HD39 - Review of the Impact of State-Owned Ports on Local Governments


Executive Summary:
Item 16N of the 1999 Appropriation Act directed the Joint Legislative Audit and Review Commission (JLARC) to examine whether the State provides adequate financial compensation to the localities that host the Virginia Port Authority's (VPA) terminal facilities. The VPA operates marine terminals in the cities of Newport News, Norfolk, and Portsmouth as well as an inland terminal located in Warren County. This report contains the staff findings and recommendations regarding the fiscal issues related to hosting these State-owned ports.

The State has made a substantial financial investment in the WA's four terminal facilities, which has enabled them to generate significant employment, wage, and business development benefits for the Commonwealth as a whole. The host localities also receive employment and wage benefits from the ports. However, the business development benefits of the terminals' operations in the host cities are limited by the lack of undeveloped property. Localities that are in close proximity to the host cities enjoy much of the VPA-generated employment and business development benefits, with- out incurring the loss of taxable property.

Since the VPA terminals are State-owned, the host localities cannot levy local taxes on the facilities. Because the terminals are industrial in nature and located on valuable property, the host localities forgo more than $2.5 million annually in local tax revenue due to the tax-exempt status of these facilities. Moreover, expansions of the terminals continue to result in local revenue loss.

The host localities do receive reimbursement from the VPA for providing fire protection services to the terminal facilities. However, the host localities also provide other services, which are not recognized for reimbursement, that benefit the VPA's terminal operations.

This report addresses the issue of lost local revenue through the potential provision of additional reimbursement to the host localities, linked to the growing level of business activity at the ports. However, such an approach would have to be considered in light of its impact on other localities hosting State-owned property, as well as the potential impact on VPA's business operations.