Alexandria Stands With Government Unions, Not Workers

Share this article on:

In mid-April, the City of Alexandria passed an ordinance allowing government unions to bargain with the city. Unfortunately, many of the ordinance’s provisions are lopsided: the ordinance grants special advantages for government unions to easily organize public employees and traps workers into paying dues.

Alexandria’s lopsided ordinance

Alexandria’s ordinance makes it is easy for a union to petition for an election, which the ordinance says may happen in several ways, “including, without limitation, electronic authorizations and voice authorizations.” Once there is a determination by a labor relations administrator or the city manager that a majority of employees have given authorization, no one can challenge the petition.

In a sense, if a union were to use ambiguous language to trick an employee over the phone, and that employee were to respond with “yes,” the union may show that the employee wants the union to represent them – even though that may not really be the case if the employee is not informed of both their rights and of all the facts. Once the LRA makes a determination, the employee would have no recourse to say that verbal “yes” was not what they meant, or to rescind their indication of approval.

Another way the ordinance unfairly favors the government unions, it could permit more than one union to be on the ballot during a runoff election to allow a union to organize employees without the ability of an employee to choose “no union”. In the scenario in which there is no majority between multiple unions on an initial unionization election (with the ability to vote “no union”) the LRA conducts a runoff election.

However, the catch is that only the top two options from the previous election get placed on the runoff ballot. Meaning, if “Union A” were to receive 34% of the vote and “Union B” were also to receive 34%, but the “No Union” option receives 32%, employees on the runoff ballot would not have the choice of voting against unionization. Even though 66% of employees in such a scenario did not vote for either “Union A” or “Union B,” they would be forced to choose between the two.

Double-standard for government unions

Adding insult to injury, Alexandria’s public employees are left stuck with a Hotel California situation. While it’s easy to organize a union, it is much harder to remove it if employees are unhappy or dissatisfied. Asking for a vote on whether a union will come in only requires 30% of employees to sign a petition, but to trigger an election to remove a union requires over half of the employees to sign a petition.

Moreover, in the election to form a union, there only needs to be a simple majority vote of those voting in the election to organize, but to remove the union a majority of all the employees would need to vote to kick the union out – a clear double-standard.

For example, if there was an election to organize a union and there were 100 employees at a worksite, if only 40 voted to bring the union in and 39 voted against it, the union would still be able to organize the workplace and act as the exclusive representative for all employees. To remove a union in the same workplace, 51 employees would need to vote to remove the union. If 40 employees voted to remove the union and 39 voted to keep it, the union would stay.

Additionally, employees can only file to remove the union during a 30-day window between the “one hundred eightieth (180th) and one hundred fiftieth (150th) day prior to expiration” of the union contract. If they miss that window and the contract is renewed workers, are stuck with the union for another three years or longer. If that sounds confusing, you’re not alone: that is probably the point.

Sales pitches and paychecks

Once a union has organized the employees, they are entitled to meet with new employees for up to 30 minutes to make their sales pitch, whether the employees want to meet with them or not – think of it as a timeshare presentation on steroids.

Unions are also entitled to take dues from an employee’s paycheck once the employee gives consent. Remarkably, a worker could unwittingly make this authorization over the phone. Once a public employee agrees to have that money taken out of their paycheck – even unintentionally – they could be locked in for up to a year.

Instead of these provisions, Alexandria should have looked to states that protect union democracy and public employee’s choice whether to pay dues or not.

A different model for government unions

In Wisconsin, Iowa, and Florida, public employees have the right to regularly vote on which union represents them in the workplace.

Many states allow public employees to stop paying a union at any time. Indiana recently passed such a law, and now requires unions to inform public school employees of their rights: to join a union and to pay or not pay dues.

The choice whether to sign a petition to ask for union representation or to sign a form to authorize money to be taken from a public employee’s paycheck are decisions that should be made in an informed way. Public employees have the right to know what they’re signing up for.

Alexandria’s ordinance does not include these safeguards. The electronic or voice authorization can easily be abused – leading to an unfair advantage for government unions, not public employees. While under state law, Alexandria could have said “no” to allowing public sector collective bargaining and keeping the decades old status quo, the city chose to be the first in the Commonwealth to allow it.

Unfortunately, this choice – and the decision to allow unions an easy path to organizing and taking dues from employees’ paychecks – city leaders put the special interest of government unions ahead of their own public employees

Posted in Government Reform, Local Government | 1 Comment

Virginia Tax Structure Better for Mature Firms than for Start-ups

Share this article on:

Virginia is far more tax friendly to established businesses than it is to new ones. That is one major conclusion of a major state-by-state business tax comparison released Wednesday (here) by the Tax Foundation and KPMG LLC.

