The aim of the State of Fairfax is to apply evidence-based analyses to explore important issues related to the governance, administration, public finances, public services, and economy of Fairfax County, the Northern Virginia region, and the rest of the Commonwealth of Virginia.
The current post analyzes how fiscal redistribution (how public funds are distributed) and electoral preferences (who people vote for) intersect in Virginia.
The way in which the commonwealth distributes money to local governments should encourage and empower local governments to be responsive to their constituents’ priorities, while at the same time holding local governments accountable for providing quality local public services. As an economist, it is not by job to make political judgements about whether one party gets it right or the other. As such, I will try to avoid doing so here. But as an analyst of Virginia’s public finances, I did notice a very curious relationship between fiscal redistribution and electoral preferences.
A political system with two parties: Red and Blue
Before addressing the relationship between fiscal redistribution and electoral preferences, it may be helpful to note that in Virginia, as in the rest of the country, voters basically have a choice between candidates from two parties. Let’s call one the Red Party, and the other the Blue Party.
I think it is fair to characterize the Red Party as a party that promotes personal responsibility, fiscal responsibility, lower taxes, limited government, and less redistribution. At a recent campaign rally, the Red candidate for Virginia governor proclaimed: “Make no mistake about it: the ideas that my opponent has are socialist in nature… She is reckless and she is radical. I want to grow jobs and she wants to grow government. Folks, this is not hard. This is about freedom!”
Likewise, in general terms, I think it is fair to characterize the Blue Party as a party that prioritizes collective well-being and the use of government as a mechanism for promoting equity and opportunity, even when better public services and redistribution come at the expense of higher taxes. The Blue Party’s candidate for Virginia Governor recently promoted policies included establishing a paid leave program, increasing access to affordable childcare, furthering investment in the Port of Virginia, and supporting access to apprenticeship programs.
Fiscal redistribution in Virginia
With this basic understanding of the political positions of the Red Party and the Blue Party in the Commonwealth, I would like to explore the relationship between fiscal redistribution and electoral preferences in Virginia.
First, let’s consider the redistribution of public finances in Virginia by mapping the extent to which local governments in the state rely on intergovernmental fiscal transfers. Intergovernmental fiscal transfers (or intergovernmental revenues, IGR) refer to revenues received from the state or federal government, for instance, in the form of grants-in-aid. Intergovernmental revenues are an important way of redistributing resources in the commonwealth. Coincidentally (or is it?), the map below uses to red to signify localities that receive considerable fiscal redistribution from higher-level governments (above average: over 45 percent), whereas blue represents jurisdictions that are more fiscally self-reliant and that rely more heavily on own-source revenues (i.e., intergovernmental revenues under 45 percent).
Unfortunately, over a year after the close of the 2024 financial year (which runs from July 2023-June 2024), twenty-three localities (counties or independent cities) failed to submit their audited financial statements to the Virginia Auditor of Public Accounts. These are indicated on the map in grey.
Overall, the available data show considerable variation within the commonwealth: some local governments receive less than a quarter of their funds from intergovernmental revenues, while others receive close to three-quarters of their funding from higher-level governments. The distribution of intergovernmental revenues shows a clear regional pattern, with rural areas of the state receiving a larger share of their funding from IGR, while the urban and suburban areas (particularly in NoVA and the I-64 corridor) receive a smaller share of funding from intergovernmental transfers.
Electoral preferences in Virginia
Next, I present a map of the election results of the 2024 Presidential election, as reported by the Virginia Department of Elections. The red color on the map indicates localities with a majority share of voters that supported the Red Party candidate, with the Red Party Creed promoting “individual responsibility” and “fiscal responsibility”, and the candidate opposing “Communists, Marxists, and Socialists.”
While there are far fewer blue jurisdictions on the Virginia map than red ones, Virginia’s urban and suburban jurisdictions tend to have a higher population density and a higher population than the state’s more rural jurisdictions. In fact, the presidential candidate representing the Blue Party won Virginia’s popular vote in 2024 by a margin of over 260,000 votes. Of course, the Red Party candidate won the gubernatorial election in 2021. The geographic distribution of electoral support was largely similar between the two elections.
The curious relationship between fiscal redistribution and electoral preferences in Virginia
When placing these graphs next to each other, a rather curious relationship between fiscal redistribution and electoral preferences becomes visible: with the exception of the missing data, the two maps look a lot alike. The relationship between fiscal redistribution (the share of local spending funded by intergovernmental revenues) and electoral preferences (Red Party candidate vote share) becomes even more obvious in the graph below, showing that localities where voters overwhelmingly support the Red Party are often localities that are major recipients of intergovernmental transfers, while residents of localities that are not major recipients of intergovernmental transfers tend to favor the Blue Party. The ‘best-fit’ trend line clearly shows a positive relationship between fiscal redistribution (intergovernmental revenue) received by a locality and Red Party vote share.
