Warner's skillful budgeting

Last week, Gov. Mark Warner proposed his batch of mid-point amendments to the two-year budget passed by the General Assembly last winter. For the most part, it’s a straightforward set of suggestions that direct new revenues to core functions of state government.

But the governor’s amendments also are destined to force the legislature’s Republicans make politically tough choices if they want to dramatically deviate from his revised spending plan.

Warner is anticipating nearly $920 million more in revenue by the end of the fiscal year than what his economists had originally projected. It’s a windfall coming mostly from a Northern Virginia economy boosted – artificially? – by inordinately increased federal spending in the homeland security and defense sectors.

It’s this unexpected wheelbarrow of cash that Warner is proposing to spend in just a few critical areas: highways and bridges, health insurance for the poor and elderly, and salary hikes for state employees and schoolteachers. He’s also returning some of the surplus to taxpayers by way of a food-tax cut.

What’s not being proposed by Warner is an end to a budget gimmick that’s been used for the past few years to balance the state’s books, one that requires some large retailers to guess what their July sales taxes will be and remit them to treasury’s coffers in June – a month before they’re actually collected from customers – so that the state can close out its June-ending fiscal year appearing to be better off than it actually is. Ending the accounting trick will require a one-time “honesty payment” of about $200 million.

Warner’s standing-room-only budget presentation to key legislators – mostly Republicans – was met with broad acceptance. After all, the Democratic governor was singing the GOP’s song. He’d not proposed any significant new spending, save workforce and teacher salary boosts, that’ll necessitate follow-up spending in future years. He’d remained true to his vow to spend most of the surplus on one-time infrastructure needs. And he’d taken Republicans up on their call for at least a portion of the surplus to be given back to taxpayers. All in all, the governor’s revised budget is a simple and no-frills one.

That it’s straightforward, however, is not to say it’s without potential political pitfalls for legislators seeking to change it.

The year ahead is one full of elections. In 2005, Virginians will elect a new governor, lieutenant governor and attorney general. Additionally, all 100 seats in the House of Delegates will be up for grabs.

The issue bound to dominate the ’05 assembly is transportation, and legislators will be eager to demonstrate to voters – especially those in gridlocked Northern Virginia – that they’re hard at work to break commuters free from their stop-and-go weekday lives.

So if Republican delegates and senators are to improve on the more than $800 million in new revenues that Warner is infusing into the state’s anemic transportation construction program, then they’ll have just a few options: cut from other critical budget areas, raise vehicle-related taxes (er, fees), or rack up additional state debt.

And if they’re to finally rid their budget-balancing act of that accounting sleight-of-hand that sticks it to retailers – or if they’re to push tax cuts even beyond those Warner is proposing in the levy on store-bought food, as some want to do – then the Republican legislature likely will have to delay workforce pay hikes, cut proposed public safety, education, or health care expenses, or rely on borrowing.

No matter the choice, the Democratic Warner will gain a political leg up over the GOP assembly.

Warner rode into office nearly four years ago on promises to restore fiscal sanity to the state’s budgeting. His successful gubernatorial campaign was built partly on Republican legislators’ failure in 2001 to agree on budget revisions, the first time such had ever happened.

The governor has spent the last several years traveling Virginia and telling all who’d listen that he, a life-long businessman, has brought sound business principles back to government operations. Based on his high approval rating, most believe him.

There’s very little of the $920 million surplus that’s left unspent. It’s all been directed to very specific government functions that most agree are central to meeting the state’s most pressing fiscal challenges, with about $150 million reserved over the next two years for the food-tax cut.

It’s this same kind of reasonable balance between investments and tax-code revisions that many key Republican lawmakers have been suggesting for a month or so. That’s why it’s doubtful that GOP budget-writers will dramatically alter Warner’s proposed spending plan.

And besides, who wants to make any more politically dicey choices in an election year than necessary?