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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.

What would Reagan do?

By Preston Bryant
APRIL 19, 2004

Let’s all be thankful that Virginia is not California. And let’s recommit ourselves to ensuring that Virginia is never governed like California – well, at least the way it’s been governed the past handful of years.

A walk back through history, however, reveals a time when California faced a budgetary situation not terribly unlike the one Virginia faces today. It was 1967. And a newly inaugurated Gov. Ronald Reagan was in trouble.

Reagan, you see, had just beaten incumbent Gov. Edmund G. “Pat” Brown, a Democrat, by more than 1 million votes, ending his eight-year reign. With Reagan’s big win, new life was breathed into the state’s GOP. But when the new governor took office, he immediately found before him a $200 million budget deficit that had been compounded by years of pent-up pressure on local real estate taxes owing to the state’s failure to properly share its revenue with local governments. In addition, Reagan found a major accounting gimmick embedded in the state’s books. The 12-month budget he inherited was built on 15 months of tax collections. Brown’s outgoing budget-writers were counting on advanced payments in their current fiscal year of the next fiscal year’s first-quarter taxes.

The situation Reagan inherited should sound familiar to any newspaper-reading Virginian. Today, we have a $1 billion shortfall in the state budget despite about $6 billion in cuts and shifts over the past three years. And because Virginia has for many years fallen woefully short on its revenue-sharing obligations with local governments -- especially in secondary education funding -- we’ve seen real estate taxes skyrocket, especially in our most populated regions. Oh, and then there’s our own accounting gimmick: the accelerated sales tax, where our state requires certain retailers to make early payments of anticipated sales taxes from the first month of a new fiscal year before the current one ends, allowing our year-end ledger to look better than it actually is.

Reagan beat Brown in a landslide by campaigning against higher taxes. But on the first day he walked into his new office, Reagan, who had no prior government experience, was faced with a constitutional mandate to erase the $200 million deficit and produce a balanced budget -- and he had to do it within about two months. Time was short. What could he do? Indeed, what would he do?

Well, Reagan – much more a pragmatist than most credit him being – offered a tax-increase package within a week or two of his inaugural. The size? About $1 billion. The reason? The need for California’s government to properly fund core services that were being driven by both inflation and the state’s population growth.

But it wasn’t that Reagan simply wanted to raise taxes. No, not at all. He wanted some kind of tax reform – and he especially wanted to help his state’s local governments, who’d long been absorbing the cost of services the state should’ve been funding.

A browse through Reagan’s collected letters reveals that in January 1967, the new governor wrote to a Mrs. Day, responding to one she’d written him on his efforts to increase state support to localities and relieve pressure on the homeowner’s, or real estate, tax.

Dear Mrs. Day:

As you probably know, we’ve been frustrated for several years now in our every effort to reform taxes so as to reduce the burden on the homeowner. Believe me, I share your feelings. The homeowner’s [real estate] tax is the one glaring inequity in the California tax structure.

It is a local tax -- locally assessed, collected and administered. The solution we’ve been attempting is to shift some of the tax to wider-based state taxes. The state would then reimburse local government for the reduction in the property tax. …

Sincerely,
Ronald Reagan

And in 1971, Reagan wrote a similar letter to a Mrs. Frederick A. Williams.

Dear Mrs. Williams:

…For some time now I have been of the opinion that the property tax is too high and, indeed, is an outmoded, unfair method of raising revenue. For the last four years I have tried to persuade the legislature we should take over some of the burden at the state level by increasing statewide taxes such as the sales tax, so that we could reimburse local governments for reduction of the homeowners tax. I am still hopeful of getting their support, even though so far they have failed to agree on such a change in the tax structure.

Again, thank you for letting me comment, and I assure you we’ll keep trying.

Sincerely,
Ronald Reagan

When Reagan levied his 1967 billion-dollar tax increase, California’s entire budget totaled less than $5 billion. Adjusted for inflation, that tax hike today would be about $10 billion. Not only did his mega-increase include a bump in the sales tax, but also an increase in the top brackets of the income tax, which, at that particular time, accounted for the largest income-tax increase in American history, bringing in some $1.1 billion in the 1969-70 fiscal year.

When Reagan left office in 1974 after eight years at California’s helm, the state budget had more than doubled, jumping from $4.6 billion to $10.2 billion, and had a $550 million surplus.

What would Reagan do if he were living in Virginia today? Would he recognize that ours is a state whose core services funding has waned in the face of terrific population growth? Would he acknowledge that secondary and higher education, transportation and health care services were in need of propping up? Would he push Virginia’s legislature to strike a balance between tax reform and investments in infrastructure and services, just as he’d done in his first term – indeed, in his first few weeks – as California’s governor?

The Virginia GOP has long been the low-tax party – and it certainly always will be. However, it also has been a fiscally prudent party, believing that a stand for low taxes does not mean the state shouldn’t pay its bills. Fiscal conservatism, after all, isn’t a license to renege on your acknowledged obligations and let your government fall to pot.

Many Republicans in the House of Delegates and Senate are perhaps on the verge of doing a very Reagan thing: recognizing that tax reform can be both a fiscally responsible and pragmatic way to create greater taxpayer equity as well as adequately fund the government’s most basic services.

The Virginia legislature is nearly a month into budget-wrangling overtime. It’s true that 2004 hasn’t been its proudest moment. Perhaps a look back to Reagan’s ’67 budget compromise will inspire an end to an impasse that’s gone on way too long.

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