and Arlington and Henrico counties are responsible for local roads. Do they set their own tax rates for gas? Or, are they dependent on the Imperial Clown Show in Richmond for a “fair” allocation of the state gas tax revenues?

      Virginia’s problem is that our state legislature is like an insect trapped in amber. The world changes but our state legislature makes sure that Virginia does not. Cities have charters, counties do not. However, the largest city (by sq mi of land) is bigger than 17 counties. Six of the ten most populous localities in Virginia are counties, not cities.

      So, why do cities have charters but not counties?

      Because a century ago counties were predominately rural while cities had sufficient populations to support themselves.

      The world has changed in the last 100 years. However, the Imperial Clown Show in Richmond has remained frozen in amber.

      Virginia needs a complete political re-structuring and a new constitution, not just some policy “tweaks”.

      • Three former counties in Hampton Roads — Princess Anne County, Chesapeake County and Nansemond County — switched from county to city forms of government, becoming the cities of Virginia Beach, Chesapeake and Suffolk.

        If Northern Virginia counties want the additional authority that cities possess, what’s stopping them from making the same change?

        I’m not being argumentative here. I’m just wondering what the answer is.

        • My understanding is that Fairfax CAN do that with concurrence of their citizens …. it’s in the State Code I believe.

          I think one of the things that is holding them back is the maintenance of the roads.

      • re: twice the tax. Nope. You’re not counting the other sources of transportation funding in Va which are equivalent to more than 10 cents on the gas tax rate.

        re: Pennsylvania transportation needs. They have the same problem as Virginia in that they have a obscure and opaque process – and what that proves is that no matter how much funding you have, you still will spend more than you have.

        re: ” Someday, I’d love to hear your theory of how taxation would work in Virginia if localities were responsible for local roads. Today, cities and Arlington and Henrico counties are responsible for local roads. Do they set their own tax rates for gas? Or, are they dependent on the Imperial Clown Show in Richmond for a “fair” allocation of the state gas tax revenues?”

        It would work the same way it currently works for Va. 33 cities and towns and 46 other states.

        in terms of “fair” allocation, I’d agree that we simply don’t know what should be but I would support (as a bill in the general assembly right now proposes) a local option sales or gas tax that goes exclusively to the county for transportation only purposes.

        Remember also that counties already collect taxes on cars but they do not spend that money on transportation so if we give them a local option tax, we need Dillon-rule assurances that it will only be spent on transportation.

        re: charters

        if you have not read this:

        you should. Open up two tabs one for Va and one for Md and tell me what you see in terms of differences. HINT: BOTH are characterized as Dillion Rule states but there ARE some differences. Tell me what they are.

        re: history of rural white.

        true of all states right?

        I’ll trade you Home Rule for the right of citizens to initiate referenda and recall. Deal?

  13. what cross-regional subsidy would give you the most bang for the buck – education of incentives for business?

    I think it’s education – hands down. It’s a cheap investment to get a kid to grow up to become a taxpayer instead of a recipient of welfare, food stamps, MedicAid, etc.

    Of course, one of the more promising advances in Va is the development of the Virtual School System – which also has a rural chink in it’s armor – rural internet.

    so is rural internet a good investment for subsidies?

    I say yes. I say that ultimately it may help the poorer counties provide higher quality educations without any increase in SOQs.

    And a huge side benefit would be that it might well also serve as an incentive for training for employee workforces for businesses and community colleges.

    These are legitimate “investments” that if executed properly will result in lifting more boats and ultimately reducing the cross-geography subsidies.

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