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Economic Uncertainty Confounds Va. Budget Planning

By Michael D. Shear
Washington Post Staff Writer
Sunday, February 6, 2005; Page C11

RICHMOND -- Virginia Gov. Mark R. Warner (D) met with economic advisers, business leaders, senior lawmakers and finance staff in December 2003 and then predicted that the state's economy would grow by 6.9 percent during the next fiscal year.

He was wrong.

Gov. Warner says tax increases last year were necessary because state regularly outspent state revenue. (Scott K. Brown -- AP)

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In December 2004 -- in the middle of the fiscal year -- he met with them again and revised his prediction. With Northern Virginia's economy booming and the state's sales, income and corporate taxes strong, he predicted robust growth of 8.2 percent.

He was wrong again.

Last week, he announced the latest estimate: Virginia's economy is growing at a rate of 10.3 percent. The growth means the state, which had record budget shortfalls a few years ago, will take in nearly $1.2 billion more than the governor anticipated on the eve of 2004.

The rapid turnaround in Virginia is good news for lawmakers in the House of Delegates and the Senate, who today will unveil competing budgets brimming with proposals to spend the money or give some of it back to residents as tax cuts.

But the governor's attempts to get a grip on the economy's performance are an indication of how the vagaries of the stock market, mortgage interest rates and corporate fortunes can frustrate predictions of the state's revenue.

And they have stoked debate about whether the two-year, $1.5 billion tax increase approved by the General Assembly last year was an overreaction to a temporary downturn in the state's fortunes.

On the floor of the House last week, Del. Ben L. Cline (R-Amherst) accused Warner and his finance secretary, John M. Bennett, of pushing through a tax increase that they knew was unnecessary.

"If I made the estimates this secretary of finance made, as a businessman, I'd be bankrupt," he said.

Former attorney general Jerry W. Kilgore (R), who is running for governor, told fellow party members at a retreat in December that they had been vindicated. "We argued that with the economic growth projected for the commonwealth, that tax increases were not necessary," he said. "Ladies and gentlemen, we were right."

Warner insists that the tax increases were necessary because the state regularly was spending more money than it was taking in.

He said the upturn should be regarded as an aberration.

Warner's budget assumes that the growth rate will return to a normal 5.8 percent in fiscal 2007.

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