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Lower Compensation or Higher Taxes? Perspective on Fx Co Meals Tax

Lower Compensation or Higher Taxes?
A Perspective on a Fairfax County Meals Tax

Arthur Purves -- President, Fairfax County Taxpayers Alliance, 06/11/2014

Between the start of the housing bubble in 2000 and the 2015 adopted Fairfax County budget, real estate taxes for the typical Fairfax County homeowner will have increased from about $2400 to $5500, a 129 percent increase. Inflation over this period was 48 percent. Homeowners had an average 5% real estate tax hike this year (FY2014) and will have a 7 percent hike next year (FY2015).

Nevertheless, Fairfax County government and Fairfax County Public Schools (FCPS) say that they are underfunded. The school superintendent is increasing class sizes next year, and the county supervisors are considering a meals tax referendum.

After such large real estate tax increases, why is the county underfunded? The answer is county and school employee compensation. Seventy-five percent of tax increases over the past 15 years have been spent on raises -- Cost of Living Adjustments (COLAs) and step increases -- and benefits, principally zero-deductible in-network medical insurance and pensions with retirement at age 55 and 75 percent of salary. The average annual raise for all county government and school employees has averaged over 4 percent annually for the past 15 years.

Only 25 percent of tax increases since 2000 were for increases in enrollment, special education, low-income children, population growth, mandates, etc.

What return do taxpayers get on their investment? Between 2000 and 2012 persons living below the poverty level in the county increased 49 percent, from 43,396 to 64,600. Only 54 percent of FCPS seniors and only 18 percent of FCPS African-American seniors are prepared for college (ACT results). (Parks and libraries are only $50 million of the county's $1.8 billion non-school disbursements.)

The 12,000 county and 23,000 school full-time employees expect 4.5 percent raises annually. For most it's a COLA, which covers inflation, plus a step increase, which is another 2 percent. Fully funding these raises and annual increases for insurance and pensions costs an additional $150 million each year. A four percent meals tax raises $90 million and would therefore cover only part of one year's compensation increases. Thereafter there would be pressure every budget cycle to raise the real estate tax rate 7 cents or continue increasing class size, neglecting maintenance, etc.

Fairfax County compensation and tax trends are comparable with that of neighboring jurisdictions. However competing with neighboring jurisdictions may not be necessary given that FCPS last reported 30,000 resumes for 1,000 job openings and the county 232,358 resumes for 1,016 job openings.

One would hope that county and school employees would accept compensation comparable to the private-sector taxpayer, for whom salaries are stagnant, high-deductible medical insurance is more common, and pensions have been replaced by defined-contribution plans. Otherwise taxes will increase, services will deteriorate, businesses and taxpayers will flee, poverty will continue to increase, and ultimately county and school employees will be laid off.

A meals tax is not the solution. It's a choice between lower compensation and higher taxes.