HD29 - Service Charge Payments in Lieu of Taxation

  • Published: 1985
  • Author: General Assembly. Joint Subcommittee
  • Enabling Authority: House Joint Resolution 125 (Regular Session, 1984)

Executive Summary:
The Commonwealth currently allows certain localities to impose, on a local option basis, a service charge on state-owned property which cost the Commonwealth $1,254,525 in fiscal year 1981-82. However, the current service charge statute is restrictive and generally is provided only to those localities in which state-owned property exceeds 3% of the value of all taxable and nontaxable property in the locality. However, a locality can impose the service charge on faculty and staff housing and on the property of the Virginia Port Authority without meeting the 3% threshold.

The subcommittee found in tax year 1983 the Commonwealth owned over $2.6 billion of property which comprised 1.71% of the value of all property in the Commonwealth. If one examines the extent of state property by locality, it is clear that state property comprises a very significant percentage of total property in some localities. For example, in Montgomery County, state property comprises over 25% of the value of all property. The subcommittee also examined the extent of all exempt property in the Commonwealth and found that the value of all exempt property exceeds $27.8 billion, which is 17.8% of the value of all property in Virginia. Again, however, the state totals hide the tremendous impact on individual localities. For example, in Portsmouth, exempt property comprises 58.43% of the value of all property. In other words, there is more exempt property in the City of Portsmouth than there is taxable property. This identical situation exists in Lexington. In Norfolk, exempt property comprises 49.91% of all property. The extent of exempt property is also a very serious concern to counties. In Montgomery County 42.47% of all property is exempt. In Alleghany the figure is 40.65%, while in York County the percentage of exempt property is 39.83%.

The subcommittee carefully weighed the service charge concept as well as the current statute concerning service charges. The subcommittee has found that the current statute contains a great deal of merit, that is, that localities with larger amounts of exempt property should be allowed to impose a service charge. The subcommittee believes that the current statute should not be amended. However, the subcommittee does believe the federal government should follow the Commonwealth's example in the service charge area by adopting legislation which would provide a federal service charge on federal property in those localities where the impact of federal property is significant.

The subcommittee examined a number of alternatives ranging from repealing the current service charge statute to allowing all localities to impose a service charge on state property. The alternative which would allow all localities to impose a service charge on all state property would cost the Commonwealth approximately $10 million per year.

The alternatives considered by the subcommittee involved a number of complex issues such as how to quantify and account for services provided by the Commonwealth to localities which directly reduce local expenses. The subcommittee also considered the philosophical question of how to balance the costs which state property imposes as compared to the benefits which state property provides.

After thoroughly considering all of these issues and concerns, the joint subcommittee believes that the current service charge statute should be retained with no changes.