The commission recognizes the major fiscal problems faced by the state and local governments in the next few years. There are several approaches to funding any fiscal gap that develops, among them greater efficiency and economy in government, a reappraisal of spending priorities, imposition of more service charges for those activities of government that lend themselves to this device, borrowing for capital outlay purposes, more federal aid including federal revenue sharing, more state aid for localities, and finally, increased taxes. These alternatives need not be considered separately. In fact, it is quite possible that a combination of them will be necessary.

In regard to borrowing for capital outlays, the new constitution permits general obligation borrowing provided that it is approved by a majority of the General Assembly and by a majority of the voters in a referendum. While the language in the constitution is somewhat open to interpretation, projections have shown that borrowing for the 1972-74 biennium could amount to between $82.1 million and $163.1 million. Any amount borrowed would have to be serviced from general fund revenues; for example, debt service on the $82.1 million is forecast to be $12 million in the next biennium (staff report, pp. 222-24).

With respect to the utilization of federal monies, the commission has concluded that most available funds are now being obtained. It does not recommend at this time that an office be maintained by the Commonwealth in the nation's capital to facilitate the receipt of grants.

The commission was struck by the changing character of Virginia. In 1950 less than half of the population was classified as urban (47 percent). By 1970, 68 percent of the population was urban. With urbanization the problems of the public sector have multiplied. The congestion of people promotes traffic, crime, pollution, and many other problems. Furthermore, it brings to light many problems that perhaps existed when people lived in rural areas but which were not widely known. With urbanization, there is less opportunity for people to rely upon their own resources. A jobless man cannot return to farming, instead he often asks government to find him a job or provide him with unemployment compensation. With urbanization more and more people work for someone else than work for themselves. This means a sharp growth in payroll income. In fact, in 1950 wage and salary disbursements accounted for 69 percent of personal income earned in Virginia. By 1970, they were 74 percent. As more and more people turn to wage and salary income for their livelihood, it means that wealth is often measured by a man's ability to earn payroll income rather than by the property which he holds. Thus, there is a movement in taxation to concentrate on types of taxes related to income and consumption rather than those on property. Another change in our society has been the increased mobility of people. Many citizens of the Commonwealth now live in one jurisdiction, work in another, and shop in a third. This complicates the fiscal problems of local governments because frequently the people who consume many expensive services live in one jurisdiction, yet the taxable resources may be in another.

If the Governor and the General Assembly determine that significant gaps exist and that alternatives other than taxation will not raise the required revenues, then the commission recommends that consideration be given to raising major state taxes, providing additional state aid to local governments, augmenting local tax sources, and improving the local property tax. The commission also recommends further study of state-local fiscal problems.

These topics are discussed in five major sections. No priorities should be implied from the order of listing of the sections or of the topics within sections.

The biennial revenue figures from changes in certain taxes are based on two full fiscal years. Without further knowledge as to what date possible changes would be adopted, this seemed the best compromise. If a tax change were inaugurated on some other date than the beginning of the biennium, say January 1, 1978, then the change would affect biennial revenues for seventeen months (allowing for a collection lag of one month).