Most Virginians have a clear sense of how much they pay in taxes. Income taxes appear on pay stubs, property taxes arrive as local bills, and fees are paid directly for public services. Many of the services financed by these revenues—schools, public safety, transportation, and local amenities—are also visible in daily life.
What remains largely invisible is the connection between revenues and expenditures, and how public funds move between levels of government. Intergovernmental finances—the collection of revenues by the Commonwealth and their redistribution to counties and cities—play a central role in determining who ultimately pays for public services and where those services are delivered. Yet these fiscal flows are rarely transparent to citizens, voters, or even many policymakers.
This lack of visibility matters. When intergovernmental redistribution is opaque, people draw conclusions about government efficiency, fairness, and performance based on incomplete information. Analyses of intergovernmental finances—including computing the Balance of Payments (BOP) for different localities—are therefore not political exercises. They are transparency tools that make hidden fiscal relationships visible, allowing for more informed debate about public finance and the social contract in Virginia.
What balance of payments analysis shows
Recent studies have underscored the uneven fiscal incidence across the Commonwealth. An analysis prepared for Fairfax County by the Weldon Cooper Center for Public Service found that Fairfax residents receive back roughly fifty cents in state spending and transfers for every dollar they contribute to the Commonwealth. Separately, the State of the Commonwealth report produced by Old Dominion University documents a broader pattern: Northern Virginia contributes substantially more to state-local revenues than it receives, while other regions within the state are net recipients or break even.
These findings generated predictable political reactions. Some viewed the results as confirmation that Virginia’s tax and transfer system is progressive and functioning as intended. Others argued that redistribution from Northern Virginia is justified “because we grow your food”, because NoVA benefits disproportionately from federal employment and spending (and thus should contribute more) or simply by the very notion of a “commonwealth.” A few—but not many—seem to oppose such intergovernmental redistribution.
Such political reactions largely miss the point. The main purpose of fiscal incidence analysis is not to judge whether redistribution is desirable. More importantly, it is to clarify how fiscal systems operate in practice—who contributes, who benefits, and how those patterns vary geographically. This information is essential for evaluating whether public finance arrangements are efficient, equitable, and politically sustainable.
Fiscal invisibility and distorted perceptions
The principal value of fiscal incidence analysis lies in revealing fiscal relationships that are otherwise hidden from public view. When redistribution is invisible, it produces different—typically even opposing—misperceptions across the Commonwealth.
In high-contribution localities, particularly in Northern Virginia jurisdictions such as Fairfax County, residents face substantial tax burdens while observing limited direct state spending in their communities. Core services such as public education, police, and human services are financed largely through local revenues, often at relatively high local tax rates layered on top of significant state income taxes. From the household perspective, the Commonwealth government appears distant, while local government is highly visible and fiscally demanding.
Absent clear information about intergovernmental redistribution, residents may reasonably conclude that both “government” (potentially at both state and local level) is inefficient and that their tax contributions are not yielding commensurate benefits. In reality, a significant share of their payments supports public services elsewhere in the state. Without transparency, however, this redistribution is easily mistaken for waste or mismanagement.
In net-recipient localities, the inverse dynamic occurs. Lower local tax rates coexist with substantial state-funded support for education, health, and infrastructure. Because these transfers are embedded in formulas and programmatic funding streams, they are often perceived as routine or as entitlements, rather than as redistributive flows financed by taxpayers in other regions of Virginia. As a result, residents may underestimate the extent to which local public services depend on cross-regional fiscal effort and that their localities significantly (and even disproportionately) benefit from taxpayer contributions from high-cost, high-taxing parts of the state.
These misperceptions help explain a recurring paradox in Virginia politics: communities that benefit most from redistribution often support political candidates who campaign against redistribution and taxation, while communities that contribute the most express skepticism about the value or effectiveness of the public sector. In both cases, fiscal opacity—rather than ideology alone—plays a central role.
How fiscal patterns shape regional experiences and the social contract
These dynamics matter because they shape how Virginians understand their relationship to the Commonwealth. An effective evidence-based democratic system and a functioning social contract rest on a broadly shared understanding that contributions and benefits are balanced in a way that is transparent and legitimate, even if not equal on a dollar-for-dollar basis.
As noted above, the analysis of Virginia’s Balance of Payments shows that fiscal incidence varies sharply across regions. Northern Virginia is a major net contributor, while other regions receive more in state-local transfers than they contribute. Such patterns are not unusual. In most U.S. states, wealthier and more productive regions generate a disproportionate share of tax revenues, while state resources are directed toward areas with greater needs. The legitimacy of these arrangements, however, depends on whether contributors understand the purpose and scope of redistribution, and whether recipients recognize its source. When these conditions fails to hold, there is a major risk that the social contract is weakened. Compared to other states, the risk of potential strain on the social contract is especially high in Virginia, where a number of factors already weaken the bond between NoVA and the rest of the state, including the mere size of the commonwealth; considerable differences in demographic composition; different perceptions of history and culture; the fragmentation of media markets; and the fact that most residents of Northern Virginia were born elsewhere and often have no family-, social-, or business ties to the rest of the state.