In neighboring North Carolina, on the other hand, the tax structure encourages new investment with more attractive rates for incoming businesses of several types. It has been a conscious strategy for that state’s political leaders for some time.

Instead of seeking to put an overall ranking on the state’s business tax climate, as has been done in the past or in other studies, the Tax Foundation devised eight imaginary firms in different industries and then calculated their effective tax rate in each of the fifty states. It used tax laws and incentives as they were in force January 1 of this year.

One of the principal authors is a former General Assembly legislative aide well known around our capital, Jared Walczak, now a vice president at Tax Foundation. This approach of comparing how the various states would tax a set of reasonably typical firms is a big step up from previous methods.

The lowest effective tax rates it reports in Virginia were for manufacturers, as you can see on the chart. In the case of existing manufacturing firms Virginia ranked in the ten lowest taxers among the states, but for new firms about a quarter of states had lower effective tax rates. Virginia’s manufacturers are aggressive advocates on tax issues, complaining most loudly about local machinery and tools taxes, but the data suggest they have also been effective advocates.

Virginia had among the ten lowest effective tax rates in two other business categories: Existing corporate headquarters and existing distributions centers. On the other extreme, Virginia effective tax rates were above the national median for existing or new R&D firms, new technology centers and new data centers.

That last one might surprise you as recruiting data centers has been a major Virginia emphasis, but other states are offering aggressive incentives, too. Tax policy is only one thing a company might look at when deciding whether to open a new facility or move an existing one. Major wholesale distribution centers, for example, are going to be near the import ports of entry regardless of other considerations. Data centers will follow the major Internet trunk lines, a huge Virginia advantage.

But tax policy does matter, and North Carolina provides a great demonstration. Of the 16 tax calculations made, North Carolina’s effective tax rate was in the ten best in eleven of them (compared to Virginia’s four). Several in North Carolina were in the lowest five, and it had the lowest effective tax rate for new corporate headquarters.

There are four company types in North Carolina where new firms enjoy lower effective tax rates than existing ones, and only one (capital intensive manufacturing) where they face substantially higher rates.

The study authors had to lump several tax categories together because in some cases the incoming firms enjoyed negative effective tax rates, meaning the subsidies provided net tax benefit. Is this the right approach? Should Virginia copy it? For years now we have seen this happening and ignored it.

As recently reported, Virginia’s overall tax collections are rising far faster than inflation or population, with the corporate income tax leading the way. That has been the intentional policy. Discussions of using tax reform as a jobs magnet are simply not heard in Richmond. The next big push will be to force Virginia firms with multi-state operations to file a unitary combined return, raising their taxes.

Roaming around the report, it is interesting to note that economic growth powerhouse Texas is not ranked all that well on overall tax rates, and in fact is quite high in some categories. Why isn’t that a drag on its economy? Probably because the lack of an income tax is so attractive on both a business and personal basis.

Likewise Florida, another state with strong growth, has nothing to brag about with those effective tax rates on business. Its effective tax rate on distribution centers is almost 50%, again taking advantage of the captive market provided by its many ports. The absence of an income tax and the near absence of winter weather are its magnets, same as with Texas, plus the basic economic truth that growth stimulates more growth, stagnation breeds stagnation.

Posted in Taxes | Leave a comment

Northam Tax Hikes Squeeze Virginia Businesses and Individuals

Share this article on:

With Virginia’s fiscal year now three-quarters complete, and basically one year since the depths of the COVID-19 recession, state tax revenues are soaring. Despite reports that the boom results from the economic rebound, it remains clear that changes in tax policy under Governor Ralph Northam are the major driver.

Usually the state financial reports compare results year over year. Instead, compare the recent data to four years ago. Four years ago it was Governor Terry McAuliffe coming to the end of his term as President Donald Trump began work on what would be his legacy tax bill, the Tax Cuts and Jobs Act of 2017.

In the four years since the March 2017 report, the state’s overall general fund collections to date are up 26%, almost three times the basic inflation rate for the same period (under 9%.) That is an extra $3.35 billion compared to four years ago at the same point. That is just the General Fund, ignoring all the other ways the state taxes us, such as last year’s gasoline tax increases.

About half of the added General Fund revenue came from individual income tax withholding, up 17% or more than $1.5 billion. It is the largest revenue category, so you would expect that to lead the pack. But it leads only in dollars, not in percentage growth.

Corporate income taxes grew 68 percent over four years ago. The revenue category that includes the state’s tax on real estate transactions recorded at courthouses was up 72%. State policy didn’t spark the real estate price boom behind soaring recordation taxes. But intentional state policy has increased the corporate income tax harvest by two-thirds, to $315 million more than four years ago.

Following right behind those categories is estimated income tax payments, which come from individuals with self-employment or partnership income, or with income from investments or retirement accounts. Those receipts are 51% higher in the first nine months of this fiscal year compared to four years ago. That increase also reflects intentional policy decisions.

