Gov. Mark R. Warner (D) said Monday that he will use money from the state's unexpected budget surplus to accelerate an income tax break for virtually all Virginia families.
Addressing a joint meeting of the General Assembly's committees responsible for crafting the state budget, Warner said the commonwealth's $324 million surplus -- fueled by higher-than-expected tax collections during the latter part of the fiscal year -- will let him begin the break Jan. 1, 2005, instead of a year later.
"This change will provide each family of four with $400 of income free from state income tax, beginning with paychecks they receive in January," Warner told a packed room of lawmakers, lobbyists and state officials.
The tax break, which will increase the personal exemption by $100 for each state income tax payer and each of his or her dependents, will cost the state $28 million. It was approved by the General Assembly's spring session. The personal exemption will become $900.
The $1.4 billion in new revenue that also was approved will come from increases in the state sales and cigarette taxes as well as several state fees, which will take effect Sept. 1. Meanwhile, taxes on food and on income will be slashed.
The tax plan is part of the state's $60 billion budget that took effect July 1. Additional revenue will be spent on public schools, higher education, public safety and health care.
Lawmakers agreed with Warner's decision and applauded him for not initiating new programs with the surplus.
"It was the prudent thing to do," said Sen. John H. Chichester (R-Stafford), chairman of the Senate Finance Committee, who supported this year's tax plan.
Warner's appearance before the Senate and House finance committees and the House Appropriations Committee to report on the state's economic health is an annual affair, but it was the first time the governor has faced the Republican-controlled panels since some members raised questions this summer about the need for new taxes in the face of Virginia's improving fiscal health.
Others have accused the Warner administration of withholding information to push its tax plan, or at best, doing a poor job of economic forecasting. Administration officials have said that the tax package was based on estimates of state tax collections that are in keeping with long-term averages. They also have pointed out that House members were privy to the same information about the state finances as were administration officials.
That didn't stop tax-plan opponents -- who during the tax debate predicted that a surplus was coming -- from mentioning their skepticism and criticism again.
"With a surplus of $324 million and the [$750 million] tax plan the House offered this year, I think we would have been right where we needed to be" without the tax increase that passed, said House Majority Leader H. Morgan Griffith (R-Salem), who helped lead the unsuccessful fight against the package. "We fought. We lost. But that doesn't mean we don't have the right to say, 'I told you so.' "
Warner anticipated attacks from anti-tax Republicans and defended his push for more state revenue, which he said will have "real" and "tangible" impacts. "Nothing that has occurred since [May] has shaken my firm view that our decisions were sound. Our actions were necessary, and the long-term effects will be positive for Virginia," he said.
Warner also told the several dozen lawmakers that in accordance with the state constitution, most of the surplus will be placed in the depleted rainy-day fund. He said the fund should reach $616 million by 2006.
Warner also said he will direct $23.8 million in sales tax collections to the Transportation Trust Fund for use in highway projects. He said, however, that the additional money was only a token toward meeting the state's overwhelming needs.
When asked if he would push for a comprehensive transportation package next year to put more state money into roads and public transportation, he said he had not decided.
"I'm going to be talking with legislators," Warner said. "Clearly we also have to figure out how we're going to pay for the needed transportation improvements."
Several lawmakers said that transportation would have to be addressed next year, even if it is part of a long-term strategy to address infrastructure needs from Northern Virginia to Southside.
But others said that it would be difficult to pass a transportation package that resembled the tax increases passed in May.
"A gas tax increase isn't going to make it," said Vincent F. Callahan Jr. (R-Fairfax), chairman of the House Appropriations committee. To address transportation, the state will need to raise at least $500 million a year, he said. "But we are going to have to find some dedicated revenue from somewhere to solve the gridlock that's only going to get worse."