Don't
be surprised if you soon see a white flag waving
from atop the Richmond memorial to Virginia's
Revolutionary War heroes. Gov. Mark R.
Warner, many in the General Assembly leadership,
and their Virginia Chamber of Commerce allies are
on the verge of doing something no previous
generation of Virginians would have tolerated:
Using a statement by the Moody's bond-rating
agency as a political threat to force a
billion-dollar general tax increase upon the
working families of the Commonwealth.
So
much for "No Taxation Without
Representation."
Moody's,
as you undoubtedly know, has put Virginia on
"credit watch" for a possible
downgrade of its AAA bond rating. Those
demanding the biggest general tax increase in
state history quickly turned Moody's into the
Freddie Kruger of municipal finance. The scare
tactics have overcome people who surely should
have known better.
For
example, House Finance Chairman Harry Parrish,
R-Manassas, a respected legislative veteran who
introduced the governor's tax plan in the House,
said the following, according to the Potomac
News:
"Manassas
Delegate Harry J. Parrish, R-50th, said without
the AAA bond rating, Virginia would pay $1
billion more in debt payments per year."
Del.
Parrish surely knows Moody's never said anything
of the sort because it's untrue. The governor
knows this kind of thing is a pure,
unadulterated scare tactic, being spread by the
High Tax high-pressure campaign.
At
the same time, Del. Parrish has revealed more than
he realized. To understand the significance, it
helps to recall the background.
First,
last summer Gov. Warner had a private chat with
Moody's. This was normal. He said no quid-pro-quo
was exchanged on the tax issue.
Then,
in conjunction with lobbyists and other political
insiders -- the general public was kept in the
dark during this whole process -- the Warner
administration developed and then sprung on
the state a plan for a billion general
tax increase which it said was necessary to "protect
the state's triple-A rating."
Third,
Warner and others crisscrossed the state, leaving
the impression that Moody's wanted an extra
billion in the next state budget -- or else
it would downgrade our bond ratings. Indeed, when
asked the other day about Moody's, the governor
said he couldn't guarantee anything, but he
thought the bond agency was looking for - you
guessed it - the precise amount of money generated
by his billion-dollar general tax increase. Convenient,
isn't it?
Fourth,
we finally have Del. Parrish saying publicly what
he and others have been hearing privately: the
billion-dollar scare tactic.
In
effect, Virginians are repeatedly being told they will
have to pay a billion dollars one way or another:
either to bondholders or to the tax man.
So,
the high-tax lobby is spinning this Moody's
smokescreen. If we pay the billion to the
bondholders, we don't get any benefit in terms of
better services. It only makes sense to raise
general taxes a billion dollars and keep the money
in Virginia.
Gov.
Warner is fond of saying things must pass the
"smell test."
Well,
something about the "Moody's Made Me Do
It" threat smelled fishy to me.
First,
this "Moody's Bad, Me Good" excuse makes
Warner out to be a jellyfish. He cannot possibly
want convey this image of himself. Yet he is
willing to risk it. Why, I wondered?
Second,
it opens up an historic political sore point in
every Southern state, the sensitivity to any claim
that "outsiders" such as Northern
bankers can tell us what to do. In my estimation,
an ambitious politician like the governor would be
leery at allowing anyone to suggest he backed
Wall Street, USA over Main Street, VA, in a tax
fight.
Why
would Warner risk coming across as more worried
about bean counters from the Big Apple than the
voters in Big Stone Gap?
So,
I have reached the self-evident conclusions:
Warner and the high-tax lobby are cynically using
Moody's. This isn't the case of Gov. Jellyfish at
all.
The
"Moody's Made Me Do It" routine was
adopted because the polls taken by the high-tax
lobby to figure out how to sell the tax plan
showed that the threat of a Moody's downgrade was
the best political weapon. So the political
consultants laid down the law: The scare tactic
had to be used.
For
example, Gov. Warner regularly cites North
Carolina as a state that has demonstrated a
superior commitment in recent years for K-12 and
higher education. But North Carolina recently
suffered the indignity of a bond downgrading to
AA. How, then, according to the high-tax lobby's
logic, can the Tarheels be better off?
