Bacon's Rebellion

Hard Numbers on the Budget Surplus

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by

James A. Bacon
in

I’ve seen a lot of loose numbers thrown around regarding the size and impact of the 2004 tax increase on the current budget surplus. (I’ve tossed some of ’em around myself.) Here are hard numbers from Del. Vincent F. Callahan, Jr., R-McLean, chairman of the House Appropriations Committee. In a press release issued today, Callahan writes:

For those that were here during the 2004 Session, you may recall the General Assembly grappled with building a new two-year budget. At that time, it was expected that we would have approximately $1.8 billion in net new revenues available to meet our spending obligations. It was claimed that this was insufficient to meet the Commonwealth’s needs, and that additional revenue was needed. After a protracted debate and extended legislative Session, taxes were increased nearly $1.5 billion dollars. There was much self congratulation that Virginia’s fiscal house was back in order.

You may also recall that two months after that budget was adopted, Virginia received some surprising news, that the fiscal year would end with $325 million more than projected or perhaps predicted.

That happy news led to the first of several revisions to the revenue forecast during the current biennium. In fact, the most recent revision to the current fiscal year projects that general fund revenues are now forecast to generate an additional $1.4 billion over and above the revenues assumed when we left here last year.

Since that fateful day in May of 2004, the cumulative effect of Virginia’s growing economy means that what started out as $1.8 billion in new revenue growth now appears to be closer to $4.9 billion over the biennium, or 275% greater than the original biennial forecast.

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8 responses to “Hard Numbers on the Budget Surplus”

  1. Ray Hyde Avatar
    Ray Hyde

    OK, so the tax increase was predicated on a projection of revenues based on an economy that turned out to be wrong.

    Your projection of surplus is also based on a projection of revenues from the economy. You have the benefit of being closer in time to when your new prognostication will come true.

    For years the general fund was supplemented with money taken out of the general fund. If you now reverse that and put back all the money that was borrowed over the years, then how much of the $4.9 billion surplus is left?

    After you put the money back, then make an estimate of the revenues the economy will generate over the next two years. Two years from now, we’ll come back for a review of how well you hit the mark.

    Think you can hit it within 1.4 billion? The total state budget is How much?

  2. Anonymous Avatar
    Anonymous

    And the promises that we can continue to address transportation out of surplus revenues is also based on similar assumptions. I’ve seen the downturns in the 80s, 90s and 01-02. It will come again.

  3. Rtwng Extrmst Avatar
    Rtwng Extrmst

    You know, we can always raise taxes in the future if the revenue runs short. We can’t stop them from spending all the surplus away now and then still ask for more when revenues run short.

  4. Ray Hyde Avatar
    Ray Hyde

    But if we put back all the money that was “borrowed” from the transportation fund, then where is the surplus? Part of the problem with our tansportation plan is that we have no plan.

    A plan has to have an objective “We should have LOS F service for no more than 6 hours a day on roads serving business districts.” or some such. It should have a schedule. “There are currntly fifty such bottlenecks in the state and we intend to adress five per year. The current schedule is ABCDE” It should have a budget, that can be reilied on. and it should have a contingency plan in case of emergencies.

    Raising taxes if we run short only covers the contingency plan.

  5. Anonymous Avatar
    Anonymous

    How to Turn a Red State Blue
    Wall Street Journal

    February 23, 2006; Page A16

    If you think Republicans on Capitol Hill have troubles, take a look at Virginia, where GOP lawmakers are busy writing an instruction manual on how to become a minority party.

    Republicans in that ostensibly “red” Southern state got their clocks cleaned in November’s elections after they refused to take a coherent stand on taxes, and Democrat Tim Kaine squeezed to their right on pocketbook issues. As GOP state senator Ken Cuccinelli explained, “We ran on a message of almost being for tax cuts, almost for smaller government, almost for protecting Second Amendment rights, and almost being pro-life. As a result, the voters almost came out and voted for us.”