This pattern is interesting because it seems to put Red Party candidates and their voters at odds with their own stated values and priorities. While the Red candidate shouts “no socialism”, in practice, the Red Party apparently has no problem with higher state taxes (i.e., “big government”) to fund intergovernmental redistribution that benefits localities where red voters live. The Red Party’s candidates are advocating for personal responsibility, fiscal discipline, and lower local taxes, while at the same time allowing large swaths of the commonwealth to rely on local public services funded by the fiscal largess of other people.
In observing this pattern, it is worth noting that Blue Party candidates and ‘blue’ voters generally appear to be ideologically consistent, seemingly to their own fiscal detriment. Despite being at the short end of the redistribution stick, it appears that a majority of voters in ‘blue’ localities are willing to engage in redistribution–for now, at least.
Correlation or causality?
Before jumping to the conclusion that there is indeed a curious relationship between intergovernmental revenue and political behavior, it is important to investigate a potential alternative explanation for the pattern uncovered above. It is theoretically possible that the intergovernmental revenue pattern shown above is driven by the fact that the graph considers the share of local government spending funded by intergovernmental revenues. In other words, even if all localities in Virginia receive the same amount of intergovernmental revenue per resident, the observed pattern (a higher share of IGR) could be caused by the fact that ‘red’ localities have lower taxes.
A deeper dive, however, suggests that lower taxes are not (solely) the explanation for the higher reliance on intergovernmental revenues in ‘red’ parts of the commonwealth. While it is true that the ‘red’ localities generally impose lower tax rates (see below) and collect lower own-source revenues, the correlation isn’t spurious: ‘red’ localities generally also receive greater intergovernmental revenues per resident in dollars terms (i.e., not just in relative terms).
Click on the toggle to see more detail on local real estate tax rates in Virginia
Click on the toggle to see more detail on the distribution of per capita intergovernmental fiscal transfers in Virginia
In other words, ‘red’ local governments that rely relatively more on intergovernmental revenues do so not just because their local taxes are lower, but rather, the other way around: they are able to lower their local taxes–and still spend–because they receive more intergovernmental revenues from higher-level governments. Conversely, ‘blue’ local governments that rely less on transfer funding and collect more local taxes do so not just because they want to spend more, but because they receive less intergovernmental revenue from the state and federal government.
Incidentally, while it is beyond the scope of the current analysis, it turns out that the ‘blue’ localities not only receive relatively little in terms of intergovernmental revenues, but taxpayers in these localities also tend to contribute relatively more to the state budget in terms of state income taxes, which is the biggest funding source for state-level distribution. This is a topic to be addressed another day.
Political economy insights
There is a saying among public finance economists: “don’t tax me, don’t tax thee, tax the man behind the tree”.
Based on this mantra, it seems like the Red Party has struck political gold (literally), by loudly advocating for “lower local taxes” (generally benefitting the rural parts of the state) while quietly condoning higher state taxes–paid largely in the more (sub)urban parts of the state–to fund redistributive intergovernmental transfers. The favorable distribution of intergovernmental fiscal transfers has allowed many of the red localities to have property tax rates that are considerably lower than in the blue parts of the commonwealth.
At the same time, as a result of the redistribution of intergovernmental transfers away from Virginia’s higher-cost (sub)urban areas, these blue local jurisdictions are forced to impose higher local taxes to fund quality public service in their localities. In turn, these higher local taxes serve as further red meat (pun intended) to activate the Red Party’s political base in the (sub)urbs.
The impact of the current scenario politically hurts the Blue Party twice: first, their public willingness to support redistribution funded by higher (state) taxes is a losing proposition in the red areas of the state, and second, the resulting higher local taxes in (sub)urban areas stoke opposition and cause the Blue Party’s electoral margins to be relatively small. A potentially smarter Blue Party political strategy given the situation would be to advocate for fairer redistribution–focused on (a) making sure the higher needs of (sub)urban jurisdictions–including due to the higher cost-of-living–are adequately taken into account in the distribution of grant resources, and (b) requiring local governments to fund their fair share of local public services from local revenues before receiving disproportionate large intergovernmental revenue hand-outs from the commonwealth.
Policy implications
It is reasonable to believe–regardless of political affiliation–that government operates most effectively when authority and resources are distributed in a way that encourages and empowers local governments to respond to the collective needs and priorities of their constituents.
Yet, recognizing the importance of sound local governance and inclusive community engagement also requires political leaders and taxpayers to take their governance responsibilities seriously at all levels of government. Taxpayers in some parts of the state should not be asked to pay taxes twice, because elected leaders and taxpayers in other parts of the commonwealth are unwilling to pay for their own local services themselves. The way in which state aid is provided to localities should prevent this from happening.
At the same time, a policy that encourages and empowers local governments in Virginia to be more responsive to the priorities of their constituents ought to recognize that while localities in some parts of the commonwealth opt for lower local taxes, other local governments currently lack adequate fiscal instruments for local revenue raising.
A comprehensive, bipartisan review of Virginia’s system of intergovernmental fiscal relations could set the scene for the possibility of lowering state income taxes (by, say, 1-2 percentage points) while expanding the fiscal space of local governments through a local-option income surtax (of up to the same 1-2 percent), creating a potential win-win situation for all Virginians.
