New Report: Greater Revenue-Raising Flexibility Could Help Local Governments Invest in Shared Priorities

Greater flexibility would help Virginia’s localities invest in schools, housing, and transportation while easing the strain on families

As Virginia’s money committees convene this week to discuss the state’s fiscal outlook, a new report from The Commonwealth Institute for Fiscal Analysis (TCI) finds that giving localities more flexibility to raise revenue fairly and effectively would help communities meet residents’ needs and make Virginia a more affordable place to live.

The report, “Meeting Local Needs with Fairer Local Taxes,” shows that Virginia’s current system gives localities limited power to raise revenue, forcing them to rely heavily on regressive taxes that ask more of families with the least — many of whom are already struggling with rising costs. As federal funding declines and community needs continue to grow, that imbalance is putting increasing strain on local budgets.

“When our communities are well funded, we all benefit,” said Megan Davis, Senior Policy Analyst at The Commonwealth Institute and author of the report. “With additional, better tools, local governments could raise revenue in ways that reflect families’ ability to pay and invest in what residents rely on most — quality public schools, reliable transit, and stable housing. These choices would make Virginia a more affordable and equitable place to live.”

TCI’s analysis highlights that the General Assembly could strengthen local budgets by authorizing new local revenue options. One possible approach is to allow localities to opt in to a modest local income tax — an idea that existed (but was never adopted) for some localities in Virginia until it was repealed in 2013. This option would better align tax contributions with families’ ability to pay while generating new, stable revenue for schools, transportation, and other local priorities.

“The key is flexibility,” Davis said. “Every community faces different challenges. Giving localities greater authority to choose how best to raise and invest resources means local leaders can make choices that truly reflect their communities’ priorities and values.”

The report estimates that a 1% local income tax add-on could generate nearly $2.7 billion annually across Virginia’s cities and counties — equivalent to funding the average salaries of over 40,000 teachers. These additional resources would help localities protect vital services, respond to economic uncertainty, and make sure tax systems are fairer across income levels.