The
risks are growing that the drumbeat for record
General Tax increases is backfiring on
Virginia,
and could cost us our AAA bond rating. Why? The
reason is self-evident: This constant running
down of our state -- assertions that Virginia's finances
were so bad they could be saved only by a massive
tax increase -- has put Moody's, the major bond
rating agency, in a Catch-22.
Clearly,
the High Tax lobbyists expect the public to believe
its equation: Either we raise taxes big time, or we
will lose our AAA. So, I ask you: If they really
believe this is true, wouldn't they expect Moody's
to believe them, too?
Thus,
if there is no big General Tax increase, has not the
High Tax lobby given the Moody's the rope to hang
us?
I
write about this subject because it has long
been a concern of mine, having been the chief
budget consultant to former Gov. L. Douglas Wilder
the last time the AAA was threatened. The state was
facing the worst fiscal situation since the Great
Depression, the full dimensions of the dilemma
revealed to Wilder only on the day he took office. I
was the leading statewide Democratic supporter of
his tough measures to save the AAA, including a
strong No General Tax increase stance to force state
government to live with the means of the citizens
who pay the bills.
Wilder's
plan met severe resistance in the General Assembly,
then controlled by the Democrats. But he stayed the
course.
We
kept the AAA, and won national recognition from
Moody's and others.
But
now, I fear, some risky fiscal management, along
with a push for the biggest Tax Increase in state
history, may have fatally compromised Virginia's AAA
rating.
This
downward spiral started last year due to the
gimmicks in the revised budget signed by Gov. Mark
R. Warner. I was a lonely voice calling for a
veto -- right here in Bacon's
Rebellion, and at a lunch at the Mansion with the
governor. Admittedly, my approach was tough
medicine, but it was consistent with everything I
had been saying and writing for years, to the broad
approval of all Democrats. Yet now, when the moment
of truth has arrived and we Democrats were in the
perfect position to demonstrate the fiscal
irresponsibility of the Republicans, something had
changed.
I
wondered what it could be.
Predictably,
Moody's saw the fiscal situation for what it was, and
soon put
Virginia
on its dreaded Credit Watch list. This was the
rating agency's way of saying the revised
budget should never have been signed and that the
AAA rating might be downgraded to AA to reflect
risky management.
Naturally,
no Virginia governor wants to go down in
history as the first guy who lost the AAA rating
because Moody's raised questions about the mismanagement
of the state's finances. Moreover, there is no
reason for Gov. Warner to be facing this situation, since the
campaign platform I helped draft for him
prevented his ever getting into such a position.
So
I asked myself: Why did the Governor put himself in
this position?
The
answer is now clear. Warner has long had a deal
with Sen. Chichester, R-Stafford, since "Maximum
John" was one of the culprits in busting the
state budget with his support for tax expenditures
that he now concedes were fiscally unsound.
Candidate Warner ran against those decisions and
promised to come to
Richmond
to fix them.
Yet
he protected
Chichester
in 2002, when it was very logical for a new
governor to put the weight on the General Assembly
to fix the problems it had created.
Instead,
Warner saved
Chichester
from
embarrassment by not challenging the Senate Finance
Chairman's mistakes, instead putting all the blame
on former Governor "Deficit" Jim Gilmore.
At
the time, it seemed a curious decision; and as
indicated previously, it seemed even more curious
when he did the same thing in 2003.
But
now, Warner's end of the deal is clear:
Chichester and the governor have been working for
longer than they have admitted on a "good
cop," "bad cop" routine to muscle
through the General Assembly the biggest possible
Tax Increase, far bigger than Warner dare support
publicly.
In
May of last year, both men publicly denied ever
discussing such a joint, tax-raising strategy.
Yet
their subsequent actions suggest they have been of a
similar mind not just in recent months, but perhaps
as long ago as 2001.
Clearly,
Sen. Chichester has kept his part of the bargain,
having done the seemingly impossible: getting the state
Senate to back a $3.8 billion tax increase plan, far
larger than predicted by even the most tax-happy
pundit.
It
amounts, on a statistical basis, to $2,100 in new
taxes for the average family of four. For sure, the
actual tax bill may be far higher or lower for your
family: still, the $2,100 number is useful to
underscore the massive nature of their tax appetite.
Warner,
along with Democratic Senate Minority Dick Saslaw
and Lt. Governor Tim Kaine, persuaded every single
Democratic senator to back this record tax plan.
Indeed, Saslaw, D-Fairfax was recently on the
Senate floor saying that "you can't give me
enough money to satisfy me."
Why
they feel VA Democrats could win the governorship in
2005 - or would deserve to win the governorship in
2005 - after our top officials broke their No Tax
Promises and tried to force an unjustified,
massive tax increase on the people - is
apparently a question only I dare ask. But perhaps
that explains why the last three successful
Democratic candidates for governor followed my
strategy on fiscal issues.
Moreover, for
the last few months, the High Tax lobby has
crisscrossed the state, using millions of dollars in
donations to a private campaign organization, to
mount a campaign saying the state faces a huge
fiscal mess, and that without a massive tax
increase, the biggest in history, we will have more
deficits and crumbling finances.
The
High Tax lobby is convinced the House of Delegates
does not have the will to stand up to such constant
pressure.
Yet
I say again, the High Taxers appear -- I don't
want to believe they did this knowingly -- not to
appreciate the message they were sending to
Moody's: Unless the General Assembly passes
record billion-dollar taxes, the state's
finances are so out of whack that Virginia doesn't
deserve a AAA rating.
Again,
I understand how the Warner administration figured
such a threat would help put pressure on the General
Assembly to pass what it wanted. But this
"running down" of
Virginia
by its highest elected officials is a
double-edged sword.
Sadly,
the damage may have already been done.
But
as I have written in articles now printed in the
major newspapers of
Virginia and recently quoted even in such national
publications as the Wall Street Journal: massive
Tax increases were never necessary to straighten out
Virginia's finances nor to save the AAA. But by
saying the opposite, the governor, and now the state
Senate, may have made it impossible for Moody's to
be fair to Virginia.
The
bond rating agencies now have a Democratic governor
and the Republican-controlled state Senate along
with every single Democratic state senator,
saying that if their record tax increases are not
enacted, Virginia will have chronic budget problems
for the rest of this decade, if not longer.
As
the children's rhyme goes, "What a web we do
weave as we practice to deceive." If the
General Assembly fails to pass a record general
tax increase but Moody's doesn't downgrade
Virginia, the reputations of the Governor, the
state Senate, the VA Chamber of Commerce, and the
state's editorial boards will be badly tarnished.
Indeed, they would be accused of having made up the
scare tactics in a Machiavellian attempt to raise
taxes unnecessarily. But if Moody's does downgrade,
then
Virginia
likely
will have suffered the first politically
motivated downgrade in history, fostered by the
political tactics of the High Tax lobby.
"Running
down
Virginia"
in this way may be a good strategy for a High Tax
advocate, but it is the wrong thing to have done for
our Commonwealth.
--
March 1, 2004
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