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Not as bad as next year


Column by David Reynolds
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Last time we painted a bleak budget picture, saying that this year’s public budgets are worse than last year’s, but not as bad as next year’s. In my old Washington Bureau of the Budget days it allowed us to put away the usual governmental garbage that we have never traveled down this road before.

The picture is bad everywhere, for some places worse than others. Revenues will continue to be down and our budget pains will remain.

Virginia is no exception. In October 2009 state revenues were down 8 percent from a year earlier. That is the 15th month in a row and 19 out of the last 24 months that comparable general fund receipts have been down. This means that our commonwealth – while better off than most states – still needs to collect $9 billion over the next eight months just to meet recently revised revenue targets. With a 45 percent increase in tax refunds paid out in October that means a 14 percent revenue shortfall. Plus Medicaid costs are growing. And if ObamaCare becomes law, it will become another budget back breaker. That’s the dark picture.

Of course, there are two ways to skin this growing governmental cat. One approach is to enact a whole host of new taxes and increase the rates of existing ones. One academic, pessimistic liberal (excuse the redundancy), James Regimbal from the Cooper Center at the University of Virginia, predicts that the upcoming 2010-12 biennium will be so bad that there is no other choice.

There are always choices, as conservatives like to say. Broadening the tax base, expanding the economy and shifting program priorities are three for starters. It’s not bad medicine. There are no negative economic side effects. Taking good medicine means making real choices. Which state and local programs does the electorate consider essential? And is there a better and fairer tax structure?

There are answers to these questions. Therefore Richmond can straighten out its own house. That can’t be said about Sacramento or Trenton. California and New Jersey are in too big a hole for digging out.

Let’s start by improving our state income tax. Virginia’s is non-progressive, having only three small steps. If we add a fourth, i.e., 6.5 percent above $100,000, revenues would increase. And we would have a more equitable structure for funding two-thirds of Virginia’s general fund budget.

As for broadening the tax structure, how about taxing services along with product sales? After all, America and Virginia is primarily a service economy. If we do, the current 5 percent sales tax on goods could be lowered to 2-3 percent and bring in the same revenue!

Of course, our vital transportation system should be paid for by its users. Higher registration fees plus a few pennies hike in the gas tax should return us to the efficient movement of goods and people. If this is too much a hike for those fiscal conservatives who never met a tax they liked, phase them in and/or index increases with inflated dollars.

Back to budgeting. How to do it in bad times? That’s easy. The same as in good times. Combine both by eliminating annual budgets! After all, what is a year? The time it takes for the earth to revolve around the sun. Does that make any sense for budgeting? But we do! If we insist on using astronomy as the basis of our budget cycles – which are far shorter than our business cycles – then how about four revolutions around the sun? It’s a nice political number. But more importantly is the fact that the longer your budget horizon, the greater is your control over non-discretionary spending. Given sufficient time you can always meet your budget goals.

Larger rainy day funds or budget reserves would also help, but Republicans and Democrats can never seem to agree on when it is raining. Maybe there could be an official state meteorologist who could decide.

Are you listening, Gov.-elect McDonnell? You campaigned on a jobs platform. You have four years to pull it off. A four year – not two – budget outlined in your Inaugural Address would wow us. Don’t listen to me. Follow Mr. Nike’s advice. Just do it!

Only I’ve got bad news for you. Forget it. None of the above will ever take place. As a result local government will bear the brunt of the recession and its reduced revenues. It will go like this. One day Beijing will tell Washington that it is calling in its marker. This will force Washington to reduce its gambling debt by cutting off grants and aid to the states. Of course, all unfunded mandates will remain. The states in turn will tighten the spigot of money going to its localities, principally school aid. And Virginia’s hand-cuffed counties and independent cities will have no where to turn. Not even an income tax to increase.

Sorry to end on such a sour note. But I have good news! As we start to hammer out our local 2010-11 budgets, remember that it will not be as hard as knocking together those 2011-12 budgets.



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