Debate Starting to Shape Up Over Next State Budget's Priorities

By Amanda Iacone, Virginia Statehouse News Saturday, August 06, 2011

RICHMOND - Months before state lawmakers will consider the details of a new two-year budget, both sides of the political divide are gearing up for a fight over the state’s spending priorities as state revenue continues to come in below 2007 levels.

A coalition of liberal groups including health care, education, social justice and small businesses are advocating that the state consider ways to increase tax revenue - which include eliminating tax credits or raising certain taxes like the gas tax - to protect services from more budget cuts.

The Virginia Congress of Parents and Teachers, better know as the Virginia PTA, Metropolitan Business League, and the Commonwealth Institute for Fiscal Analysis said Thursday that the state has run out of tools to curb deeper cuts to education, public safety, health care and transportation. They also believe budget makers need to consider ways to raise revenue to offset future cuts to these services.

Those groups along with traditionally liberal organizations like Virginia Organizing, the Sierra Club, organized labor, the Virginia Poverty Law Center and Virginia National Organization for Women have formed a coalition to fight for better funding of public services ahead of the fall General Assembly elections.

Calls to raise taxes in any form likely will be a tough sell even if Democrats manage to maintain their slight majority in the Senate.

Conservative lawmakers, who control the House of Delegates, and Republican Gov. Bob McDonnell have said that raising taxes isn’t the answer. McDonnell has said that growing the state’s economy and putting Virginians back to work is the key to growing state revenue.

The two-year budget he will submit to the General Assembly later this fall is unlikely to include any tax hikes.

The governor has stated on many occasions that he has no plans to raise taxes, said McDonnell spokesman Jeff Caldwell.

“We’re not out of the woods yet, and we face further challenges in the coming budget, but the course Virginia set is a good one, and it’s already paying dividends in jobs and economic growth. If there’s one thing we simply cannot afford, it’s higher taxes,” said Sen. Mark Obenshain, R-Harrisonburg.

Many states turned to tax increases as a stop-gap measure during the economic downturn. Virginia instead tightened its belt and worked with the revenues it had, Obenshain said.

Instead of facing bankruptcy, the state has been hailed as the best state in which to do business, he said.

“We’re poised to be a national leader in job creation over the next few years. None of this would have been possible if we had listened to the naysayers and raised taxes,” Obenshain said.

Lawmakers will continue to look at ways to make government run more efficiently and a study is currently under way to analyze the fiscal impact and effectiveness of tax credits, said Delegate Steve Landes, R-Weyers Cave.

“In the House of Delegates we are not looking to raise the burden on the taxpayer. They are having a tough time making ends meet now. Things are so uncertain,” Landes said.  

Since the start of the recession in 2008 the General Assembly has cut about $6 billion in state spending as revenue dropped. Revenue, however, remains at 2007 levels.

Lawmakers restored some funding for public education for this fiscal year, which began in July. They also increased Medicaid spending to begin addressing problems cited in a recent U.S. Department of Justice investigation into how the state treats and serves individuals with intellectual or developmental disabilities.

They also provided a $4 billion transportation package that relies largely on borrowed money through the sale of bonds. The package is considered a first step in reducing the backlog of maintenance and new construction projects needed throughout the state.

Long-term solutions to the state’s transportation needs remain elusive, however. Past efforts to raise the state’s 17.5-cent gas tax have never garnered support, even in better economic times.

Virginia’s economy also is heavily dependent on federal workers and contractors. The effects of austerity measures being considered by Congress on the state’s economy remain unclear.

“We’re afraid of setting ourselves up against the roads,” said said Kathy Burcher, legislative chair for the Virginia PTA, an organization which helps pay for education programming and supplies that tax dollars don’t cover. “It’s really become an us versus them mentality and that’s not going to work long-term. It’s not working short-term.”

Education groups including the PTA have worked together during the past few sessions to protect or increase public education funding. But any increases often come at the expense of mental health services and offer less money for roads, Burcher said.

“It’s that very logjam that we are trying to break,” said Michael Cassidy, president and CEO of the think-tank Commonwealth Institute.

State officials must be pragmatic when they address the continued pressures on state tax revenue and make sure the resources are available to provide the services the community demands, he said.

The state relied on federal stimulus borrowing, money that is no longer available, to curb deeper cuts to state spending. The state nearly has reached its debt ceiling and has depleted its rainy day fund, he said.

“The challenge we’re facing is that those tools are no longer available to us,” Cassidy said.

The group is not advocating for any specific remedies. Cassidy said they want to begin a conversation with the governor and legislators about finding solutions other than spending cuts.

The Commonwealth Institute estimates that the state will face an $800 million shortfall during the next two-year budget based on the need for services and the revenue the state is likely to garner.

Similar estimates from the state are not yet available, Caldwell said.

“How are we going to close that shortfall? Are we going to take a cuts-only approach?” Cassidy asked. “Or are we going to take an approach that’s pragmatic, that’s a balanced approach that includes new revenues for securing not only the short-term balanced budget that the Legislature and the governor will grapple with but also position Virginia to respond to prosperity when it returns with an educated workforce, a healthy workforce and a strong infrastructure.”

Virginia is ranked 33rd in the nation for its per capita personal tax burden based on state revenues, according to the Federation of Tax Administrators, a professional organization for government tax officials.