Bacon's Rebellion

James A. Bacon


 

Baconometer

Fried to a crisp!

The Horror! The Horror!

 

The Commonwealth is slipping into a budgetary heart of darkness. To save Virginians from themselves, Sen. John Chichester is willing to enchain them with massive tax increases.


 

One of the two of us is quite mad -- either John Chichester or me. Our perceptions of Virginia’s fiscal health diverge so radically that one of us must be seriously unhinged from reality. Now, I will concede that the state senate finance chairman commands a vastly superior knowledge of state budgetary mechanics; I am a mere scribbler. So, when Sen. Chichester says that Virginia must increase taxes by $2.5 billion a year just to maintain essential government programs, the burden rests upon me to demonstrate that he is the delusional one.

 

But hear me out. I believe Virginia is slipping into the heart of budgetary darkness. Sen. Chichester is the Kurtz of the Commonwealth, a brooding presence who through the force of his personality and intellect has enlisted 12 of his fellow senate Republicans to co-sponsor what would amount to one of the greatest -- and most unnecessary -- tax increases in Virginia history. Under the guise of fiscal prudence, he will foist upon our state a tax burden which will, if not reduce the natives to destitution, leave them very much the poorer.

 

Mr. Chichester, I will argue, may see small details with penetrating clarity. But he cannot see the rain forest for the trees. Obsessed by a perceived structural mismatch between Virginia's needs and its revenues, he believes that vital state functions – education, transportation, health care, public safety – are under-funded and at risk of crumbling. Convinced that state government has cut all it can cut, he is committed to raising taxes.

 

I believe that Mr. Chichester is seriously, dangerously wrong – so wrong that he is the single greatest threat to Virginia’s welfare. If we capitulate to his tax scheme, we abandon the hope of achieving our goals by streamlining government and expanding the tax base through economic growth. Surrendering to Sen. Chichester's vision means living with the status quo. If he reigns unchecked, government gets bigger, not more efficient.

 

Virginia cannot afford such a government. To compete in a tumultuous global economy, our businesses and structures of government must innovate relentlessly. We must continually strive for greater efficiency and superior productivity. Raising taxes is the easy, intellectually complacent solution – the solution of unimaginative minds. By raising taxes, we dampen economic growth. By raising taxes, we choose inertia over dynamism. By raising taxes, we settle for a long, slow slide into oblivion.

 

Yes, I may be the one who is barking mad for uttering such thoughts. But hear me out. I base my resistance to tax increases on four propositions:

 

  1. Thanks to stronger-than-forecast economic growth, Virginia will carry over a larger surplus and have a broader tax base than forecast by Gov. Mark R. Warner – and, I presume, Sen. Chichester himself -- in his proposed 2005-2006 budget.

  2. The Warner administration already has implemented reforms which should start yielding significant savings within the next biennium, and even greater savings in later years. These savings do not appear to be reflected in anyone’s budget forecasts.

  3. Opportunities exist to improve government efficiency through reforms neither Gov. Warner nor John Chichester are contemplating.

  4. Opportunities exist to improve efficiency through radically rethinking how government services are delivered.

Economic Growth

 

The Warner administration based the current, fiscal 2004 budget on the assumption that General Fund revenues would grow by 4.6 percent. According to the secretary of finance’s December 2003 monthly revenue report, the administration now is projecting 6.7 percent revenue growth. That means Virginia is on track to run up a surplus of approximately $250 million this year.

 

Secretary of Finance John Bennett has built equally conservative assumptions into his budget forecasts for General Fund revenues for the next two years. Under a no-tax-increase scenario, revenue growth looks like this:

 

Fiscal 2005 – 5.3 %

Fiscal 2006 – 5.1 %

 

These rates of growth represent a deceleration from this year’s growth, even though Virginia, like the nation as a whole, is in the expansionary phase of the business cycle. These estimates also are much lower than rates Virginia experienced during the last economic expansion, which reached levels --  admittedly unlikely to be repeated -- of 14.7 percent in 1999 and 11 percent in 2000.

 

However, there is a good chance of seeing better-than-anticipated revenue growth in 2005. In just the past month, economists have revised their growth forecasts sharply upward. The Warner budget for fiscal 2005 is predicated on real growth in domestic product of 3.8 percent. The Conference Board Economic Forecast has projected that U.S. growth could reach 5.7 percent this calendar year, which overlaps six months with Virginia’s fiscal 2005.

 

In a $12 billion budget, every extra percentage point of revenue growth translates into $120 million. If the Warner administration has underestimated near-term economic growth –- based as it was on now-obsolete information -- Virginia could run up hundreds of millions of dollars in unbudgeted revenues over the next two years. Combine that with this year’s mounting surplus, and the state could be staring at $500 million to $750 million additional revenue for the biennium.

 

John Chichester has access to this information. He knows that revenues are growing faster than forecast. But he hasn't modified his gloomy prognosis.