The bogus
claim that a downgrade would cost Virginia a
billion dollars is further evidence of the phony
nature of the AAA threat politics. As of June 30,
2003, Virginia had $17.8 billion in total debt;
$5.3 billion was tax-supported debt. Any downgrade
would apply only to new debt issues, not affecting
interest payments on existing debt.
Assume
Virginia issues $2 billion in new debt next year,
far more than the governor is proposing in his
budget if I read it correctly. Bond experts tell
me a downgrade will raise the state's interest
costs 1/10 of one percent or so. This would equate
to $2 million a year in extra interest costs. Even
if you assumed this expert opinion was off by a
factor of 300 percent, Do the math: The figure is
not even $10 million, much less $1 billion.
Mr.
Parrish may be presumed to be talking about state and
local government debt. But unless he thinks
Virginia's governmental entities are going to
issue enough new debt this coming year to pay off
a huge chunk of George Bush's federal
deficit, this billion-dollar scare tactic is
shameless, and the governor knows it.
The
media has never pressed the Warner
Administration to discuss the practical aspects of
a downgrade in pure dollars and cents. Surely
someone in the state's editorial boards is curious
to know why it's necessary to impose such a huge
general tax increase on Virginia's working people
in order to allegedly satisfy a handful of New
York bean counters.
When
faced with a Moody's evil eye, every other
Virginia governor and every other General Assembly
has backed the taxpayers of the Commonwealth --
not the bankers in the Big Apple. Virginia's
elected leaders have never buckled to King George
III type-pressure, never raised a billion dollars
in general taxes under some "do it or
else" AAA threat, or as part of some private
wink-and-a-nod deal.
In
the law, we have a saying: Silence is acceptance.
So curious as to why Moody's was sitting silently
by and allowing itself to be a political football,
I gave them a call. I
didn't tape the conversation, so what follows is a
paraphrasing of the key points we covered.
Goldman:
Did Moody's ever tell Gov. Warner or anyone
else that Virginia must raise general taxes a
billion dollars, or else VA would be
downgraded from a AAA to a AA?
Goldman:
Did Moody's ever say that a billion in
new "revenue" was necessary to
avoid a downgrade?
Goldman:
Did Moody's ever say that higher general
taxes were necessary to keep the AAA?
Goldman:
Could reduced spending alone, or some combination
of user fees and reduced spending commitments
satisfy Moody's concerns about Virginia's fiscal
solvency?
Moody's:
Yes.
Goldman:
Did Moody's ever write anything, either in a
public or private document, or ever say anything
in public or private, that a reasonable person
could construe as requiring a billion-dollar
general tax increase to avoid a downgrade?
Goldman:
Has the governor or anyone from his administration
ever indicated that they wanted to engage in a
quid-pro-quo arrangement, promising to campaign
for a billion-dollar general tax increase in
exchange for Moody's agreement to divert from its
normal timeline in these matters?
Moody's: Moody's
has agreed to wait until the governor gets
through the General Assembly session before
deciding whether or not to downgrade Virginia's
AAA rating.
So
there it is. Moody's, for the first time, has
allowed its decision-making to be held hostage to
political considerations. Timewise, if my research
is correct, the bond analysts would have made
their decision by now and then revisited the
ranking after the General Assembly Session was
over.
As
I say, this whole AAA scare tactics doesn't pass
the Warner "smell test."
The
governor's billion-dollar general tax increase
plan is not being demanded by Moody's. Indeed,
as the Virginian-Pilot now has conceded,
his plan, when you add up all the parts, will make
the fiscal mess even worse in a few years.
This
political chess game is not for the faint of heart,
AS THIS transparent scare tactic IS based on the
conscious decision to leave Virginia taxpayers with
a false impression.
Like
George Bush, Gov. Warner is betting that the end
justifies the means. Sadly, I fear Moody's may be
playing the same game.
My
politics are different.
Eventually,
the people of Virginia will have to chose.
--
February 16, 2004
|