Funding of Constitutional Officers - Virginia Joint Legislative Audit ...

local residents consume goods and services. Adjusted gross income is used as a proxy
for the revenue base for these miscellaneous taxes and fees.
Advantages of the Reyenue Capacity Measure
Currently, revenue capacity is one ofthe most important dimensions ofa local
government's fiscal position. The major advantage to the measure is that it provides a
direct method ofsumming together each local government's revenues on a comparable
basis. It is a more accurate measure of the ability of local governments to raise
revenues. Because it gives a balanced picture of local fiscal capacity, this measure is
appropriate for estimating the revenues oflocalities. And, because a local government's
revenue capacity is computed relative to others in the State, comparisons can be made
concerning the strength ofthe revenue capacities ofall ofVirginia's local governments.
Capturing the Local Importance ofTax Bases. Revenue capacity accounts for
local variation in the relative importance of the various tax bases. That is, in the
revenue capacity measure, the weights vary across localities and depend on the
relative size of the tax bases in each locality (when the local tax bases are measured
using average tax rates). Other measures oflocal ability to pay for public programs do
not account for these local variations.
Utilizing More Precise Proxies. The revenue capacity measure uses precise
proxies to represent certain revenue sources. Itis able to estimate, in dollars, revenues
that can be generated from real property taxes. In addition, both tangible personal
property revenue and motor vehicle license revenue are measured as separate components
with the use of proxies. The base used for both of these components is the
number of motor vehicle registrations for the calendar year. Tangible personal
property revenue is obtained by multiplying this base by the statewide average
tangible personal property rate, and motor vehicle revenue is obtained by multiplying
the base by the average motor vehicle license fee for cars under two tons.
Estimating Relative Ability to Raise Revenue. Revenue capacity is a measure
ofthe revenues generated by separate revenue sources. These components ofrevenue
capacity can be compared with each other. Revenue capacity represents local revenues
in dollars, assuming localities apply average tax rates. It also shows the relative
ability of a locality to raise revenues.
The Local Reyenue Capacity Ratio
Once the revenue capacity of each locality is measured, it becomes the basis
for calculating the local revenue capacity ratio. Mter revenue capacity is calculated for
each city and county in Virginia, it is divided by each locality's population. This ratio is
then divided by an identical statewide ratio (total statewide revenue capacity divided
by total statewide population). The resulting local revenue capacity ratio is a relative
measure which varies by each locality. A locality with a local revenue capacity ratio
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