 

Reforms in Place

 

In December 2002, the Governor’s Commission on Efficiency and Effectiveness, better known as the Wilder Commission, identified $750 million annually in potential savings that could be achieved by closing outdated programs and reforming administrative processes. The Warner administration has implemented many of the ideas outlined in the Wilder Commission report, bringing about genuine economies in government.

 

Strangely, Gov. Warner declined to take note of any significant savings when submitting his 2005-2006 budget to the General Assembly. Nor, to my knowledge, has Sen. Chichester commented upon the anticipated gains from these efficiencies. Yet these are achievements that all Virginians should be celebrating.

  

Last summer, Secretary of Technology George Newstrom estimated that consolidating state IT functions into a single agency, the Virginia Information Technologies Agency (VITA), would squeeze $100 million in savings from state expenditures on information technology expenditures by 2005. In a recent speech to the Greater Richmond Technology Council, interim VITA director Cheryl Clark confirmed that the administration expected to save $10 million in the current fiscal year. The savings should mount as the consolidation of larger agencies proceeds over the next two years.

 

VITA is not willing to commit to a specific cost savings number in 2005 and 2006. But if Newstrom achieves the goals he set nearly two years ago, the Commonwealth soon should be reducing its IT costs by $70 to $80 million a year.

 

Meanwhile, Secretary of Administration Sandy Bowen has pushed through extensive procurement reforms, and has overhauled the way the state manages its far-flung real estate assets. (See "The Rest of the Story," Sept. 8, 2003.) The Department of Mines, Minerals and Energy, under Secretary of Commerce and Trade Michael Schewel, has begun implementing energy conservation plans in state facilities. The administration has released no estimates on how it expects to save from these initiatives, but anecdotal information suggests that the numbers could be significant.

 

Recent successes include:

 

  • The state has awarded a $10 million contract, potentially worth $250 million, to MCI to provide advanced voice, data and Internet communications for the Commonwealth of Virginia Network initiative. The state expects to shave its annual telecommunication costs by 12 percent -- a multimillion-dollar savings each year.

  • The state has granted telecommunications giant Sprint a contract to deliver online educational content through its Empowered Education Desktop solution. Under the contract, Virginia schools no longer have to maintain software content on the desktop computer in the classroom or on facilities-based servers, helping them defer significant hardware, operating software, distribution, support and maintenance costs.

  • The Virginia School for the Deaf and Blind has hired an Indiana company to improve steam, hot water, lighting and energy management services. The $1.9 million project will replace old energy infrastructure with new equipment, improving efficiency while improving comfort to students and staff. The public-private partnership, said Superintendent Nancy Armstrong, "will produce an energy savings over time. It will provide us with a reliable and more controlled heating system, it will be easier to project an accurate budget since we will not be faced with an unknown infrastructure and it will improve lighting in the classrooms and dormitories."

The Warner administration has done little to tout its own successes. In each case above, it was the contractor who issued a press release announcing the project. However, reforms are clearly rippling through state government and beginning to generate tangible savings.

 

How much will efficiencies add up to by 2005 and 2006? $100 million a year? $200 million? The Warner administration has not calculated a number – or, if it has, it hasn’t chosen to make the information public. It baffles me that Gov. Warner is not trumpeting these triumphs, which are among the most concrete accomplishments of his administration.

 

But my quarrel here isn’t with the Warner administration, which should be commended for its diligence. My gripe is with Chichester. Read his Aug. 5, 2003, speech to the Virginia Foundation for Research and Economic Education: Reciting a litany of under-funded obligations -- for schools, for higher education, for roads, for Medicaid -- he argues that taxes must be raised. The unmet needs are real enough. But in that speech, he never once explores the option of generating savings through gains in productivity.

 

Chichester should be working with Warner to maximize government efficiency instead of plotting how to raise taxes. He should be saying something like this: “Governor, you’ve done a great job modernizing procurement, information technology, energy conservation and real estate management. We look forward to reaping the benefits from your creative thinking. Here’s what I need from you now: Set specific goals and timetables for achieving measurable savings. Your budget needs to reflect those efficiencies. We’re going to take $200 million this year and $300 million next year and invest it in our schools.”

 

"By the way, governor, you know those tax hikes we were talking about? Thanks to your great work, that's $500 million we won't need to raise in the next two-year budget."

 

Am I crazy for imagining such a thing? Or is Sen. Chichester deluded for not imagining it?

 

Additional Process Reforms

 

In 1996, VMS, a Richmond-based company that pioneered the concept of privatized highway asset management, contracted with the Virginia Department of Transportation to maintain 250 miles of Interstate highway. A recent Virginia Tech study confirmed that the outsourcing arrangement saved nearly $19 million over the five-and-a-half year life of the contract, or about 12.5 percent.

 

VDOT was happy enough with VMS to renew the contract but, inexplicably, did not seek to extend the concept to other Virginia roadways. VDOT may be standing still, but VMS isn’t. The company has lined up a dozen more road-maintenance contracts with South Carolina, Utah, Texas, Alaska and Washington, D.C. Obviously, other people get it even if our political leaders in Richmond don't!

