The
Vision Thing
Gov.
Warner and his pro-tax allies are winning the tax debate
because they’ve stayed on message with a coherent set
of principles. Their foes in the House have
never proffered an alternative vision.
Give
the devil his due. Even if you disagree with him, you
have to respect Gov. Mark R. Warner for sticking to a consistent,
well-articulated set of principles throughout the tax
debate. His line of argument can be summarized
succinctly: As Virginia emerges from the worst fiscal
crisis in living memory, state government faces a
long-term gap between revenues and needs. To maintain
fiscal integrity and fund core obligations like
education, the state has no choice but to raise taxes.
The
message is simple and clear, and it appeals to the value
that Virginia
voters place on fiscal responsibility and education. By
never wavering from this storyline, the
governor has framed the debate on his terms.
Contrast
that with the conflicting words and actions emanating
from the House of Delegates, the stronghold of anti-tax
sentiment. As the debate began, the House leadership
staked out a promising position: The governor’s
budget projected two-year revenue growth of more than 11
percent before
tax increases – considerably more than citizens’
incomes were rising, and surely enough to fund core
needs. Moreover, by depressing economic growth, tax
hikes would stunt expansion of the tax base in the long
run.
But
the
House soon undercut itself. OK,
we’ll raise a few hundred million extra dollars in
revenue by “closing loopholes” on big business –
but we won’t raise the sales or income tax. And by the
way, we’ll increase educational spending even more
than the governor will.
Then, with its most recent vote, the House said, OK, OK, we’ll raise the sales tax, but we’ll cut some other taxes. And we're still outspending the governor on
education.
In
politics, when one side runs a consistent, coherent
message and the other side runs a shifting,
contradictory message, the guy with the consistent,
coherent message wins.
Now,
it's probably too late to make a difference in the
outcome of budget negotiations, even in the unlikely
event that the anti-tax contras in the House were
bowled over the brilliance of my vision for holding the
line on taxes, restoring fiscal responsibility and
addressing the citizens' real needs. But it's never too
late to try. If nothing else, articulating an
alternative vision may lay the groundwork for a
roll-back two years from now of the tax hikes that look
inevitable today.
Here
are the key elements that need to be in any credible
anti-tax vision for the future of Virginia.
Lower
taxes stimulate economic growth. Comparisons
of the economic performance of the 50 states shows over
10-, 20- and 30-year periods show clearly that that
low-tax states, on average, out-perform high-tax states.
Next time someone makes a wisecrack about Mississippi,
just remember that between 1991 and 2001 Mississippi
increased its per capita income 57.2 percent, the 7th
top performance in the nation, outperforming Virginia,
which increased 53.5 percent and ranked 17th, by a
handsome margin. (See
ranking.) Taxes,
of course, are only one factor among many influencing
economic growth -- but they're one that state
governments can most readily control. If Virginia can
keep taxes low and find a way to deliver core
services, it can reasonably expect to out-perform other
states handsomely. Sustained
economic growth expands the tax base, increasing taxable
wealth and growing state revenues. Over the three
decades between 1970 and 1999, low-tax Virginia moved
from a 30th national ranking in per capita income to
14th place, according to George Mason University
Professor Mark Crain in his book Volatile States.
Had Virginia matched the national average in income
growth, its citizens would be earning 13 to 14 percent
less than they do today -- and the state would have billions
less to spend. For that blessing, we should thank the
politicians of years past who resisted the taxing
temptation. We
can meet the long-term gap between revenues and needs by
cutting costs, not raising taxes. A
discrepancy between projected revenues and expenditures
exists only if we accept the structure and processes of
government as currently constructed. There is no gap if
we undertake the hard work of undertaking structural
change. Admittedly,
the need for structural change does put pressure on
politicians whose philosophy is simply to "just say
no to taxes." If additional revenue is not
forthcoming to address the core needs that citizens
demand -- primarily
education and mobility --
legislators must proffer solutions that don't require
additional funds. Such remedies do exist, even if
we haven't heard much of them from the anti-tax
contingent in the House. The
low-hanging fruit is reforming
governmental processes. By adopting best
practices commonplace in the private sector, Virginia
can save $750 million a year, concluded Gov.
Warner's own Commission on Government Efficiency and
Effectiveness (widely known as the Wilder Commission).
Ironically, that's roughly equal to the revenues that
Warner is seeking through higher taxes. The
Warner administration has made a commendable start in
initiating reform of information technology,
procurement, facilities management and a number of other
functions (building in some cases upon reforms initiated
by the Gilmore administration), but savings to date have
been modest. There must be follow-through. The
General Assembly needs to encourage this administration, and
its successors, to push reform aggressively, setting
realistic goals and holding it accountable for
delivering results. Virginia
needs to bring about Fundamental Change to its governance
structure, with the goal of reversing the dysfunctional
pattern of land use that has characterized new
development over the past five decades. I use
"Fundamental Change" in the way that fellow
columnist E M Risse uses it. Risse's corpus of
writing in Bacon's Rebellion (see Risse's
profile and writings) is devoted to delineating the
nature of this dysfunction and devising solutions to it.
