08.25.2010 0

Virginia Is Not for Surpluses

In an editorial published in yesterday’s Wall Street Journal titled “Virginia is for Surpluses“, the Wall Street Journal argues that the leadership shown by Virginia Governor Bob McDonnell is a perfect example of how our leaders in Washington, D.C. should conduct business.

The Wall Street Journal said:

The usual suspects—the big business lobbies, the Washington Post—thought a major tax increase was needed. So did the previous Governor, Democrat Tim Kaine, who proposed a $2 billion tax hike before he left town, on top of two major Virginia tax increases in the previous eight years.

Mr. McDonnell has proved otherwise. The newly elected Republican put a freeze on hiring and took the knife even to such politically sensitive programs as school aid, police and Medicaid to cut hundreds of millions of dollars. Total state spending has been reset more or less to 2007 levels. If Congress were to do that, the federal deficit could fall by more than $900 billion, or two-thirds.

It’s true that Richmond used too many budget tricks to make the surplus appear larger than it really is. Sales tax payments were accelerated by one month to count in 2010 rather than 2011. Several hundred million dollars were borrowed from the public-employee pension reserve—money the Governor promises to repay by 2013. Most fiscal experts think the real surplus is closer to $87 million. But given the lousy economy, Virginia’s budget achievement is laudable.

While admitting that McDonnell and his cohorts in Richmond did indeed employ budget gimmicks that are far from what we need happening at any level of government, the surplus from McDonnell is largely built around an increase in taxes and fees. For some reason, the Wall Street Journal missed this very important nugget of information.

Let’s begin with the accelerated sales tax payments. Under a new provision, Virginia retailers that gross at least $1 million in sales annually pay an advanced month of sales tax payments to the state. These payments for an additional 13th month are included in Virginia’s fiscal year revenue estimates. This will continue over the next 5 years. Oddly, the amount of the original surplus that the McDonnell administration reported mirrored the amount of the 13th month of sales taxes that were collected.

The also now-common lie that is told about the McDonnell administration is that he created this surplus without raising taxes. This is quite far from the truth.

I’ll let Norm Leahy from Tertium Quids explain this part as he did it best in July:

The Governor’s office has issued a press release that repeats what has become a familiar, if deeply misleading, theme:

“When I took the oath of office, we faced a $4.2 billion budget shortfall, unacceptably high unemployment and a country deep in a recession. Bipartisanship was needed, and I am pleased to say, we were successful. By working across party lines, we passed a balanced budget that didn’t raise a single tax on the backs of hardworking Virginians—a pledge I made during my campaign for governor.”

While general taxes weren’t raised, more than $95 million in new fees were embedded within the budget, as were such gimmicks as requiring retailers to pre-pay a month’s worth of sales taxes — in essence, requiring store owners to float the state an interest-free loan for 30 days. And those prepayments will continue through 2013.

Even Virginia FREE took umbrage at this and the other fantastic tax tales in what the Governor continues to insist is a no tax-hike budget, including the tax hike on manufacturers:

“The public policy decision involved in this de facto income tax increase extends beyond the tax itself. How will Virginia continue to rank as the #1 State for Business when it embeds an income tax increase in a budget bill where little debate or sunshine will ever reach the issue? This action alone represents for many the fiscal maneuvering in Washington, D.C. today that is inspiring a nationwide grass roots reaction to Congressional actions. Companies, partnerships and individuals that depend upon stable tax policies to create and retain jobs have diminished trust in the Virginia legislature because of this process.”

Their angst is only getting started…

“Similar examples of legislating by the budget were all too common in this year’s session. Notable tax policy embedded in the spending blueprint included elimination of the dealer discount and adding back the accelerated sales tax on retailers. In the case of the accelerated sales tax payment mandate, the Commonwealth effectively borrows cash from retail businesses without compensating them. Elimination of the dealer discount would require retailers to collect and remit sales taxes for the Commonwealth without compensation. Numerous fee increases also quietly made their way into the budget after failing to win approval in the normal legislative process. Examples include hikes in hazardous and solid waste permitting fees offered in SB 234 and SB 235. Both bills were tabled in House committees, but the fee increases were subsequently written into the budget. Massive court filing fees entailed in SB 329 offer yet another example of this breach of accepted procedure.”

Their conclusion was quite damning:

“Changing the tax and fee “rules of the game” by writing policy into the budget without debate is legislative sleight of hand. It is intended only to circumvent the legislative process and shield lawmakers from public scrutiny.”

Yes, it is. And when Del. Bob Marshall raised the issue during the budget debate, he was met with stony silence.

Bring all of these threads together and what we have is a Governor who isn’t just shading the truth about taxes. He’s lying. And the lie is getting bolder with his declaration that “we passed a balanced budget that didn’t raise a single tax on the backs of hardworking Virginians.”

The legislative record clearly demonstrates otherwise, Governor. Time to fess-up.

While the WSJ recognizes that the McDonnell administration and the General Assembly used budgetary gimmicks, they failed to recognize the harm that such gimmicks produce. For instance, they point out that the General Assembly did not make payments into the Virginia Retirement System–a fund that desperately needs to be funded or else the system will collapse causing mayhem. With the economy on edge, no one knows what kind of revenue will be there to make up for missed payments in coming years.

The McDonnell administration has chosen a smoke and mirrors campaign based on reported “surpluses” that further cloud the true situation Virginia faces. When you look at what Virginia owes to funds that they have underfunded, you will find that Virginia does not have a “surplus”.

McDonnell’s policies in Virginia are just as suspicious as those being prescribed in Washington. Americans would be just as ill served as they currently are if they were to adopt the Bob McDonnell playbook.

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