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The
4.6 percent number being used by Gov. Mark R. Warner
didn't get much attention last week, and this is
understandable. The press and political attention
was instead focused on a far bigger and more
exciting number: $525 million. The State Board of
Education and the chief investigative agency for the
General Assembly have been talking about this number
in recent months, as has this author since last
year.
The
$525 million number -- or more precisely, the
failure of the state to provide this $525 million --
has been a burr in the saddle of local education
leaders. By law, the state of Virginia has promised
to provide a certain level of basic education aid to
our counties and independent cities, the precise
amount given to each jurisdiction determined by the
equations under-girding the Standards of Quality.
The SOQ's reflect the state's estimate of what it
takes to fund a minimal level of education
excellence for our school children.
The
State Board of Education calculates that the current
budget under-funds state education aid to localities
by $525 million at a minimum. The chief
investigative arm for the General Assembly, an
entity run for the Republican majority, agrees. The
State Board of Education believes the true shortfall
is closer to 1 billion, based on its own view of
what the state should contribute towards educational
excellence. The General Assembly's watchdog doesn't
go that far, but at the same time, its latest report
doesn't completely dismiss the Ed Board's point of
view either.
Bottom line: Everyone agrees the current budget
fails to keep the state's promise on this education
issue. The debate is over the size of the
shortchanging.
Enter then Gov. Warner, announcing last week his
"Education for a Lifetime" proposal. The
budget he will present in January of 2004 will be
the first biennial one constructed from scratch by
his administration. So naturally -- at least to this
writer who has written several articles on the
shortfall issue -- Warner doesn't want to be
proposing new things at the same time his budget
will fail to keep the most basic education promise.
He is likely to see this budget as a defining
document, telling people what he wants to do. Other
governors have felt the same way.
Thus, last week, I was bemused to find the reporters
and pundits so surprised at what they thought was
Warner's "surprise" announcement that he
would include this extra $525 in his January budget
submission. Admittedly, because the governor will be
proposing a two-year budget, it is not clear whether
he intends to put the full amount in the first or
second year, the latter not concluding until he
leaves office. Mr. Warner left the details vague,
including where he would find this new huge pile of
money.
But as I see it, he had reason to keep the details
vague for now. This is not a matter of him failing
to do his homework. Rather, it may be a case of him
not wanting to open-up his back-to-school backpack
because he doesn't want to have to deal with the new
math right now.
Why?
Because I believe he may have reason to be more
concerned with the 4.6 percent figure, not the $525
million figure.
I say this because of a little-noticed provision in
Section 58.1-3524 (C) (2) of the Code of Virginia.
This provision figured prominently in my proposal
early this year, discussed right here at
baconsrebellion.com ("Putting
K-12 First," January 6, 2003), for a
"Put K-12 First" law. To be honest, I
never did get the governor, the lieutenant governor
or the Democratic members of the General Assembly to
get behind this measure.
But
if that 4.6 percent number in the Governor's speech
to the General Assembly money committees is still a
real one, then maybe I know why the governor seems
as if he may be moving to embrace the "Put K-12
First" law, though in his own way.
What
am I talking about?
The
little-known provision in (C) (2) refers to the key
trigger in the law deciding whether or not the
current 70 percent phase-out of the local property
tax on cars is raised to 100 percent, the goal of
candidate Jim Gilmore in 1997 and now written into
the Code of Virginia in Section 58.1-3854 et. seq.
The (C)(2) trigger says that this coming December,
Gov. Warner has to tell the General Assembly his
forecast on how much state budget revenue will rise
year over year. The actual language in this part of
the car tax law is written in negative language, as
it is supposed to indicate when the next phase of
car tax repeal will not take place, the law
assuming each phase will take place as promised
unless the negative trigger is met:
"The
general fund revenue forecast provided by the
Governor in December pursuant to § 2.2-1503
indicates that general fund revenues, excluding
transfers, for any fiscal year will be less than
five percent greater than general fund revenues
for the immediately preceding fiscal year."
Now
Governor Warner has made it clear -- we wrote this
point into his campaign platform -- that he would
present honest forecasting figures to the General
Assembly and the people, something that former Gov.
Jim Gilmore did not always do, at least in my
opinion.
Right now, the governor has said he is sticking with
a 4.6 percent growth prediction, and sees no reason
to lower it. His exact words are worth quoting:
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On
the surface, this would seem to suggest he believes
it is more likely the 4.6 percent number will have
to be revised downward, not upward. But we also know
Wall Street is now predicting a more robust recovery
for the national recovery, in terms of Gross
Domestic Product, than was previously thought. Given
Virginia's tax structure, a better-than-expected
national recovery could easily produce a better than
currently projected rise in tax revenues.
Moreover, the 2004 fiscal year contains the untried
Tax Amnesty program, something that could easily
produce far more revenue than currently imagined.
Then, of course, you have the unexpected windfall of
a unrestricted federal grant dispensed to all the
states, which, in terms of the car tax law, may or
may not have to be counted as revenue for purposes
of that code section, depending on your
interpretation of state law and precedents.
The bottom line: Right now, it is surely possible
that none of the negative triggers in the car tax
law will apply, as the 4.6 percent figure might grow
to 5.1 percent or higher for any number of reasons,
especially if President Bush is finally right and
the economy does take off and actually produce some
new jobs.
Should this occur, it is then easy to see the
dilemma facing Gov. Warner.
