Is It Wise to Use the General Fund? Answer Could Shape State for Years

By Tim Craig
Washington Post Staff Writer
Sunday, March 11, 2007

RICHMOND -- Throughout the General Assembly session, Republican leaders argued that Virginia could afford to tap its general fund to pay for road and transit projects across the state.

Democrats, including Gov. Timothy M. Kaine, countered that relying on the general fund to finance transportation projects would reduce the money available for schools, health and human services and public safety.

Until there's a serious economic downturn, which rarely happens in Virginia, neither side can really prove whether spending general fund dollars would hurt the state's finances.

But their debate exposes a deep philosophical rift that could affect Virginia taxpayers for a generation. And with all 140 legislators up for reelection this fall, voters are going to be asked to choose between vastly different visions for ensuring that government is adequately funded.

Kaine, who has not ruled out using some general fund revenue to pay for transportation bonds, has vowed to amend a GOP roads plan before legislators return for a one-day session April 4.

Del. Terry G. Kilgore (R-Scott), who helped craft the Republican-backed transportation deal approved last month, explained the GOP position. "We just really believe transportation is a core service of government and we should be spending some general fund dollars on it."

Senate Minority Leader Richard L. Saslaw (D-Fairfax) replied that Republicans are out to "starve government."

"You starve out public schools. You starve out higher education. You starve out health and human service. And this is the down payment for doing just that," he said.

In Virginia, transportation needs have historically been paid out of a separate pot of money derived from a gasoline tax, a portion of the state sales tax and other fees. Money for schools, health care, parks, public safety and other services comes from the general fund, which is supported by money from income, corporate and sales taxes.

The plan approved by the General Assembly last month includes no statewide tax increase, although it would raise vehicle registration fees and fines on bad drivers. It would allow local governments in Hampton Roads and Northern Virginia to raise taxes and fees to pay for transportation needs in their areas.

In addition, the state would borrow $2.5 billion to build highways and mass transit. The money would be paid back over the next two decades by diverting about $150 million to $200 million a year from the general fund.

The yearly payments would equal about 1 percent of the $17 billion general fund budget.

"We don't think it is going to take away from school kids and throw the elderly out in the street," Kilgore said.

But fiscal analysts cautioned that the strategy is risky because the state will be locked into making those bond payments for 20 years, even if revenue declines.

In the short term, few people dispute that Virginia can afford to divert several hundred million dollars annually from the general fund to pay for transportation.

Since the last recession, between 2001 and 2003, state revenue has grown by an average of about 10 percent a year. The growth has allowed the state to invest several hundred million dollars of one-time money into transportation while funding double-digit spending increases for health care, public safety, Chesapeake Bay cleanup and education.

The growth in the budget has been fueled by increasing wealth among Northern Virginians.

For the next five years, revenue growth is forecast to slow to about 5 percent a year. Beyond that, however, the fiscal outlook is murkier. And if a sharp economic downturn occurs, budget analysts worry that the state will be saddled with tough choices.

More than 70 percent of the state's general fund goes toward public education, health and human services and public safety, three areas that are difficult, if not impossible, to cut during an economic downturn.

Because of federally mandated programs and the state's constitutional obligation to adequately finance schools, spending on elementary and secondary education and human services, particularly Medicaid, will probably grow considerably for the foreseeable future, the Kaine administration says.

When revenue declined in the early 1990s, funding for higher education took the biggest hit. The cut forced tuition increases at many colleges and universities.

But Republicans note that such downturns are rare in Virginia. Since 1961, revenue has declined just twice, in 1991 and 2002.

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