Guest Column

Steve Haner

Fooling None of the People

The General Assembly balanced the budget without a "tax" increase. But Virginians will pay $300 million in new or higher fees -- many of them mandatory.

What is a fee and what is a tax? That is a question that may – and perhaps should -- dominate political campaigns this year.

Incumbent General Assembly members who campaign on having kept their pledge not to raise taxes may be asked about fees instead. Voters are going to notice higher fees for driver licenses, boat registrations and college tuition, higher ABC store prices, new parking charges for bird watchers and a new $9 fee for every commercial pump or scale inspected by the weights and measures division.

Water permit fees are about to triple, and the state is renewing the collection of royalties for piers standing over state-owned river bottoms.

The 2003 budget bill now sitting on the governor’s desk includes $66 million in new fees over two years, according to a summary from the House Appropriations Committee. Most of those fees were proposed by the legislature, not the governor.

Doesn’t sound too bad? Don’t forget that the 2002 General Assembly working on the same two-year budget imposed $211 million in new or higher fees. So the cumulative total is sneaking up on $300 million. When they go into effect for a full two-year budget cycle, the total will easily exceed $300 million.

The game here is simple. You create or raise a fee for an existing program, then you use the general fund tax dollars previously put to that purpose for something else.

The Division of Motor Vehicles has been the blue ribbon cash cow. DMV’s fees were raised $60 million in 2002 -- but not because it was short of cash because of the recession. DMV’s operations were slashed, offices closed and employees laid off so its fee revenue could be diverted to the General Fund for other programs.

The reaction among legislators, especially Republicans who felt their local DMV offices were targeted, was angry and swift. Restoring full DMV service became Job One of the 2003 Session. But there has been little attention on how it was done.

The General Assembly didn’t stop the bleeding in order to re-open DMV field offices, it raised license fees another $15 million. Peter was fattened for the slaughter, got robbed to pay Paul, and then you got nicked to repay Peter.

The list of new and raised fees doesn’t include the tuition increases at Virginia’s institutions of higher education. If anything is a fee for a government service, state college tuition is. But, of course, the General Assembly doesn't raise tuitions directly; it lets the boards of visitors do the dirty work. Accountability gets hazy.

So, the figures on the handouts are conservative.  That doesn’t mean the public policy is conservative. A dollar out of the family budget or a business cash register to pay a state fee is still one less dollar for discretionary spending. The economic impact is the same as a tax.

In truth, there is no appreciable difference between a tax hike and a fee hike if you're paying the fee for something you really must have, like a driver’s license, college degree or a health inspection. The main difference for you as a citizen is that you can itemize state taxes, but you can't deduct fees from your federal taxes. In other words, if you itemize, you wind up paying more in taxes than you would have otherwise.

Some fees are related to the courts, and if you don’t get charged with drunken driving or failure to appear in court, you won’t have to pay them. Some are voluntary, in the sense that you don’t have to buy a bottle of Old Overcoat at the ABC -- or have the option of crossing the state line or finding a neighbor who can shop on a military base. But for many Virginians, there's no escaping the fees.

The 2003 General Assembly did approve a bill that may lead to better reporting of state fee income. House Bill 1393, submitted by Del. Scott Lingamfelter, R-Woodbridge, requires reports every six months listing all income from all sources. It also tells the Auditor of Public Accounts to report on whether fee revenue is diverted to other purposes. We’ll see how that second part works out, but it is a great idea.

Another great idea sponsored by Lingamfelter wasn’t so successful. His House Bill 1849 would have done a bit of editing on the state code, changing the word “fee” to “tax” with regard to any mandatory payment related to business activities.

That proposal was tabled 15-1 in the House Rules Committee. Instead, the legislature should have amended the bill to apply the term “tax” to any mandatory state fee related to any activity, and then passed it. Then we could have opened this year’s debate about raising taxes in Virginia by admitting we already had.

-- March 10, 2002

-- March 10, 2003

Stephen D. Haner is vice president for public policy with the Virginia Chamber of Commerce. You can can e-mail him at s.haner@vachamber.com