 

It’s one thing for VDOT officials to move cautiously: Privatizing road maintenance across the entire state could require wrenching organizational change. But you’d think Sen. Chichester, who agonizes over the escalating expense of maintaining Virginia’s roads, might explore the privatization option. In fiscal 2005, VDOT expects to spend nearly $1.2 billion maintaining Virginia’s road network. If VMS-scale efficiencies of 12.5 percent could be applied across the entire system, the state would save $150 million a year to apply to new construction.

 

There are more savings where that comes from. In contrast to the senate's fixation on raising taxes, Republicans in the House of Delegates have organized a Cost Cutting Caucus. Del. Chris Saxman, R-Staunton, has expressed the caucus’ philosophy this way: “Create a state government that does the best work possible at the lowest cost possible. ... Government reform isn’t a one-time thing, but an ongoing mission. When taxpayers send their hard-earned dollars every year to the state government in Richmond, they rightfully expect that their tax dollars will not be spent on unnecessary, duplicative, or out-of-date things, but rather will go to provide the essential services they need without the waste they do not.”

 

House caucus members have submitted a slew of bills addressing new ways to control costs. Do a better job of collecting debts. Encourage outsourcing of professional services. Give universities more flexibility in entering into construction contracts. Solicit private-sector proposals to modernize business systems like finance and human resources. And the list goes on.

 

Am I the one who is mad? Do I stumble towards a mirage? Or is the true madman the one who cries that he is thirsting yet does not sip the water in front of his very eyes?

 

Radical Restructuring

 

According to General Assembly estimates, the Commonwealth has been under-funding its colleges and universities by some $230 million to $270 million a year. The only solution, according to the blinkered mentality of the state senate, is to shovel more state dollars into the colleges by raising taxes.

 

Perhaps that's true if the goal is to support the colleges and universities. But what if we redefine the goal to be helping Virginians acquire a quality college education for an affordable price? What if the state didn't pay the colleges but stroked checks instead to the in-state students attending those colleges? Might that introduce new dynamics into the system?

 

Robert Archibald and David Feldman, two College of William & Mary professors, think so. Making the case for a "new compact" between the state, public colleges and the citizenry, they write: "Virginia’s state universities would have a stable revenue stream. Over time they could fully fund themselves, and do it without pricing qualified students out of the market. List-price tuition indeed would rise, but so would financial aid, governed by state-

determined need.” A host of benefits would flow from the arrangement, including better long-term planning and greater economic efficiency, the professors argue. (See “A New Compact,” December 1, 2003 )

 

The "new compact" would address the needs of the citizenry, it would meet the needs of the colleges and universities. But Archibald and Feldman ignore one crucial factor: Their proposal would not meet the needs of the General Assembly overlords who treat university presidents as supplicants, deriving power and status from brokering the distribution of state funds among them.

 

The Old Dominion has shown a similar phobia against tinkering with the structure of its K-12 system. Virginia has among the fewest charter schools of any state in the country. Vouchers haven't even entered the public discourse. The prevailing mentality is to hold school systems accountable through standardized tests and tougher audits. The entire approach is centralized and hierarchical; it discourages experimentation and innovation. For a state that supposedly reveres the free market, state senators see precious little need for it when it comes to education.

 

One popular definition of madness is, when something doesn't work, keep on repeating it until it does. Is K-12 education still failing us? Feed more money into the system. And more. And more. But never require the system to change.

 

Anyone who reads Bacon's Rebellion knows that we have systematically explored alternatives to "the way we've always done it." Is traffic congestion getting worse? The knee-jerk reaction is to build more roads. But is that the only solution? How about using technology to increase the capacity of the roads we have, or to spread motorist demand for roads over longer periods of the day? (See "Demand Side Economics," Oct. 20, 2003.)

 

Better yet, let's address root causes: Roads are congested because Virginians are driving more -- and they're driving more because the scattered, low-density pattern of development in Virginia forces people into their cars to travel greater distances between destinations, whether they're driving to work, running an errand or going out to dinner. (Read any of Ed Risse's columns in The Shape of the Future, published on Bacon's Rebellion.) I don't hear Sen. Chichester broaching the subject of land use reform. Raising taxes is easier.

 

The Kurtz of Joseph Conrad's novel, Heart of Darkness, had come to the Congo to rescue it from barbarism. But in the name of saving its people, he subjugated and plundered them. Likewise, John Chichester wants to save Virginians from themselves. Benighted heathen from Abingdon to Zuni cling to their meager earnings. But Sen. Chichester knows better than they. He will to bring them out of the darkness. As cringing, mincing favor seekers line up outside his office door, the lord of Stanleytown on the James will build roads, fund schools and enlarge colleges, even if it means raising taxes to unprecedented levels.

 

For such a man, the facts don't matter. The only reality that counts is the fevered vision dancing inside his brain. I ask you again, who is the madman -- the writer or the politician?

 

-- February 2, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fire back!

 

You can berate Bacon at jabacon@

baconsrebellion.com

 

Or read his profile here.