A House-Senate Showdown in ’05?

Is it possible that the 2005 General Assembly session could sound like the ’04 session in tone and be like the ’01 session in outcome? Yeah, but let’s hope not.

Last week, Sen. John Chichester laid out before a Richmond luncheon crowd of nearly 300 his thoughts on how any budget surplus should be used by the upcoming session of the legislature. And his thoughts might well be in opposition to those of some in the House of Delegates.

Chichester was on hand to address a higher education summit organized by Virginia21, a year-old “action tank” that’s become a forceful vehicle for students and others to mobilize and promote the interests of the state’s colleges and universities. To date, more than 14,000 college kids are on Virginia21’s roles, and the group has the financial backing of some of the state’s most prominent business leaders and their companies.

Chichester, a Stafford Republican and head of the Senate Finance Committee, told the assembled crowd of students, CEOs, college and university presidents, lobbyists, and legislators that the General Assembly must not reverse course on the budget-restructuring progress made during the ’04 legislative session and should make every effort to live up to – and even accelerate – tax-cut promises that have been made.

Specifically, Chichester suggested that surplus funds – the state’s on track to have more than a half-billion bucks extra – should be used to correct the biggest remaining accounting gimmick in the state budget as well as to speed up the phased elimination of the state’s share of the sales tax on groceries.

For several years, the General Assembly has required some big retailers to remit their anticipated July sales-tax collections a month early. Doing so has allowed the state to close out its fiscal year (June 30) appearing to have more in its kitty than it really does. Of course, once the state does that in one fiscal year, it has to be done in the successive ones until lawmakers choose to buy their way out of it. Fixing the gimmick requires a one-time hit of about $181 million.

Chichester also suggested that the planned 1.5 percent cut in the state sales tax on store-bought food should be carried out in its entirety next year instead of being phased out by a half-penny per year for the next three years, which is the current plan. Lunging forward to cut the entire penny-and-a-half at once while the state has a healthy surplus may make a good deal of sense to both bean-counters and consumers. The cost for doing so – that is, the amount the state won’t be collecting from taxpayers – is about $104 million.

The Chichester plan for the anticipated surplus is interesting on a couple of fronts, both practical and political. First, it sets up a dilemma for some House members who’ve proposed using hundreds of millions from the general fund surplus to underpin about $5 billion worth of bonds – that’s debt – for transportation projects over the next 20 years.

As a practical matter, Chichester abhors using general fund tax dollars – collected mostly from sales taxes and personal and corporate income taxes – for transportation construction projects, which historically have been funded by state and federal gas taxes. Diverting general fund dollars would drain money from other core services they’ve always funded, such as secondary and higher education, public safety, and health care. The senator also abhors borrowing today against future revenue sources whose current income levels are unlikely to be sustained over the long haul.

Second, the Chichester plan presents an interesting turn in political dynamics. For the last few years, it has been generally accepted that the Senate is much more moderate than the rah-rah, tax-cutting House. Now, as we enter into an election year for House members – all 100 delegates are on the ballot in ’05, while senators aren’t up until ’07 – it’s the Senate who’ll be seen as tax-cutters and the House as debt-dependent spenders.

Could it be that the conservative House might allow another year of accounting gimmickry and actually oppose the food-tax cut? After all, correcting the accelerated sales-tax trick and cutting the 1.5 percent state tax on groceries in one year instead of over three could rob some folks of the hundreds of millions they need for transportation bonds.

And what that’ll boil down to, in effect, is some in the House who opposed this year’s tax-reform plan actually relying on it next year. Its means will be justifying their ends.

If it all unfolds this way, it’s quite possible there will be a standoff between the House and Senate next year akin to what was seen this past winter and spring. The House will want to make transportation investments with dollars from the general fund, and the Senate will want to use some of those same dollars for budget corrections and tax cuts.

At the end of the session, therefore, it’s possible that the House and Senate will agree to disagree and will walk away from budget negotiations without adopting any mid-point amendments to the two-year spending plan. By default, then, budget actions will fall to Warner. That’s precisely the scenario that played out 2001, when the GOP-controlled House and Senate couldn’t agree over the level of car-tax cut to amend into the budget and punted that and other spending decisions to then-Gov. Jim Gilmore.

If in the face of a standoff next year the GOP abdicates its budget responsibilities to a Democratic governor, Republicans will be playing right into the hands of opposition Democrats – and in an election year, no less.

Let’s not forget that it was the GOP’s ’01 budget fiasco that allowed then-candidate Warner to make so much hay with so many voters and waltz right into the governor’s office.

There’s no reason ’05 has to sound like ’04 or end up like ’01. There’s nothing prohibiting House and Senate Republican leaders from getting together now and collaborating in general terms over how to amend the current budget when the General Assembly convenes in January. In fact, doing so would be quite prudent – and it certainly would be in the best interest of the Republican Party.