Rebel With a Cause

Paul Goldman


If imitation is the sincerest form of flattery, then the WPost columnist who wrote "Virginia Bends to the Will of Wall Street" Sunday was praising Goldman's Feb. 16 column. Now our rebel asks...


Has the High-Tax Lobby Cost Virginia its AAA Rating?


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






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.


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