Proposed fees challenge Va. governor, a foe of raising taxes

Gov. McDonnell faces a $4 billion shortfall.
Gov. McDonnell faces a $4 billion shortfall. (Steve Helber - AP)
By Rosalind S. Helderman
Washington Post Staff Writer
Sunday, January 24, 2010

RICHMOND -- Republican Gov. Robert F. McDonnell was as clear as he could be in his first address to a joint session of Virginia's General Assembly on Monday night: He will reject any proposal to raise taxes on Virginians while they suffer through an economic recession.

But what about raising the "fee" on restaurant inspections, as proposed in the budget McDonnell inherited? Or adding 18 cents to a 75-cent fee on phone lines? How about something called the "recordation tax fee" -- which is nothing more than a fee to people who pay a tax?

These and other fees, which were proposed by outgoing governor Timothy M. Kaine (D) to help close a two-year, $4 billion budget shortfall, pose an immediate challenge to McDonnell, who said Monday that it "will not turn our economy around by taxing Virginians more."

But it's unclear whether that same philosophy extends to fees, which McDonnell has supported in the past, and how business leaders and an angry electorate might react to him and his party if they back higher levies while seeking to cast themselves as the protectors of people's hard-earned money.

"If we say we're not raising taxes and then raise a billion dollars in fees, we're not accomplishing much," said House Speaker William J. Howell (R-Stafford).

McDonnell spokeswoman Stacey Johnson suggested in a statement that McDonnell could back fees if they're used to fund specific services. "Fees will have to be looked at to determine if they're truly for cost recovery for a program or service, or if they have a nexus to that program," she said. "Each fee will be evaluated with those criteria in mind."

Industry and advocacy groups that are targeted by the fees in the current budget see no distinction between them and taxes.

The phone companies, for instance, oppose the 18-cent fee on phone lines. The measure would generate almost $40 million over two years, which Kaine proposed using to provide health benefits for the families of police officers and firefighters killed or injured in the line of duty. That means other state money that in recent years has been used for that purpose can be redirected.

"Call it what it is -- it's a tax," said Duront Walton, executive director of the Virginia Telecommunication Industry Association. "I'm hopeful [McDonnell] can't approve this for that reason. . . . I think he's better than that and won't play those kinds of games."

Likewise, the insurance industry will argue that consumers will pay more if the assessment on premiums is increased from 2.25 to 2.75 percent, as Kaine proposed to backfill $38.9 million in cuts to public safety.

"This is a tax increase, no different than the income tax or any other increase, and I would think his administration is not at all interested in seeing a premium tax increase imposed," said J. Christopher LaGow, who represents the Property Casualty Insurers Association of America.

More palatable

Generally, raising fees has been more politically palatable than increasing taxes, and for that reason, they have long been used to balance budgets. When Virginia last faced a deep shortfall, the GOP-led General Assembly approved $211 million in fees to help close the gap, including raising car registration and court fees. As a state delegate, McDonnell voted for the budget that included the fees.

But there is a limit to what the public is willing to accept. In 2007, the General Assembly agreed to crack down on bad drivers, approving tickets that cost as much as $3,050 in order to pay for more roads. But the fees, which were endorsed by then-Attorney General McDonnell, were quickly repealed after public outrage at their severity.

In Virginia's conservative House, delegates have collected a list of 16 new or raised fees in Kaine's budget, which also included $2.3 billion in spending cuts and a proposal to raise the state's income tax.

They are sorting through the list to determine whether to approve each and have begun to edge toward a guiding principle on the issue -- namely that a fee is a fee if it is intended to cover the cost of a particular service and levied only on those who choose to take part. For instance, the Department of Game and Inland Fisheries is funded through fees paid by hunters for their licenses.

Some of Kaine's proposals might fall into the first category -- raising the charge for accessing vital records, such as birth certificates, held by the state from $12 to $20, for instance. Or increasing the cost of getting a restaurant permit from $100 to $185 to better defray the costs of inspections.

Other fees might be less clear.

"Often, it's all in the eyes of the beholder," said Michael Cassidy, who analyzes the budget for the Commonwealth Institute and advocates for more progressive taxation. "Some will say if it walks like a duck and it talks like a duck, it's a duck. But the public probably understands fees better, understanding that people who use a service should pay something for the service."

'The hole grows larger'

Delegates and McDonnell have rejected Kaine's proposal to raise the state income tax, meaning that in coming weeks they must find a way to cut $2 billion more from his budget. If they were to reject all the fee proposals identified, they would need to find almost $146 million more.

"The hole grows larger by the day," said Sen. R. Edward Houck (D-Spotsylvania), one of the chief budget writers in his Democratic-led chamber. "We're not filling it in, we've only been digging it deeper."

Houck said he sees little practical difference between fees and taxes -- both are ways to raise dollars to fund government services. "Call it whatever you want," said Houck, who has long joined other Senate Democrats in proposing higher taxes to pay for better services and to improve roads.

Low-tax advocates are watching the debate unfold as well. James Parmelee, chairman of Republicans United for Tax Relief, said he that each of the top three money-raising fees taxes. Those include the insurance and phone items and a $10 fee to record land deeds that would help establish a fund to encourage environmentally friendly farming.

"If you buy or sell a house, if you have a phone or if you buy insurance, if you do any of those three things, the government takes more money from you. That seems to me to be a tax -- and covers an awful lot of people," Parmelee said. "I would seriously doubt the governor could support any of those."

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