While he is out around the state talking about doing
more for schools, back in Richmond the car tax
repeal law is saying that the next state budget must
include upwards of $600 million to $800 million, and
perhaps more, to finally provide 100 percent repeal
of local car taxes on vehicles worth $20,000 or
less.
But you ask: Couldn't the General Assembly and the
governor change the law next year, or simply refuse
to put the new car tax money into the next budget?
Yes, they have that power. Indeed the possibility of
such a retroactive change is contained in 58.1-3542
(e)(1-2b). But their hands might be tied by the time
they get back to Richmond next winter.
As I read the Gilmore/Chichester law, some
localities and car taxpayers, based on how they
administer their own local property tax assessments,
may actually have a colorable legal case claiming an
enforceable right to receive 100 percent
reimbursement for that levy as of January 1, 2004,
far earlier than the General Assembly can possibly
act on changing the car tax statute without a
Special Session. While Virginia Supreme Court
precedent, in the case of Goldman v. Lansidle, may
deny individual citizens standing to sue, this would
only put immense pressure on their respective
localities to sue on their behalf, thus setting up a
nasty political fight, the kind incumbent
officeholders always try to avoid.
So even if there is the political will in the
General Assembly to keep the repeal at 70 percent,
the pressure from constituents will be immense.
Localities will be pleading the case for their
residents, who stand to save the $600 million to
$800 million by not having to pay the extra 30
percent. Since the localities get the same amount of
money either way, they will have no choice but to be
advocates for their taxpayers.
Moreover, I would expect the pressure from the GOP
base to be equally strong on General Assembly
members.
Finally, the spectacle of our lawmakers either
breaking the law or changing it ex post facto to
suit their political whims when they are not
actually disputing the governor's December forecast,
is not an example aimed at inspiring our children to
respect either the law or the government.
Net, net: If the car tax law, as currently written,
triggers a 100 percent repeal this December, the
governor will be faced with two political
firestorms, one from car taxpayers and one from
local educators for the same pot of new tax
revenues.
Now
this column has come full-circle, back to my Put
K-12 First" law and the reasons behind it. It
has long been clear to me that under foreseeable
revenue assumptions, the state would not have
sufficient resources to both fully fund education
and fully fund 100 percent car tax repeal in the
same year anytime in the near future.
People didn't believe it when I first made the claim
(See "Fiscal
Straight Jacket," June 2, 2003.) But surely
the recent move by Moody's to put Virginia on
"Credit Watch," an unprecedented action
during a time when state revenues are supposed to
grow by at least 4.6 percent, demonstrates that the
structural problems are growing to the point where
we cannot keep all these promises, and surely can no
longer afford more political ones aimed at helping
people get elected while sticking my son and his
generation with the bill.
Eventually, state revenues will grow at least 5.0
percent year over year -- the average rate of
revenue growth by historical standards.
So sooner or later, the irresistible force of being
able to say that you made good on the state's
promise to fully fund education will meet the
immovable object, the state's promise of 100 percent
car tax repeal.
Enter, then, the "Put K-12 First" law,
intended to head off this huge political and fiscal
dilemma. The law is simple, saying that Virginians,
as a people, know they have to put their priorities
in order. The commitment to fully fund education
preceded the car tax promise. The failure to provide
this basic state aid also drives up local property
taxes, and shortchanges children in rural areas.
Moreover, Gov. Gilmore pledged that he would never
ask the General Assembly to choose between education
money and car tax repeal money.
Thus, the Goldman law makes it clear that Virginia
will commit itself to meeting it's educational
promise to rural areas specifically, and school
children generally, before going to 100 percent car
tax repeal.
It says 100 percent repeal will happen -- the
governor and I support that -- but only after we
first keep first promises.
As state revenues grow faster than 5.0 percent, Gov.
Warner knows that sufficient monies will be
generated to fund either 100 percent basic
educational aid or 100 percent car tax repeal, but
not both anytime soon.
The final car tax phase-out might kick in by 2004:
it is likely to happen by 2005 when the Bush jobless
economy and recession will surely be history.
So, by the 2005, the car tax is almost certainly due
to reemerge as a defining statewide political issue
in a gubernatorial contest, right in the middle of
the Governor's budget document. In fact, the car tax
law says that on December 2004, Warner may
have to announce that revenues are projected to grow
at least 5 percent for the fiscal year, meaning the
2005 General Assembly Session will be compelled to
put 100 percent car-tax repeal money in the new
amended two-year budget that will be passed in March
as the Governor's race begins to heat up!
In my view, and in his own way, Gov. Warner is
anticipating this situation.
Of course, perhaps I am reading too much into what
he has been saying, as can happen when you believe
you have a sound idea that can help the school
children of our state.
And
yet, there is one final political and fiscal trigger
to be discussed: If the state funds the governor's
education plan with new taxes it will produce an
increase in General Fund revenues that could tip
revenue growth over the 5.0 percent point and
trigger the 100 percent car-tax phase-out.
The
politicians, educators, editorial writers and other
advocates of higher taxes need to re-read 58.1-3542.
Maybe they have a plan
to keep the new money from being considered in the
calculations of General Fund revenue growth, but I
haven't heard it.
I remain convinced that the "Put K-12
First" law can do just that, and, at the same
time, help start the process of getting us off
"Credit Watch" by making it clear what our
priorities are going to be in terms of responsible
use of state revenues.
--
September 8, 2003
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