Rounding out the top categories, the sales and use tax revenue is up 23% over four years ago. That is largely due to the General Assembly’s decision to impose sales tax on remote purchases, arguably correct policy but still a policy decision.

Both the corporate income tax and individual estimated tax receipts have been boosted by the state’s decision to tax a substantial amount of the federal Payroll Protection Program business rescue funds. The General Assembly’s decision to allow a deduction for the first $100,000 in such revenue still left billions subject to Virginia tax.
The bulk of the higher taxes on business income can be traced to the decisions made in the wake of the Tax Cuts and Jobs Act. The 2019 General Assembly went along with Northam’s recommendations and conformed to the various ways TCJA eliminated deductions and tax preferences. It refused to match the federal reductions on tax rates. The same tax rates were applied to higher levels of taxable income, producing more tax.

By allowing only a small increase in the standard deduction for individuals, a windfall tax was also imposed on many of them. For the richest, the coup de grace was General Assembly approval of a state-level wealth tax, a form of Pease Limitation to cap deductions.

The state is not done with corporate taxes. The General Assembly has ordered Virginia corporations which are part of affiliated groups to prepare mock tax returns for 2019 using an approach called unitary combined reporting. The biggest targets are companies which operate in multiple states. The theory is that taxing each entity separately (as Virginia does) allows the firms to pay fewer taxes, so they should be forced to file a unified return.

The review of those sample returns may encourage the General Assembly to make the combined returns mandatory.

In November of 2017, just after Northam’s election, the Commonwealth Institute for Fiscal Analysis published an article with a list of complaints about Virginia’s tax system as it stood. Read it and the parallels will strike you. It advocated on-line sales taxes, increases in corporate tax collections, new state rules on employee classification, and a clear retreat from Virginia’s former practice of confirming to the IRS.

Imposing unitary combined reporting on the largest corporate taxpayers will check off another box from that list. Virginia’s recent spurt of state revenue growth did not come mainly from economic growth or federal stimulus spending. Taxes have been consciously and substantially raised following a progressive roadmap.

A version of this commentary originally appeared on May 1, 2021 in The Roanoke Times. Steve Haner is Senior Fellow for the Thomas Jefferson Institute for Public Policy. He may be reached at steve@thomasjeffersoninst.org.

Posted in Taxes | Tagged , , | Leave a comment

Public Sector Collective Bargaining Could Impose Massive New Costs

Share this article on:

Instead of compensation increases for public employees, taxpayer relief or COVID safety, Virginia local governments are estimating six- and seven-figure costs just to implement the process of collective bargaining.

While local governments in Virginia debate whether to allow public sector collective bargaining, many are already pointing to the high cost of implementing the process.

Fairfax County is forecasting a combined $1.6 million for administrative costs surrounding collective bargaining for both the county and the Fairfax school district, just as a start.

Loudoun County proposed almost $1 million in their planned FY 2022 budget just for increased staffing and overhead. However, with a $2 million funding shortfall some are starting to rethink the proposed expenditure.

The city of Alexandria estimates administrative costs alone will cost between $500,000 and $1 million per year. This amount varies depending on the scope of bargaining and how many individual unions they need to negotiate with.

Since there is no statewide infrastructure set up, each local government will be on its own.

If a Virginia local government passes a resolution allowing collective bargaining, it will need to decide if it’s going to create a labor board or use an appointed labor relations administrator (with appropriate staff). The labor board is necessary to administer union elections, resolve impasses during contract negotiations and adjudicate violations of the ordinance or of the collective bargaining agreement, known as unfair labor practices. All of this will come at a costs.

It needs to be stressed this is not money that will be passed on to the city or county’s workers. These are simply the costs for infrastructure, lawyers and others to administer collective bargaining.

While it is difficult to do an apples-to-apples comparison since most public sector labor board functions are done at a state level outside of Virginia, looking at other state budgets may give an indication of the costs associated with these boards. For smaller localities these costs in the long term may be lower, but all localities allowing collective bargaining will still need to provide many of the same functions as the statewide boards. Additionally, the boards in other states are dealing, for the most part, with established unions. This means they don’t have to administer elections or negotiate first contracts with every new unit, as will need to be done for localities allowing collective bargaining for the first time here in Virginia.

A few examples of labor board costs in other states (and New York City) that run public sector union elections and handle unfair labor practice charges and grievances for public employees are below:

There is no doubt the administrative costs of collective bargaining will be high and the cost to create this infrastructure is not insignificant. When considering allowing public sector bargaining, local elected officials should weigh these costs against how the money could otherwise be spent. Is the cost of bargaining worth potential increases in pay or benefits for public employees, money dedicated to COVID responses and reopening, or worth the cost to taxpayers?

