Who pays and who benefits? A new statewide study reveals Virginia’s intergovernmental Balance of Payments
A new analysis in the 2025 State of the Commonwealth report released today by Old Dominion University’s Dragas Center for Economic Analysis and Policy takes a hard look at a question that is rarely discussed openly in Virginia politics: who pays into the Commonwealth’s budget, and who ultimately benefits from it.
The answer, backed by detailed fiscal data, is both striking and highly relevant for Fairfax County and much of Northern Virginia. The study confirms a recent study—conducted by the Weldon Cooper Center for Public Service at the behest of Fairfax County—that despite Fairfax County being the fiscal engine of Virginia, for every $1.00 Fairfax sends to Richmond, only $0.50 comes back.
The State of the Commonwealth’s analysis of intergovernmental finance
The State of the Commonwealth study examines Virginia’s system of state-to-local intergovernmental transfers—the billions of dollars the Commonwealth collects in taxes and then redistributes to counties and independent cities. These transfers are a core feature of Virginia’s governance system. A considerable share of the state’s General Fund spending takes the form of “distributions to localities,” primarily to support public education, but also public safety, health, and other shared responsibilities.
At the statewide level, the authors find that Virginia redistributes roughly $13.3 billion per year through these intergovernmental transfers. While this system is designed to promote equity and ensure a basic level of public services across the Commonwealth, the distributional outcomes are far from uniform. In fact, some localities contribute far more to this shared pool than they receive back, while others receive substantially more than they contribute.
Nowhere is this pattern more evident than in Fairfax County and its neighbors. Using income tax data to estimate each locality’s contribution to the state’s intergovernmental finance pool, the study shows that the relatively high-income jurisdictions in Northern Virginia shoulder a disproportionate share of the cost. Fairfax County alone contributes billions of dollars annually to the Commonwealth’s General Fund, translating into roughly $2,700 per resident in contributions tied to intergovernmental transfers.
By contrast, Fairfax County receives back about $1,200 per resident in state intergovernmental revenues. The result is a net outflow of roughly $1,500 per resident—making Fairfax County one of the largest net contributors in Virginia. Fairfax City, Arlington, Alexandria, Loudoun, and Falls Church show similar patterns, with Falls Church emerging as the largest net contributor on a per-capita basis in the Commonwealth .
On the other side of the ledger are many smaller cities and rural counties, particularly in Southside and Southwest Virginia. Localities such as Norton, Buena Vista, Galax, Danville, and Alleghany County receive two to five times more in state transfers than they contribute. In Norton, for example, residents receive more than $3,100 per person in state aid while contributing less than $700 per person—yielding a net benefit of more than $2,500 per resident.
What the study concludes—and what it doesn’t conclude
Importantly, the study does not argue that this redistribution is inherently wrong. Virginia’s constitution explicitly embraces the idea of the “common weal,” and programs like K-12 education funding are intentionally designed to equalize fiscal capacity across communities.
The findings instead highlight how invisible this system has become. Many net recipient localities depend heavily on state transfers to fund basic services—often without a clear public understanding or appreciation of where those resources originate.
The analysis also shows how dependent some local governments are on intergovernmental aid. In several counties, more than 60 percent of total local government spending is funded by transfers from the state and federal governments. By comparison, in Fairfax County, intergovernmental revenues account for just over 30 percent of local spending, reflecting a far greater reliance on local tax capacity.
Key takeaways about the unequal Balance of Payments in Virginia
Every state government generates more revenue in the welathier parts of the state than in other parts, and every state government allocates more resources to the needier parts of the state than others. As such, the concern about the unequal Balance of Payments in Virginia isn’t about the progressive nature of state income taxes or the desire of Virginians to equitably redistribute state resources. In fact, most people in Northern Virginia have no problem contributing to the Commonwealth based on their ability-to-pay, and believe that localities should receive grants according to their needs. However, two key facts are commonly overlooked about the intergovernmental distribution of resources in Virginia.
First, not everyone in Northern Virginia is rich, while not everyone in the rest of Virginia is poor. In an effective redistributive system, wealthy people pay more, while poor people get more help from the public sector.
And second, the redistribution of state resources is inherently and objectively biased against the high-cost localities of the state.
In combination, these two facts result in a shifting of the tax burden from some places to others, where two Virginia taxpayers with the same level of income are treated quire differently by the intergovernmental fiscal system. In other words: wealthy people pay more (or less) depending on where they live, while poor people receive more (or less) support from the public sector depending on where they live. That result is both unfair and inefficient.
Since the redistribution of state income taxes takes money from higher-income taxpayers, but doesn’t return enough of these funds to high-cost localities, taxpayers in high-cost (mainly metropolitan and urban) localities are forced to pay more in local property taxes, which increases the tax burden on wealthy and non-wealthy urban taxpayers alike. At the same time, these fiscal arrangements allow taxpayers in other (mainly rural) localities to lower their local property taxes. The net result is that two Virginia households with exactly the same income and same assets are treated very differently by the fiscal system based on where they live: households in the higher-cost parts of Virginia contribute much more to the wellbeing of their neighbors and fellow Virginians than households in other parts of the Commonwealth.
These are facts, not opinions. In fact, estimates by the General Assembly’s own researchers agreed that high-cost local school divisions are underfunded by the SOQ formula to the tune of hundreds of millions of dollars each year.
Conclusions
For Fairfax residents and all Virginians alike, the main conclusion is not simply that the Fairfax County “pays more than it gets.” Rather, the study provides empirical grounding for a broader conversation about fiscal equity, transparency, and sustainability within the Commonwealth.
As pressures mount on local budgets—from education costs to infrastructure and social services—the question of how Virginia raises and redistributes public resources will only grow more consequential.
By putting hard numbers behind long-standing assumptions, the State of the Commonwealth report makes the hidden flows of Virginia’s fiscal system visible—and gives communities like Fairfax a clearer basis for engaging in the statewide policy debate ahead.
Read the entire 2025 State of the Commonwealth report, or access all previous State of the Commonwealth reports on Old Dominion University’s Dragas Center for Economic Analysis and Policy.