In Northern Virginia, the state government is largely invisible, and to the degree that it is visible, the state’s priorities and performance—especially over the past four years—have not always aligned with the preferences of Northern Virginia voters. Instead, NoVA residents interact primarily with local governments, which finance their public services through substantial local taxation.
Part of the reason why local taxes are high is because Virginia’s funding formulas do not adequately account for cost-of-living differences, thus leaving NoVA’s higher-cost localities to self-finance significant portions of services that are, in principle, shared responsibilities. This fact is easy to accept for many residents, because it coincides with their lived experience: they directly experience the high tax burden, while the state is invisible as a service provider.
Thus, while many NoVA households recognize their region’s privileged economic position within the commonwealth and are committed to redistribution and high-quality public education across the state, the lived experience of many Northern Virginia families is also that they pay into a system without receiving proportional support for their priorities, such as infrastructure, transportation, or housing. Understandably, a segment of the population will vote for politicians that claim–without evidence–that the public sector is inefficient and advocate for lower local taxes–without realizing that cutting local taxes will proportionally reduce local services. The invisible nature of their discontent–redistributive intergovernmental finances, and the unbalanced intergovernmental finance system—thus place a strain on the social contract, and risks alienating broad-based support for “commonwealth” policies, especially in the region that contributes most to said redistribution.
The perception of state-local relations is quite different in much of the rest of the commonwealth. In regions that are closer to fiscal balance, such as parts of Greater Richmond and the Piedmont, state and local governments are both visible actors. Taxes paid and services received appear more closely aligned, and thus, the social contract is experienced as relatively neutral and less politicized. In fact, not much thought may be given to intergovernmental distribution in central Virginia, as the state government is more visible, more proximate, and perceived as more benign. This makes it easy to assume that all regions of Virginia benefit equally and in a neutral fashion from intergovernmental finances and the commonwealth’s social contract.
In Southside and Southwest Virginia, where state transfers are critical to sustaining public services, the Commonwealth is often experienced as an essential guarantor of basic service provision. Yet because the redistributive nature of intergovernmental transfers and disproportionate state investments are rarely explicit, they may be understood as compensation for historical disadvantage or simply as the normal operation of state government, rather than as the result of cross-regional fiscal effort.
These differing experiences generate competing narratives of fairness that rarely intersect: high-contribution regions emphasize disproportionate fiscal effort and selective pursuit of equity, while high-recipient regions emphasize need and solidarity. What is missing from the diverging narratives is a shared factual foundation.
Why transparency is essential
The core contribution of fiscal incidence analysis is to ground public debate in evidence rather than assumption. Making fiscal flows visible does not require agreement on redistribution, but it does require a common understanding of how the system functions—and what the impact of the system is.
Regular, accessible reporting on state–local fiscal balances—showing contributions, transfers, and outcomes by region—would substantially improve the quality of public discourse. Such transparency would help taxpayers in high-contribution areas understand how their payments support statewide services, while enabling residents in recipient areas to recognize the collective nature of public finance.
Visibility of state finances, local government finances, and intergovernmental funding flows is an important step in informing the policy debate and shoring up the social contract. Transparency does not eliminate disagreement, but it does reduces the likelihood that disagreement is driven by misunderstanding—or by fiscal imbalances that are politically convenient to ignore. At the same time, transparency alone is insufficient. Redistribution is most politically sustainable when it is clearly linked to shared statewide objectives.
Virginia’s approach to public education funding illustrates this challenge. State funding benchmarks remain well below actual average costs, requiring localities—particularly high-cost jurisdictions—to close the gap through local taxation. At the same time, Virginia’s equalization system emphasizes capacity and need but gives limited recognition to local fiscal effort or cost differences. Aligning funding standards more closely with real costs, based on existing analytical recommendations, would strengthen both fiscal equity and public confidence in the system.
Even when redistribution continues, explicit acknowledgment of differences in local contribution matters. Reporting differences in local fiscal effort alongside differences in local need would signal that the system values both contributions and the resulting increase in equitable access to public services, reinforcing the legitimacy of redistribution over time.
Concluding thoughts
The principal risk facing Virginia’s fiscal system is not redistribution itself, but the erosion of shared understanding. Fiscal incidence analysis does not prescribe political conclusions. It provides the factual foundation necessary for informed disagreement and credible policy choices. By making the invisible visible, such analysis strengthens the democratic legitimacy of the Commonwealth and the social contract that sustains it.
When intergovernmental finances remain opaque and unrecognized, citizens construct partial narratives about government that emphasize waste, dependency, or unfairness without capturing the full picture. Potentially even worse, the invisible nature and complexity of intergovernmental fiscal systems allows political leaders to ignore or even exploit unbalanced redistribution for their own political gain.
Note: The Feature Image for this blog post was generated with the help of AI.
