Bacon's Rebellion

James A. Bacon


 

Baconometer

Deep fried

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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