Based on the explanations given for the reason Henrico and Chesterfield officials want to pass new taxes this November – the meals tax for example – this much is clear: if Congress had agreed to fix a problem it created in the IRS code, these taxes WOULD NOT HAVE TO BE RAISED!
That’s right: a glitch in federal tax law raises the cost of school modernization by 30-40% if not more for Henrico, Chesterfield, Richmond, indeed all the localities in the state and country!
This is not a matter of speculation: it is a known fact. Former Governor George Allen and myself were the first to expose this little known problem in a 2009 New York Times OPED article.
Last year, local Congressman Eric Cantor, along with Senators Mark Warner, now Senator Tim Kaine, Governor Bob McDonnell, likewise pointed it out in an OPED column last year.
The savings of roughly $ 1 Billion to area localities on school modernization is NOT IN DISPUTE: IT IS a given, accepted by our law makers.
BUT NOTHING HAS BEEN DONE.
Thus, Henrico for example says you, the taxpayer, has to pay more taxes because schools are very costly to modernize or build new, indeed the glitch in federal law leads localities to build new modernizing an existing building would produce the same quality facility had $tens of millions less in cost to the taxpayer!
The IRS law culprit is called the “prior use rule”, which of course means nothing to us average Virginians, but everything to the handful of lawyers and tax accountants who study this stuff. In layman’s talk, it means that private investors can earn generous tax credits – as encouraged by Republican President Ronald Reagan who pushed for this law – on turning an old school into say a luxury condo. But if these same investors wanted to use their same capital to turn an obsolete school into a modern 21st facility for your child, that same investor WOULD NOT earn those credits. Why? Because under the IRS interpretation, it amounts to a tax-exempt entity [the school system] using the same building for the same prior use AFTER the modernization as it did before. This “prior use” rule ONLY APPLIES in this type of limited instance, there is NO SUCH RULE for a situation involving only private parties. But since a school district/locality is no a private party but a public entity, then the “prior use rule” applies.
RESULT: Over the next many years, if unchanged, local taxpayers will be forced to pay “$hundreds of millions of extra construction costs.” All this money wasted on unnecessary construction costs are thus not available to help fund needed instruction improvements in the classroom.
SO: When you go to the polls in Henrico and elsewhere this fall, remember that those tax increases are a “gift” from the federal government. Virginia members of Congress by and large understand the need to fix the glitch and thus save you $all that tax money.
But all of us will have to do more to make the change happen in Washington.
Paul Goldman is in no way affiliated with WTVR. His comments are his own, and do not reflect the views of WTVR or any related entity. Neither WTVR nor any of its employees or agents participated in any way with the preparation of Mr. Goldman’s comments.