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Va.'s Excess Tax Revenue Could Top $1 Billion

Spike in Corporate Funds Surprises Warner's Aides

By Michael D. Shear
Washington Post Staff Writer
Tuesday, February 1, 2005; Page A01

RICHMOND, Jan. 31 -- Gov. Mark R. Warner said Virginia's superheated economy will generate $265 million more in tax revenue than he estimated when presenting his budget amendments last month, handing lawmakers a windfall as they debate tax cuts and funding for transportation and the environment.

Warner (D) had announced that tax collections for the two-year, $60 billion budget approved last year would exceed the forecast by more than $900 million. In a private meeting Monday with senior lawmakers of both parties, he said revised estimates now show the excess could total close to $1.2 billion.

Gov. Mark R. Warner notes Virginia's high management marks by the Government Performance Project. (Bob Brown -- AP)

Virginia's Taxes and Spending

Virginia's economy is booming, and the state is collecting a lot more tax money than it expected. Here is what that means for state government and taxpayers:

The budget: Virginia is operating on a two-year, $60 billion budget. The job of the 2005 General Assembly session is to fine-tune that budget based on new information about revenue and expenses.

Last year: When the budget was approved in 2004, it included tax increases designed to generate $1.5 billion over two years and improve state services.

This year: The state's economy is doing so well that the government now believes it will raise as much as $1.2 billion more than expected.

The debate: The General Assembly is debating what should be done with that money. Some legislators call for tax cuts, some for more spending. Some want both.

On the Web: Washington Post stories about tax and spending issues, a guide to the legislative session, audio features and online discussions are available at www.washingtonpost.com/vagovt.

_____Virginia Taxes_____
Chichester Seeks to Earmark Insurance Tax for Road Projects (The Washington Post, Jan 22, 2005)
Going 'Outside the Box' on Transportation (The Washington Post, Jan 4, 2005)
Va. Lawmaker Revives Transportation Funding (The Washington Post, Oct 1, 2004)
Anti-Tax Attacks Launched Against Both Sides of the Aisle (The Washington Post, Sep 23, 2004)
More on Taxes

The upbeat news comes as the House and Senate prepare to offer competing spending plans this weekend. Lawmakers in both chambers have been eagerly anticipating the chance to spend even more money in a year when voters will elect all 100 House members and a new governor.

But Warner cautioned that huge spikes in corporate taxes and revenue from home refinancings are not likely to last, and he urged the Republican-controlled General Assembly to spend the windfall in ways that don't involve overly rosy assumptions about the future.

"I'm not going to bet the future of the commonwealth on extraordinary growth on our most volatile revenue sources," Warner said in an interview.

Warner said corporate taxes had increased 78 percent since the previous fiscal year, a jump he said none of his economic advisers can explain. He said low interest rates continue to drive a home-loan boom. In 2003, he said, there were more home refinancings in Fairfax County than there were homes. Many people, he said, are refinancing twice in a single year.

The evidence of a still-surging economy rekindles debate about whether last year's tax increase was necessary. In June, at Warner's urging, the General Assembly passed a budget compromise that they said at the time would raise $1.5 billion over two years.

James T. Parmelee, the president of Republicans United for Tax Relief, said Warner purposely painted a bleak financial picture for the state so the tax increase would be approved.

"We were right, and the governor was wrong," Parmelee said after hearing the new estimates of state revenue. "So, should I expect my refund check in the mail? What he needs to do is give the money back to the people he took it from under false pretenses."

Warner spokeswoman Ellen Qualls said Parmelee "should talk to House Republicans, who already have plans to spend well beyond the additional revenues on what they call core needs."

In fact, just moments after Warner informed lawmakers of the extra revenue, House Speaker William J. Howell (R-Stafford) held a news conference to announce a proposal to pump $50 million a year for the next 10 years into the state's water quality improvement fund to help clean up the Chesapeake Bay.

"Improving our lakes, streams, rivers and the bay isn't a luxury," Howell said. "It is our duty as responsible stewards." [Story on Page B1]

The bay proposal follows several calls for new spending by House Republicans, including a nearly $1 billion transportation plan and a push to spend several hundred million dollars over the next few years to finish the phaseout of the car tax. Howell and other senior Republicans in the House have said future economic growth will cover the new spending.

"I'm confident that we will have reasonable growth over the coming years," said House Appropriations Chairman Vincent F. Callahan Jr. (R-Fairfax).

Sen. John H. Chichester (R-Stafford), who heads the Senate Finance Committee, disagreed. He said there would need to be "astronomical growth" to fund all the proposals put forward by House Republicans.

"The sad part is, when we return in a year and all the expectations that are being raised with these press conferences are dashed with reality, then so many folks are going to be let down, disappointed, and will point their finger at all of us," Chichester said.

Warner said Virginia faces growing costs that will still make it difficult to pass budgets even with a growing economy. He said the cost of paying for education, Medicaid, prisons, employee benefits and other programs will increase by $2.9 billion during 2007 and 2008.

He called those costs "spending items that no one would regard as anything but mandatory."

Warner urged lawmakers to spend the excess revenue on one-time payments for bay cleanup and transportation projects and to remove some accounting gimmicks from the state budget.

Staff writer Rosalind S. Helderman contributed to this report.

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