by Jim Councill

For the first time in nearly 2½ years, state revenues in Virginia have climbed for three consecutive months, driven by improving employment numbers and revived consumer spending.

For a state government that has cut spending by some $6 billion in the last two legislative sessions, that is good news.

But for local governments, the fallout from the recession — collapsed housing sales and values — continues to punish local revenue collections. Local finances are nowhere as bright as the state’s, and no meaningful turnaround is expected for several more years.

Across Virginia, the combination of foreclosures, stagnant housing sales and declining prices resulted in a 5 percent reduction in real estate assessments last year. That’s important because real estate taxes account for half of local tax revenues.

These two revenue trends are significant. Local governments deliver the core services — public education, public safety and social services — on which all Virginians depend. This is the role assigned to them by the state.

The fiscal relationship between the state and localities is a partnership, but it’s an unequal one. As the “senior partner,” the state reserves for itself the power to define local authority, including which taxes cities, towns and counties can levy and which services they must provide.

Local governments must convince the General Assembly each year of our need to preserve taxing authority, as well as for state funding to help provide state-mandated and state-initiated programs.

This challenge is becoming incredibly difficult. A wave of pessimism is washing over local governments. With real estate assessments and property tax revenues in a nosedive, local governments are looking to the state for help.

There is little confidence, however, that the commonwealth will come through. Gov. Bob McDonnell’s budget proposal for 2012 is not encouraging, particularly in the areas of public education and local law enforcement.

Can anything be done during the 2011 General Assembly session? Absolutely.

First, the governor and legislature must agree not to further restrict local revenue authority, impose new spending requirements or expand existing ones on services delivered by local governments without the state revenue to back it up, shift state funding responsibilities onto local governments, or place additional administrative burdens on local governments for state or joint programs.

Not heeding this advice will lead to higher real estate taxes, even more reductions in the most basic of government services, or both.

Second, the governor and the General Assembly, in cooperation with local governments, should establish a task force to develop legislative proposals to require state agencies to justify standards and regulations in terms of costs and benefits.

Shouldn’t we be measuring performance rather than compliance to determine the success or failure of public services? The task force could also examine what services state and local governments should provide and how such services are sorted between the two levels of government.

Yes, there have been studies and task forces galore, dating back to the 1970s, but we haven’t been in a mess like this since the Great Depression.

Third, the state needs to develop fiscal priorities that take into account both spending and tax relief. For example, should tax relief and tax exemptions be afforded higher priority than education funding?

Perhaps in some situations, education programs should be cut in favor of tax relief, but the reasons for favoring one policy choice over another should be a matter of public discussion and debate.

Virginians have a right to know and understand the state’s fiscal priorities and the effect of those priorities on local services and taxes. That is not the case today.

Virginia continues to face economic and social challenges not seen for generations. Public confidence in local and state government is a critical component for finding solutions. The first step to earn that confidence is protecting the fiscal integrity of the commonwealth and its local governments. Let senators and delegates hear from you.

JAMES P. “Jim” COUNCILL III is mayor of the City of Franklin and president of the Virginia Municipal League. He can be reached at franklinmayor@franklinva.com.