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Understanding how Virginia spends money: A primer

Associated Press Modified: November 25, 2012 at 10:46 am •  Published: November 25, 2012

RICHMOND, Va. (AP) — You're going to hear a lot over the next three or four months about how Virginia, through people you elected, takes and spends your tax money. It's a complicated perennial process already well under way, dominated by professionals and insiders who communicate in a sort of trade jargon that, to the ordinary Virginia taxpayer, might as well be Mandarin or Urdu.

It can be boring, it can be dense and time-consuming, and it will never make the best-seller list. But it bears watching — perhaps even your input — because there are some very real consequences for Virginians on every rung of the economic ladder.

Upcoming in official-sounding legislative committee meetings that you're entitled to attend will be proposals that could influence how much you pay for college, what Medicaid benefits you get, how much you pay for gas, and whether you pay tolls on your way to and from work.

And that's just the tip of the iceberg.

What's next is not for insiders. If you make your living in or around Capitol Square legislating, lobbying or working for those who do, skip to the crossword puzzles, sports, Facebook or whatever else strikes your fancy.

If you're like most people, so busy with everyday living that tax policy and its effect on your home only crosses your mind every mid-April, read on.

You pay taxes to three levels of government: your local government, largely in the form of property taxes on real estate or personal automobiles you own; the federal government, chiefly income taxes due every April 15; and to the commonwealth of Virginia.

What gets taxed and the rate you pay, at every level, is decided exclusively by a legislative body: city councils or county boards, Congress or the General Assembly of Virginia. No mayor, governor or president can unilaterally increase your tax rate.

For state government, the legislative budget season ramps up in mid-November when the powerful General Assembly committees that vet spending and taxation bills gather for a couple of days for a round of briefings from economists and other experts about issues before them in the upcoming round of budgeting and how well the economy is performing. Those committees — House Appropriations and Senate Finance — held their two-day retreats two weeks ago in Suffolk and Charlottesville, respectively.

The economic outlook, lawmakers were told, is guarded at best but uncertain because of the ongoing federal debt reduction debate known as the "fiscal cliff." Unless Congress and the White House agree on a menu of spending cuts and revenue increases by year's end, all federal income taxes increase and automatic spending cuts will decimate military and non-defense spending. Nowhere is the issue as critical as Virginia, which has the highest rate of per capita federal spending in the nation principally because of Virginia's vast military and defense-contracting interests.

That weighs heavily now on the mind of Gov. Bob McDonnell, who is huddling with his own economists and faces a Dec. 17 deadline for presenting legislators with mid-point adjustments for the second year of Virginia's two-year budget that took effect July 1. There are five public hearings Jan. 4, the Saturday before the legislature convenes, in Manassas, Middletown, Virginia Beach, Roanoke and Richmond. All are public.

Republicans with a deep anti-tax streak rule the House and Senate. The last general tax increase came in 2004, though lawmakers since then more willing to increase fines, fees and other costs as long as they're not called "taxes."

The total size of the current budget is $80 billion for the two years that began five months ago and ends June 30, 2014. It's broken into two different funds — the general fund and the non-general fund.

The general fund derives from broadly based taxes with individual and corporate income taxes chief among others. Because much of it is discretionary and covers core state services traditionally closest to ordinary people, it usually generates the most passionate disagreements. Among its uses are Medicaid and other health care programs, public safety from the state trooper on the road to the Virginia National Guard, and the state share of funding for local public education from kindergarten through senior year.

In the budgeting process, the largest single source of general tax revenue is called "withholding" because it's withheld from the paychecks of hourly and salaried workers. It accounts for roughly two-thirds of the general fund.

The non-general fund is largely a pass-through for direct payments to dedicated purposes — federal aid to specific programs, for instance, or tuition payments to state-supported colleges that mostly gets returned to the institutions. But it also encompasses the 17½ cents-per-gallon gasoline tax reserved for transportation funding. The fuel tax, enacted in 1986, has not changed since.

Democrats see red when Republicans try to divert general funds to cover dire and worsening shortages in transportation funding. Republicans, including McDonnell, say transportation is as basic a service as state government can provide.

One of several bills to increase transportation funding got a conspicuous launch earlier this month. Sen. John Watkins' bill would collect a 5 cent sales tax on gasoline indexed to its cost; retain the per-gallon fuel tax; lower marginal income tax rates; and apply the sales tax to several transportation-related goods and services long exempt from the tax as a way to reimburse the general fund for lost income tax revenue.

It would also prohibit any tolls not approved by the legislature on existing roads.

Told you it was complicated.



Legislative budget meetings:

Virginia's current budget:

FAQs on Virginia's budget:


Bob Lewis has covered Virginia government and politics for The Associated Press since 2000.


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