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Preston Bryant is a Republican who has represented Lynchburg and part of Amherst County in the Virginia House of Delgates since 1996.

Inching toward a budget agreement

By PRESTON BRYANT
FEB. 16, 2004

It took a while, but it finally happened. The General Assembly – both the House of Delegates and the Senate – is now fully engaged in a budget debate over how much new revenue it’ll take to shore up the state’s finances and retain the Old Dominion’s historic AAA bond rating.

The first several weeks of Virginia’s 60-day legislative session have produced little more than a lot of rhetorical back-and-forth between those who want to raise taxes and those who don’t. Gov. Mark Warner, a Democrat, and the Republican-controlled Senate are tax-hike allies, as both have put forward proposals to draw more money into the state treasury in part by boosting levies on sales, income, and tobacco. (The Senate also wants to raise the gas tax.) Many in the GOP-dominated House, however, have maintained a no-new-taxes stance, arguing that continued budget cuts along with the improving economy will produce more than enough new money to meet core state services, invest in basic infrastructure, and also save face on Wall Street.

The positions were clear. The lines were drawn. The standoff was certain. It was the governor and the Senate vs. the House. And the House, seemingly, wasn’t budging.

And then reality set in when the state’s NYC-based financial advisor traveled south to address a rare joint meeting of the House tax and budget-writing committees. His message was a clear one: If the state wants to keep the stellar bond rating it’s had since 1938, then more revenue is needed. He dispassionately dispelled any notion that the state will grow its way out of the long-term budget challenges facing the governor and legislators.

Two days after his smell-the-coffee message, the House offered up a plan that’ll purportedly bring in an additional $520 million to help budget-writers close a $1 billion shortfall and balance the proposed $59 billion biennial spending plan.

The House isn’t proposing higher tax rates, mind you. No, not at all. Delegates instead are eliminating more than a half-billion bucks worth of tax exemptions.

The heart of the House plan is to wipe off the books sales-tax exemptions that some of Virginia’s biggest businesses – and, to be honest, some of its smallest – have long enjoyed. As long as most can remember, power companies, oil and gas companies, telephone companies, interstate truckers, shipbuilders, and contractors have been excused from paying the 4.5-cent state sales tax on every dollar of goods they buy to run their businesses. And, for some odd reason, mom-and-pop laundries and taxicab companies haven’t had to pay the tax either.

To many, the House’s message to Big Business – pay up like everybody else – came as a surprise. But it shouldn’t have. At least, not to anybody who’s been listening.

A number of Republican delegates – three come to mind: Allen Louderback of Page County, Bob McDonnell of Virginia Beach, and Phil Hamilton of Newport News – have argued for a year or so that reining in sales-tax exemptions should be considered before any taxes are raised. It was Hamilton who introduced the bill last week that now has a lot of high-priced lobbyists scurrying like never before, all in hopes of preserving their clients’ right to not pay a tax that everyone else must.

Hamilton says the House initiative will generate $230 million to the state to help pay for public safety, Medicaid, universities, and the like; another $230 million for local governments; and more than $60 million for new roads, bridges, and public transportation. This additional $520 million, however, still leaves about that much of a budget shortfall. The House plan will close the other half of the billion-dollar gap through yet more budget cuts and possibly a few fee increases.

All of this is not to say that a budget compromise is a done deal. It isn’t. Warner, while high-fiving the House for finally admitting more tax revenue is indeed needed, continues to push his budget-balancing plan while the Senate prefers its own blueprint.

But at least all parties are now looking in the same direction. This past week has brought a sigh of relief to many who feared a nobody-wins budget showdown between the House and Senate. For the past couple of years, Warner and the legislature have sliced away and shifted around some $6 billion in spending, which has resulted in the state failing to meet its obligations to counties and cities, secondary schools and higher education, services for the poor and elderly, and more.

It’s precisely these kinds of high-dollar failings that caused Moody’s Investors Service to question Virginia’s once unquestionable creditworthiness and place the state on its watchlist. Currently, ours is the only state on their list. If we fail to get our fiscal house in order the rating agency will likely strip away our cherished AAA bond rating – the best a state can have – and knock us down a notch. That’ll result in higher borrowing costs, a damaged financial reputation, and a world of embarrassment.

Virginia is now one of only seven AAA-rated states. If our gold-plated rating is lost, it won’t be regained overnight. When Delaware lots its triple-A rating, they didn’t get it back for 25 years. Lots of folks realize that Virginia is now on the brink of where Delaware once was. We’ve watched as North Carolina recently lost its top rating and Maryland retained theirs. What a disaster it’d be to be reduced to North Carolina’s level and give Maryland, of all states, local bragging rights. Perish the thought.

The next four weeks will determine whether the Old Dominion remains among the most well-governed and fiscally responsible states in the nation. Whether by eliminating some long-held tax exemptions or by enacting some other proper, defensible mix of revenue increases and budget cuts, here’s to hoping that House and Senate leaders set aside politics and egos and work to produce a structurally balanced budget that’ll make Virginians proud to be Virginians.

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