Wednesday, October 21, 2009
Virginia's looming budget crisis
From the RoundTable blog
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Dan B. Fleming
Fleming, of Blacksburg, is a professor emeritus of education at Virginia Tech and co-author of "By the Good People of Virginia: Our Commonwealth's Government."
The seemingly endless barrage of television campaign ads for the candidates for governor makes one wonder whether to laugh or cry. They are generally nonsensical, distort facts and avoid the real issues facing our state.
What candidates really should be talking about can be found in an outstanding article, "Virginia's State Budget -- A Train Wreck About to Happen," by James J. Regimbal Jr., an expert with 27 years of experience examining Virginia budget and tax policies. It is from the Weldon Cooper Center for Public Service at the University of Virginia.
Regimbal declares that in the upcoming 2010-12 biennium, "Virginia's state budget will experience the full force of the worst economic downturn since the 1930s." He presents a stark picture of the prospects ahead since we already have dipped heavily into the state's rainy day fund and are surviving because of federal stimulus funds that will soon run out.
The state has already cut deeply into state programs such as higher education and transportation and is delaying contributions to the Virginia Retirement System. Local governments can expect to be hit even harder, including funding for public education, constitutional offices, local police departments and social services.
The outlook for future revenue over the next few years is dismal, as tax revenues have fallen and are not expected to recover soon due to the expectations of a weak economic recovery. The commonwealth's ability to borrow additional funds and maintain its Triple A credit rating is also limited due to our debt load. Virginia's unemployment insurance fund has gone broke, and the state will have to borrow from the federal unemployment trust fund with additional borrowing expected, including interest payments on the loan.
Tax cuts over recent years have added to the problem, particularly the inequitable car tax relief program costing the state $950 million a year. The elimination of the estate tax, while great for multimillionaires, costs the state $140 million a year.
It is estimated that the 2010-12 operating budget will be at least $3 billion above forecasted revenues. Medicaid costs continue to grow and will require $2 billion more from the general fund during this period. Since Virginia already ranks 48th lowest nationally in per capita spending for Medicaid, it seems difficult to make further cuts there.
Our tax structure is antiquated and unwieldy and needs a major overhaul. Some taxes may be raised and others lowered. We do have choices and may have to roll back tax breaks such as the car tax and the estate tax. Less reliance on the local property tax and consideration of new tax sources should be on the table, including taxing Internet sales from out-of-state companies such as Amazon.com.
We are moving away from a production to a service economy and consideration should be given to applying the sales tax to some services. Currently, the tax on a gallon of milk in Virginia is higher than that on college football tickets or a pedicure. Relaxation of the Dillon Rule to give localities more taxing authority should be considered. We also have one of the lowest corporation tax rates in the nation.
Finally, the one-term limit for governor is a great barrier to reform and should be increased to two terms to allow long-term planning to occur. Virginia is the only state with this limit.
The candidates have failed to address the daunting challenges of the unpleasant truths presented by Regimbal and seem to be in a financial never-never land. It is a shame that voters are not treated as adults and given the cold, hard facts of the state's financial crisis.