Posted in Government Reform, Local Government | Leave a comment

Fuel Tax and Caps Detailed in TCI Model Rule, Now Open for Public Comment

Share this article on:

Read the governing document for the Transportation and Climate Initiative and it becomes clear there is more going on than just an effort to reduce motor fuel use with a combination of taxes and shrinking caps. That may really be a secondary goal.

How would TCI regulate and change the motor fuel business in Virginia, should the state decide to join in 2022? What are the initial carbon taxes likely to be? Some details can be found in a draft model rule published March 1 and now subject to an open comment period through May 7.

You can find the 153-page model rule here. There is an open portal for any public comments you wish to provide, and you can also find summaries of the comments filed to date. Certainly, all fuel wholesalers and retailers and businesses dependent on transportation need to study this document and the regulatory structure it creates.

The Rhode Island and Connecticut legislatures are currently considering legislation on TCI. Massachusetts intends to join with its governor claiming he already has authority to sign the interstate compact. If Virginia joins in 2022, that is still in time for it to be in on the first carbon dioxide emissions allowance auction in 2023.

Asserting that lower income urban communities have suffered the most damage from the use of fossil fuels, a premise treated as a given, the model rule insists that each state must commit “no less than 35 percent of the proceeds from the auction of allowances to ensure that overburdened and underserved communities benefit equitably from clean transportation projects and programs.”

How to spend the funds would be determined by a state advisory body “with a majority of members being representatives of overburdened and underserved communities or populations.” In Connecticut low-income advocates have already increased that in their pending bill to 50% of the proceeds which must be focused on that segment of its population.

More than 30 pages of the model rule focus on another aspect of this ignored so far: Carbon offsets. Extensive use of offsets would mean that the goal of 30 percent or more reduction of fossil fuel use is even less likely to come to pass. By planting trees, capturing animal-emitted methane, or engaging in other “offset projects that have reduced or avoided atmospheric loading of CO2 equivalent or sequestered carbon,” the firms can be awarded “offset allowances” to continue selling fuel. Expect the cost of those offsets to also end up in the consumer price.

The heavy focus on addressing alleged inequities makes TCI a major income transfer mechanism, as most of the TCI carbon taxes will be paid by business entities and people with long commutes. The opportunity for offsets provides a direct subsidy to the burgeoning and highly-lucrative industry of claimed environmental interventions that do not really reduce the use of CO2 fuels on the region’s highways. Are these the real goals of this proposal?

Virginia Governor Ralph Northam’s decision to not press the issue in the 2021 General Assembly gives the state’s voters a chance to weigh in during the November election. The 2021 General Assembly did move forward on creating possible ways to spend the TCI carbon tax revenue the state would reap. Advocates will likely point to them as uses for the tax money to come.

Legislators approved a state-funded subsidy program for the purchase of new or used electric vehicles. House Bill 1979 calls for the subsidies to begin January 1, $2,500 for any EV buyer but that increases to $4,500 for lower income buyers. The Assembly, however, provided no funding in the final budget despite a fiscal impact prediction of almost $70 million by 2026. The TCI carbon taxes are a natural source to fill that gap.

Another measure signed by the Governor creates a different state fund to finance electric school buses, again with no funding or funding source identified.

In the discussions underway in New England, a minimal future tax amount is being discussed, perhaps about 5 cents per gallon. But previous data provided by the advocates themselves, analyses by outside economists, and the model rule itself all point to much higher figures.

The model rule, copying other systems that use allowance auctions to set a commodity price, sets floor and ceiling prices. An emissions containment reserve (ECR) sets the floor price and would reduce the number of allowances for sale if the auction price falls below $6.50 per ton of carbon dioxide in 2023 (about 6 cents per gallon). That target then rises to $12.30 (12 cents per gallon) by 2032.

The ceiling price, a cost containment reserve (CCR), provides more allowances for auction if the bid prices go too high. The published CCR price starts at $12 per ton (about 12 cents per gallon) in 2023 and rises to $30.16 per ton in 2032. So under that document the likely starting tax in 2023 will be 6-12 cents per gallon, rising to 12 to 30 cents by 2032.

So the likely first year carbon tax will be between 6 and 12 cents per gallon in the first year, and between 12 and 30 cents nine years later in 2032.

This would be on top of Virginia’s existing gasoline tax, which goes to 33.8 cents per gallon on July 1 of this year, then even higher in 2022. It is worth noting that in his recent infrastructure proposal, one thing President Joseph Biden did not do is propose raising the federal fuel taxes, unchanged since 1993. Perhaps that was to leave states room for this approach, but it might also reflect voter antipathy to higher fuel taxes in general.

Posted in Taxes, Transportation | Leave a comment