    And they apparently have learned nothing from that rout. When the legislature reconvened last month, the first proposal from the majority Republicans in the state senate was to endorse a $1 billion tax hike for roads and transit projects — the second huge tax increase in two years. The GOP plan would increase auto fees, the gas and diesel tax, and even taxes on batteries and tires. This is the same party that last won the governorship under Jim Gilmore in 1997 promising to abolish the very car taxes they now want to increase.

    Last week the senators floated another tax plan that is so bizarre and complicated it has made them a laughing stock. This scheme would raise the gas tax by 5%, but the sponsors insist that “no one would have to pay the tax if they didn’t want to,” because motorists could get a rebate at the end of the year if they keep shoeboxes full of tiny scraps of service station receipts. This would add immeasurably to the joys of April 15.

    These tax-hike proposals keep coming despite a state revenue office report that Virginia now has a $2 billion biennial budget surplus. As a high-tech state, Virginia has been a huge beneficiary of the expansion spurred by the Bush investment tax cuts. But the entrenched senate Republicans — many of whom have been fixtures in the capital of Richmond for decades — want to spend the tax windfall and then some.

    A Virginia Institute for Public Policy study notes that, over the past decade, the state budget has swollen at twice the rate of inflation plus population growth in the state. That’s an $11 billion bonanza for state agencies, or about $500 more spending annually per Virginian. It’s true that roads have been neglected during these high-spending years, causing some of the worst pockets of traffic gridlock in the country. But that’s because state pols spent like crazy on social services and schools — though student achievement tests show virtually no gains.

    Only 18 months ago this same senate gang rammed through a $1.5 billion sales tax increase, even after 55% of the voters had defeated the same tax scheme when it was a ballot initiative a year before. The original senate Republican tax plan was so supersized that even then-Democratic Governor Mark Warner, who openly promoted higher taxes only after he’d won election in 2001, denounced the GOP plan as too heavy a burden. In short, this is a state GOP suffering from a severe identity crisis.

    Meanwhile, property taxes are rising and clueless Republicans haven’t lifted a finger to cap assessments. Thanks to a housing boom in Northern Virginia, state property tax bills for median priced homes have risen by $2,000, or 85% in six years. The sticker shock has enraged homeowners and taxpayers are fighting back locally. Yet Republicans are proposing to raise taxes again anyway.

    And that’s how to turn a red state blue.

  6. Rtwng Extrmst Avatar
    Rtwng Extrmst

    Ray,

    Agreed. However, until the people in Richmond (most from outside of the bottlenecks) see this as a problem, they will just spend whatever money we have on non-transportation “things”. We need money that cannot be “borrowed away” and a plan.

  7. NoVA Scout Avatar
    NoVA Scout

    RWE: the last thing one wants to do in a declining economy is to raise taxes. It’s completely wrong-footed to say that our protection against misuse of temporary bulges in the revenue flow caued by externalities is to raise taxes as soon as the economy turns down. Making exactly the right choices about use of momentary surplus amounts is critical. They should not be applied to infrastructure in investment if the underlying assumption is that they will be recurring.

  8. Ray Hyde Avatar
    Ray Hyde

    RWE: To me a plan consist of a goal, milestones to reach the goal, a schedule, and a budget. I don’t think we can afford to totally eliminate congestion without overspending and creating massive overinvestment in roads that are underused much of the time.

    I’d suggest a goal like LOS F not more than 6 hours per day within ten years. Milestones could be the biggest bottlenecks/ and or moving more jobs away from where they create bottlenecks. Budget? who knows. Depends on how you go about it, but you’d have to have the first three agreed to before you can attempt a budget. Siince we don’t have those, we can argue endlessly about what the budget should be.

    NOVA Scout: I don’t understand. Are we in an economy downturn, or are you saying that the last tax increase was a mistake because it was made during (albeit at the end of) a downturn? If you have a bulge in revenues, wouldn’t it be better to apply it to infrastructure than to programs, which are surely ongoing? Agreed, an investment in capital goods will require continuing maintenance, but what is the alternative?

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