RD643 - Report on Mandatory Property Tax Exemptions – November 2021

Executive Summary:

Item 117 of Chapter 552 from Special Session I of the 2021 Acts of Assembly requests the Commission on Local Government (CLG) produce a study on the fiscal effects of mandatory property tax exemptions on the Commonwealth’s localities. Because many localities face varying levels of revenue losses due to these exemptions, those localities face increasing pressure to either increase taxes on other citizens or cut basic services.

The Commission convened a stakeholder workgroup twice to discuss these exemptions and form alternative options that could help to partially or entirely alleviate the stresses that these exemptions have on local budgeting. Following these workgroups and additional staff research, the CLG recommends that the Commonwealth share in those efforts to provide tax exemptions to veterans who have served their country by sharing in the fiscal burden which localities have shouldered entirely to this point. Ways in which the Commonwealth can do this include:

• Reimbursement of a portion of the revenue loss experienced by localities.

o Reimbursement can take into account a range of variables, including varying percentages of reimbursement or tying the amount reimbursed to a localities scoring on the Fiscal Stress Index.

• Instituting a first day introduction requirement on legislation with a local fiscal impact, which would improve the ability of localities and special interest groups to better analyze fiscal impacts of legislation.

• Reevaluation of other tax exemptions not set out in code and not under consideration due to the narrow directive of this report.

• Reestablishment of educational practices for legislators to better understand the budgetary restraints and challenges faced by local governments.

• The establishment of a policy that automatically would place a minimum fiscal impact on any legislation that would create a net reduction on local revenues.

• Creation of a policy that would trigger interim legislative studies on legislation that exceeds certain fiscal impact thresholds.