In poking around the General Assembly’s electronic archives, I stumbled across the findings of the Debt Capacity Advisory Committee in a report filed just before Christmas in 2005. Based on then-Gov. Mark R. Warner’s budget forecast, the Committee concluded that the General Assembly could prudently issue $886 million in new debt in 2006 and a like amount in 2007.
That got me to thinking… What did the Advisory Committee write two years earlier, in December 2003, when Gov. Warner, Sen Finance Chair John Chichester and others were beating the drums for a tax increase on the grounds that Virginia’s coveted “AAA” bond rating was in jeopardy?
Thanks to the wonders of the Internet, we can call up that very document, which the General Assembly considerately archives on its website. The Advisory Committee reiterated its endorsement of the “5%” rule, which holds that the debt service on state debt should never exceed five percent of anticipated revenues. Then it quoted the Fitch credit rating agency as follows:
Virginia’s AAA rating reflects its … careful attention to both the level and security of its debt obligations… The Commonwealth’s superior credit standing has reflected its conservative approach both to debt and to financial operations.” (Fitch Ratings, New Issue report, June 3, 2003)
After reviewing the state’s outstanding debt, the Advisory Committee said that based upon the state’s debt capacity model and the Governor’s official revenue forecast, the General Assembly could prudently issue up to $661.91 million in tax-supported debt, to be matched by a like amount in 2004.
A little refresher regarding the political climate at the time: Tax advocates were citing a move by a different credit rating agency, Moody’s, to put Virginia’s AAA bond rating on “credit watch.” Fitch and Standard & Poor’s never put Virginia on credit watch but, citing a threat to the AAA, Warner, Chichester and others argued that Virginia needed to raise more than $1 billion in taxes in the next biennial budget. Without the additional revenues, they warned, the margin of safety was perilously thin.
Yet the Warner administration’s own Advisory Committee, chaired by Secretary of Finance John Bennett, calculated that finances were sufficiently robust to borrow an additional $662 million without jeopardizing the AAA rating!! Further, the report noted how critical debt ratios had improved in 2003 over the previous year. Tax supported debt as a percentage of personal income had dipped in Virginia from 1.8 percent to 1.7 percent. Net tax-supported debt per capita had declined $566 to $546. Meanwhile, interest rates had declined by 22 basis points, creating opportunities, presumably, to refinance some debt at lower interest rates.
Why re-hash all this ancient history? Because the advocates of the 2004 tax increase have never admitted, despite gushing revenue surpluses, that they made a mistake. And now, unrepentant, Sen. Chichester and Gov. Timothy M. Kaine want to raise our taxes again, this time for transportation. Virginia doesn’t need to raise taxes now, and it didn’t need to raise taxes then. And the message must be hammered home until the voters understand it.
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