Rebel With a Cause

Paul Goldman



No Car Tax for Life?

 

Gov. Warner -- and our children -- may be in for a real "Education for a Lifetime" if the Bush jobless recession is really over as some predict. Has the time come for the "Put K-12 First" law?


 

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:

 

"The tentative signs of recovery elsewhere must continue and improve further if we are to sustain revenue growth of 4.6 percent for fiscal year 2004. Nevertheless, all of these signs have led me to conclude that it is not necessary at this time to order an early re-forecast of revenues for this fiscal year. Beginning this fall, our economists and business leaders will fully examine all the projections and assumptions on which our revenue forecast is based both for fiscal year 2004 and for the next biennium."

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

 

 

Bring Home the Bacon

Help   About search

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul Goldman, the Rebel With a Cause, was chief political strategist for the past two winning Democratic governors in Virginia and was credited with leading a "revolution in American politics" by The New York Times for his role in breaking America's 300-year-old color barrier in national politics.

 

You can reach him at GoldmanUSA@aol.com.