I urge readers of this column to read Risse's work in
order to understand the theoretical underpinnings of my
arguments. Anyone
serious about curtailing taxes must come to grips with
the reality that scattered, low density development is
the greatest single cause of the escalating cost of
state and local government. This so-called
"sprawl" has two major impacts on the cost of
government. First, it is impossible to deliver urban
services in scattered, low-density
settings as efficiently as it is to provide them in
compact urban settings. Burdened by inefficient cost
structures for water, sewer, roads, water, fire, rescue
and other services, "suburban" counties end up petitioning
the state for relief. (For
a timely summary of these and other costs related to
sprawl, see "Growth
in All the Wrong Places," March 26, 2004.) Secondly,
dysfunctional patterns of development have devastating
consequences for mobility. The scatteration of trip
origins and destinations over ever greater distances is
directly responsible for the mind-boggling increase in
driving, as measured by vehicle miles traveled, and the traffic
congestion that results. The state cannot afford to
build enough roads and rail lines to accommodate this extra
travel. The only solution is to reduce the vehicle miles
traveled. Anti-tax
Republicans display a visceral antipathy to any proposal
that they suspect may imply increased regulation. The
term "smart growth" conjures images of
anti-capitalist, Birkenstock- heeled
activists determined to ban SUVs and put everyone onto
trains and bicycles. What most tax contras failed to
appreciate, in my observation, is the extent to which
the dysfunctional pattern of development is itself a
product of the most extensively regulated and subsidized
sector of the economy in the entire United States, with
the possible exception of education and healthcare. The
system we have today is the result not of free market
forces but of zoning codes, subdivision ordinances,
growth plans, transportation funding priorities,
property taxes and a host of other government biases and
intrusions. The
solution is not to replace a developer/ financier/land
speculator-driven dystopia with an environmentalist
dystopia, but, as Risse suggests, to devise a system in
which the people who make choices about where to live,
shop and seek services and recreation pay the locational
costs
associated with those activities. In
other words, stop subsiziding sprawl. At the same time,
move towards a system of governance that encourages the
development of communities with a balanced mix of
housing, jobs, stores and amenities that reduces the
number of vehicles mile traveled on our stressed-out
transportation systems. These
principles, it seems to me, are eminently
"conservative," in that they require leveling
the playing field so that the real-estate marketplace
can function efficiently.
Given
the complex and interwoven nature of the power and
governance structures involved, an evolution toward the
kind of Fundamental Reform that Risse calls
for will take decades. I regard the Risse vision as a
lodestar by which we should navigate, a set of goals we
might achieve after a generation of striving. In the
meantime, we need short-term coping strategies.
Virginia
should address the congestion contagion on state roads
by supplementing road building with transportation
demand management (TDM). There are numerous
alternatives to the tax-and-build proposals of the
lobbyists and politicians in Richmond. For the cost of
adding a single lane-mile along Interstate 66 or a mile
of heavy rail, the state could jump-start HOT lanes,
telecommuting, riding sharing, smart stoplights, traffic
information systems, flexcars and a host of other
alternatives for reducing or shifting the demand for
transportation facilities. (See "Straws
in the Wind," April 12, 2004.)
These
strategies are not a substitute for "Fundamental
Reform" but they can ameliorate congestion until
Virginia musters the political will to reform its system
of taxes, land use and governance.
Virginia
should re-think its open-ended commitment to K-12
education. K-12 is the most privileged sector of
state government. While every other department and
agency endured cutbacks during the "$6 billion
budget shortfall," K-12 actually wound up with a
modest increase in state expenditures. This spring, the
House of Delegates competed with Gov. Warner to see who
could throw the most money at the public school systems.
Gov. Warner has suggested some interesting reforms that
tinker on the edges of K-12, but nothing that would
alter the system of bureaucratic, top-down,
mandate-heavy system directed from Richmond.
The
justification for showering K-12 with hundreds of
millions of dollars has been the "constitutionally
mandated requirement" to fund the so-called
Standards of Quality. But what are the SOQs? A state
institution, the Board of Education, sets the standards,
which it revises every two years. The 2003
recommendations include standards that would require the
hiring of more principals, more assistant
principals, more resource teachers in art, music and
P.E., more speech pathologists, more technology support
specialists and more reading specialists. The package of
proposals is estimated to cost the state more than $320
million per year. Folks,
that's what our tax increases will be paying for. And
guess what: The system, by its nature, only ratchet
costs higher. Can you imagine the Board of Education
ever recommend cutting educational staff? I
can't. Will the Board come back in two to four years
with an even higher set of standards costing more money?
You bet. As
one might surmise from a highly centralized school
system, there is little room for experimentation.
Virginia has the fewest number of charter schools of
almost any state in the country. The concept of vouchers
hasn't even entered the political vocabulary. I'm no
expert in K-12 education, but I am an observer of
organizational behavior. When a system enjoys the
protected status of Virginia's K-12 schools, showered
with funds and exempt from market accountability, there
is bound to be massive inefficiency. No amount of
spending will ever be enough. I don't know how to make
the system more accountable, but I'm pretty sure that
unloading dump-trucks of dollars is not the
answer.
Any
anti-tax movement with a shred of credibility needs to
address the K-12 conundrum: how to improve educational
quality while constraining expenses. A thoughtful
answer, I suspect, would involve less dictation from
Richmond, less bureaucracy, more flexibility and more
experimentation. But we have yet to hear it. These
are just the highlights. Past columns in
have addressed creative ideas for bolstering
state colleges and universities without significant new
outlays of cash. The healthcare system also is ripe for
reform. Other readers, I'm sure, will have proposals of
their own.
The
anti-tax movement lost this round because Gov. Warner
and his allies had a well-crafted message and showed
greater discipline in sticking to it. The contras
offered no substantive alternative. That had better
change soon because the pro-taxers, like the
indestructible Terminator, will be back. We need to be
prepared.
--
April 26, 2004
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