Gov. Timothy M. Kaine backs changes in how state, cities divide revenue

The relationship between Virginia’s cities and state government is about to change, if Gov. Timothy M. Kaine’s ideas gain acceptance in the General Assembly.
The tax revenue that’s sent from the state back to local governments could be distributed under a new formula designed to keep localities from competing with each other, Kaine said in an interview with the News & Advance.
Many cities also can develop revenue sources from the emerging trend of downtown renewal, as people move into condominiums built in restored warehouses and retail stores, Kaine said.
In addition, the governor said, there should be an easier way for small cities that struggle to support themselves to change their independent status and become part of a
county.
Kaine said he wants to make those ideas part of a discussion he plans to have with state legislators and cities’ leaders this year, as the state’s ban on cities annexing county suburbs draws closer to expiring in 2010.
Sen. Steve Newman, R-Lynchburg, said he’s had some discussions with the governor’s office about a bill he proposed this year to extend the annexation ban until 2018.
The only sure-fire protection is for Kaine “to sign the bill” continuing the ban, Newman said.
Newman said he was concerned that some cities may start planning soon to file annexation lawsuits against counties.
Kaine said there’s still time for him to talk to cities and legislators about ideas he sees as long-term improvements for city-county relationships.
“Annexation isn’t coming back,” Kaine said, because only 16 percent of Virginians live in cities. Sixty-five percent of the population lives in suburban counties, and legislators who represent them won’t vote for annexation, Kaine said.
Lynchburg City Manager Kimball Payne, earlier this year, said he, too, thought the annexation ban enacted in 1987 would remain in place indefinitely.
Newman said Kaine’s concepts sounded positive, but they’re only “nice words” unless the governor signs a bill to keep the ban on
annexation.
Newman withdrew the annexation bill he introduced in the General Assembly this year because Kaine’s staff told him the governor would veto it. At the same time, Newman said, he received some assurances from the staff that Kaine would hold in-depth discussions later this year about the revenue bind most cities face.
Annexation, or cities’ taking land from surrounding counties, originated in English common law as a way to generate revenue to meet growing demands for police, fire, schools, water, sewer and social services.
“It’s the biggest dilution of property rights you can have,” Newman said, and even the threat of annexation can cause cities and counties to cut back on regional
cooperation.
To compensate cities for the loss of annexation rights, Virginia adopted a special category of revenue sharing that, originally, was intended to help cities hire more police officers.
Kaine said that revenue, known in government circles as “599 funds” because it was the legislature’s bill number for the law that enacted them, doesn’t always go to police departments.
“I know from my days in local government that most cities don’t just give that money to police departments,” said Kaine, Richmond’s former mayor. “It is one of the few sources of funds that truly are not earmarked, and it just goes into the general fund budget.”
The governor acknowledged making some cuts to those funds this year because of declining revenue forecasts.
His upcoming talks with legislators and city leaders will focus on new ways to achieve regional cooperation, Kaine said.
“We should talk about the next strategy for helping cities be successful,” as a preface to discussing the annexation moratorium, Kaine said.
The key to Kaine’s concept involves a change in the state’s ways of sharing the 49 percent of state revenue that is returned to localities.
“I’ve always been a fan of the notion that if the state could figure out a way to take state income tax collections and maybe even change the allocation formula by which we revert some portion of income tax back to localities, that gives everybody a motive for everybody else to be successful,” Kaine said.
“If I’m in Wise County and I know that I’m going to get some percentage of the state’s income tax collections, I’m pleading for the Fairfax County Economic Development Authority to be successful,” Kaine said.
“And similarly, if I’m in Norfolk I want Wise County to be successful.
“So, we have to build some mechanisms in place that give everybody a motive to help everybody else be successful,” Kaine said.
That theory would improve a situation that often exists in metropolitan areas such as Lynchburg, where if a new business thinks about moving into the area, city officials hope the business will choose an in-city location instead of a nearby county. The result of that competition is “a zero-sum game,” Kaine said.
“We have to look at this question and find strategies, including an allocation formula where everybody is rewarded by success in one of the counties,” Kaine said.