Unpaid Taxes Hurting Virginia

Delinquencies Total $1.4 Billion

RICHMOND -- Even as Virginia faces one of its worst financial crises in modern times, thousands of residents owe the state $1.4 billion in past due taxes -- a staggering amount that, if collected, could substantially reduce the state's escalating shortfall.

The money, owed by thousands of individuals and businesses, often remains outstanding for months, even years, as the state struggles to track down delinquent taxpayers and force them to pay.

The state is eliminating thousands of jobs and cutting core government services to address a $2.9 billion shortfall, but the collection of unpaid taxes has received little attention.

Gov. Timothy M. Kaine (D) recently hired 55 workers at a cost of $1.2 million to help recoup the unpaid taxes -- one of the only instances of new state spending in months.

In the District, which is facing a $152 million budget gap, nearly 39,000 taxpayers owed $72 million at the end of 2008. In Maryland, which faces a budget shortfall of $1.9 billion, 182,000 residents owe $530 million as of this week.

"When revenues are falling short of estimates, there is nothing like collecting past-due taxes to help out," said Stephen Cordi, the District's deputy chief financial officer.

Some Virginia legislators acknowledged that the state's method of tax collection and use of private collection agencies deserve further scrutiny during the economic downturn.

"Uncollected taxes are a big deal and, clearly, we need to look at them," said Del. Clarke N. Hogan, a Charlotte County Republican who is a budget negotiator in the General Assembly.

Virginia, Maryland and the District have struggled to collect millions of dollars, which includes personal income tax, business sales tax and corporate income tax, while trying to resolve their budget shortfalls.

As the economy continues to worsen, tax officials expect the number of delinquent taxpayers to grow.

Fewer people will be able to pay their taxes, which will lead to further trouble for financially strapped governments that use the money for all types of services, including prisons, parks and health care. Some governments have started offering taxpayers payment plans.

"If taxpayers are caught in a crunch and they have to make a decision on who not to pay, they may decide not to pay their taxes in the hopes they won't get caught," said James R. Eads, executive director of the Federation of Tax Administrators.