GOLDMAN: McDonnell, McAuliffe work to save RVA $1 billion

Posted at 12:45 PM, Nov 21, 2013
and last updated 2013-11-21 13:00:35-05

RICHMOND, Va. (WTVR) – If Virginia Governor Bob McDonnell and Governor-elect Terry McAuliffe have their way, metro-Richmond residents will save upwards of $1 billion on their property taxes! In fact, the recently passed Henrico Meals Tax could be repealed!

It all stems from a New York Times column I wrote back in 2009.

The federal government, or more particularly a glitch in the IRS tax code, has forced you and other Americans to pay tens of billions more in property taxes than President Reagan and Democrats in Congress had intended since 1986.

Until my 2009 column, written on a bipartisan basis with Senator George Allen, something called the “prior use” IRS rule had not been brought to the attention of national and state leaders. It is a very technical provision, applying in a limited number of situations involving the modernizing of certain old buildings that meet the federal definition of an “historic” structure as defined by law.

The Reagan/Democratic law of 1986 intended to attract private capital to take the risk of fixing up such aging structures, as these are often chancy projects given that it is impossible to know the cost of such a rehabilitation until the building walls are subject to internal examination after construction starts.

But tearing down an old building actually is very harmful to the environment, does away with history, and often forces a more expensive new building to be built. Rehabilitation tends to produce more jobs and saves structures important to many communities.

Everyone in our area has seen speculator rehab projects.

But they are only possible due to the 1986 law, known as the “federal rehabilitation tax credit” provision. It is considered to be one of the best such initiatives of the latter part of the 20th century, generating more tax revenue than the tax credits actually given!

But, due to the “prior use” rule, this novel financing has been denied K-12 public modernization projects.


It is a long story, but Senator Tim Kaine wrote a good piece on the issue a few years back in support of my efforts.

Long story short

Due to the “prior use” rule, private investors earn tax credits if they turn an old school into a condo, but not if they are willing to invest money to turn an old school into a modern school so that it can be leased [with an option to buy] to a locality.

The IRS theory is that tax credits will not be given.

The use before the rehab – the prior use as a local public school – remains the same after the modernization. This however DOES NOT apply in the case of a private school.

Bottom financial line

The effect is that cost of a similar modernization would be 30 – 40 percent GREATER for the public school project paid for taxpayers! Moreover, it also costs the federal government 200 – 300 percent MORE!

Crazy? Yes. But it is the state of the law.

Yesterday, Governor McDonnell released a first-ever study in Virginia showing that if we could eliminate this glitch, this unintended consequence – and put public school projects on a level playing field with all other building projects as intended in 1986, then localities in our area could save upwards of $1 billion over the years as they are forced to modernize the over 100 schools found to obsolete in the latest state study [this applies to any school originally before 1974 and never fully modernized].

That’s right, upwards of $1 billion if not more.

Indeed, the state report found that every area of the state had the same growing problem of obsolete school facilities. Studies prove those facilities hurt learning, damage children’s health, discourage teachers and make it impossible for our children to get a true 21st century education.

It is the single biggest public infrastructure problem facing America in terms of its future competitive position as both political parties have now acknowledged.

But it will take bipartisan support to make even this “no brainer” change to a failing status quo.

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.