Economy Gives Va. $324 Million Bonus
Tax Foes See 'Vindication' in Surplus
By Michael D. Shear
Washington Post Staff Writer
Friday, July 23, 2004; Page B01
RICHMOND, July 22 -- Virginia's economy grew faster than predicted during the budget year that ended June 30, generating $323.8 million more in taxes than government economists had estimated.
Gov. Mark R. Warner (D) announced the final tally for the year Thursday. In a statement, he said he was pleased by the economy's performance but pledged that the additional state revenue would not be used to start new programs.
"We will continue to press for improved efficiency in state government, and to ensure that every dollar is put to effective use," Warner said in the statement. "Most of the surplus will be set aside for the Rainy Day Fund."
The official announcement of a surplus had been expected. Monthly economic reports had been showing a surge in state revenue since May.
Still, the size of the surplus prompted some in the legislature to renew objections to the $1.3 billion, two-year tax increase enacted during the extended 2004 General Assembly. A half-cent increase in the sales tax and increases in the cigarette tax and other fees will take effect Sept. 1.
"You have to wonder whether we really needed that big a tax increase. Some people said that," said House Speaker William J. Howell (R-Stafford), who led the opposition in the House of Delegates to the tax package. " 'Vindication' would be a good word."
Howell said he believes that the state will have surpluses for several years. He said the assembly should have adopted less broad-based tax increases, such as higher taxes on cigarettes and other targeted fees.
"That, together with this surplus, is what we needed," he said.
Ellen Qualls, a spokeswoman for Warner, said the tax package was based on estimates of state tax collections that are in keeping with long-term averages.
"Our fiscal plan was based on economists' projections for the next six years. We'll stand by that," she said. "The last few months of strong economic news is great. It helps us begin to restore our rainy-day fund. It would be the governor's hope that the economy will stay this way until the end of the decade."
State Sen. John H. Chichester (R-Stafford) said he is hopeful, but cautious, about the state's future economic growth. "Were it not for Iraq and the number of unknowns that exist there, I would be more optimistic," he said.
Chichester, who favored an even larger tax plan than the one enacted, said he does not believe that the surplus means the tax increases were not necessary.
"This little, small uptick in the economy certainly would have no impact on what we did," he said. "It would not have dissuaded us from doing what was done. Three hundred million is a drop in the bucket from what we needed."
Most of the surplus came from better-than-expected revenue from the state sales tax, the income tax and corporate taxes.
Allocations of surplus funds will include about $177.5 million to the rainy-day fund, $24 million to the transportation trust fund, $32 million to the State Water Control Board and $26 million to cover costs related to the cleanup of Hurricane Isabel.
After those and other allocations, the state will show a positive balance of $13.1 million going into the current budget year.
© 2004 The Washington Post Company