Surprise Jump In Va. Revenue Yields Surplus
Report Reignites Tax Debate That Split General Assembly
By Chris L. Jenkins
Washington Post Staff Writer
Thursday, May 20, 2004; Page B01
RICHMOND, May 19 -- Virginia's budget will end the fiscal year next month with a considerable surplus, causing legislators who fought ardently against tax increases during the recent General Assembly session to again question the need for them.
Revenue collections have increased 9.5 percent since July 1, according to a report to Gov. Mark R. Warner (D) from Secretary of Finance John M. Bennett -- well ahead of the forecast of 6.7 percent. The more conservative revenue growth projection was a linchpin in the arguments of Warner and some lawmakers as they sought to increase taxes to balance the budget and pay for state services. After an extraordinary special session and a protracted impasse, the state passed its most comprehensive tax increase ever.
Warner and lawmakers often said during the session that the state could not grow its way out of its billion-dollar budget shortfall, justifying the need for more revenue for schools, health care and public safety.
In an interview, Bennett said that the news was encouraging, but he cautioned that this growth rate is likely not sustainable.
"This certainly shows that Virginia's economy is rebounding," he said. He added that much of the revenue received by the state was gained from one-time measures, such as consumers' having more money to spend from federal income tax refunds. "But I don't think there are any guarantees that the sources of this new revenue are going to continue to rise," he said.
Anti-tax lawmakers and activists, who argued during the General Assembly session that the state didn't need to increase taxes because the economy was starting to rebound, said the new projections proved their point. Several lawmakers said they don't think Warner and his administration purposely misled them about the strength of the state economy. But they added that the issue was played down during the 115-day legislative session.
"These numbers certainly don't surprise me," said House Speaker William J. Howell (R-Stafford), who was the chief opponent of the tax plans championed by Warner and the state Senate. "I don't think they purposely fudged the numbers. . . . It does pay at times to be conservative in making budget projections."
Other lawmakers were more critical.
"Isn't this shocking?" Del. Robert G. Marshall (R-Prince William), an anti-tax lawmaker, said in mock surprise. "We've gotten bad numbers all along from this administration. . . . In short, they cooked the books."
The legislature last month passed a $60 billion budget that adds more than $1.5 billion to the state's treasury over two years. The sales tax will rise to 5 percent, effective July 1, and the tax on cigarettes will increase to 30 cents a pack. Taxes on income and groceries will be cut, and some corporate tax breaks will end. Taxes on deeds will go up. The state's car-tax relief program will be frozen beginning in 2006.
Officials for Warner said the administration used more-conservative estimates to ensure solvent accounting. In a brief statement through his press secretary, Ellen Qualls, Warner said that even though Virginia's economy is improving, the tax increases in the new budget are necessary.
"I'm reluctant to bet the whole future of Virginia on how the stock market's going to do for the rest of the year," Warner said. "We were going to have a problem unless we dealt with our overall tax structure . . . and that's what we managed to fix this year."
Virginia's turnaround in growth is being matched by states across the country, including Maryland. There, state budget analysts reported that they expect $150 million more than predicted. If that proves true, the $1 billion shortfall that faced the state in January could be closed to about $252 million, the analysts said.
In Virginia, the surplus could top $300 million if April's rate of growth continues until the end of next month. Much of that money would be deposited into the state's rainy-day fund.
The state has begun to rebound from a three-year slump, Bennett said, with increases in income tax withholding and sales tax revenue. In his report, Bennett said a rebounding national economy and job market generated much of the overall growth.
Attorney General Jerry W. Kilgore, the GOP's expected candidate for governor next year, seized upon the new forecast, saying that the tax increases were unnecessary.
"We needed a wait-and-see attitude," Kilgore said in an interview. "Raising taxes should be the last alternative. . . . We rushed to judgment."
Those who voted to raise taxes said the increased numbers were good news but did not supplant the need for further investment through increased levies. "How long can you stay at 9.5 percent?" said Sen. Richard L. Saslaw (D-Fairfax), who sits on the Senate Finance Committee.
© 2004 The Washington Post Company