by Steve Haner
First published this morning by the Thomas Jefferson Institute for Public Policy.
This makes if official: Even the Joint Legislative Audit and Review Commission (JLARC) has documented and highlighted how poorly Virginia’s economy is performing, how far our state is lagging national growth averages.
Source: JLARC 2021 Report on Virginia State Spending, Slide 7.
The admission comes in the most recent summary on state spending trends, an annual report (detailed version here) which was submitted to and approved by the legislators on the panel last week. It covers the ten-year period of 2012-2021 and does a rolling update on previous years.
Virginia’s average annual change in gross domestic product of 1.2% was just 63% of the national average, our per capita income grew 1.1% annually (58% of the national average) and our labor force grew just 0.6% annually over the period, 60% of the national average. The general correlation of the three deficits just demonstrates their interdependence. Continue reading
by Steve Haner
First published today by the Thomas Jefferson Institute for Public Policy.
Any claim that Virginia cannot reduce taxes on its citizens without damaging state programs has been further eroded by two recent announcements.
The explosion of revenue from recent state tax increases is continuing into this new fiscal year, pointing to a potential repeat of last year’s $2.6 billion general fund surplus, which the state’s leadership is still trying to attribute to anything but its tax legislation. In the first three months of this new fiscal year general fund revenue is running $570 million ahead of last year’s record amounts, blowing out projections that assumed last year’s surplus was pandemic-related lagniappe.
The flood of money wasn’t related to the pandemic, not totally. It was related to tax policy decisions made in 2019, 2020 and 2021, the bulk of the surplus revenue coming from higher individual and corporate income taxes.
Adding to that, the Virginia Retirement System told legislators Monday that it has done so well with its investments (a 27% return in one year), the next General Assembly will be able to reduce the amount of cash it invests in the next few years, a significant reduction in annual costs. Continue reading
by James A. Bacon
Let me preface this post by stating unequivocally that eliminating Virginia’s personal income tax is a crazy idea — so crazy that no serious person has proposed it. The tax generates $16 billion a year in revenue, or 72.4% of Virginia’s General Fund expenditures. The loss of such a sum would be catastrophic to the Commonwealth’s ability to provide basic government services.
According to Politifact, Republican candidate for Governor Glenn Youngkin briefly contemplated eliminating the state income tax. There is nothing inherently wrong with examining the possibility of doing such a thing. After all, several states — Florida, Texas, Tennessee, Washington — manage to do swimmingly without a personal income tax. However, any review of the situation would reveal that the dislocations in government services engendered by a massive re-engineering of Virginia’s tax base and budget would not be practicable, much less beneficial.
That said, some claims made against the idea are absurd. A Democratic Party of Virginia website, cited in a recent column by Arthur G. Purves, makes the claim that “implementing Youngkin’s tax plan” of eliminating the income tax (which was never his plan) would cost 2.5 million Virginia jobs. Out of a total workforce of 4.3 million. In other words, eliminating a tax accounting for 3.3% of the state’s GDP would destroy the equivalent of 59% of the state’s jobs over 10 years. Continue reading
Senate Finance Committee data illustrated the expected state revenue boost caused by 2017 federal changes. Predicted and seen in 2019 and 2020, it carried over into 2021.
by Steve Haner
At Tuesday night’s debate Democratic gubernatorial nominee Terry McAuliffe dismissed the 2021 $2.6 billion general fund revenue surplus as entirely due to extra federal COVID relief funds, which is absurd on its face. By definition, every dollar is general fund state tax revenue. It came from some form of state tax.
Why do Virginia Democrats continue to deny that recent state tax law changes are in part responsible for almost-embarrassing large cash surpluses recently announced? At the time the deeds were done, nobody was denying the big revenue impacts. The really big hit was a totally bipartisan decision, so Democrats can share the credit or blame. Continue reading
by Jesse Lynch
As of August 2021, Terry McAuliffe has released over eighteen plans for his second term as Governor of Virginia. The policy proposals oscillate between highly specific and indefinitely vague. This report attempts to forecast five of these proposals: education, economics, entrepreneurship, COVID-19, and healthcare. The Thomas Jefferson Institute for Public Policy has attempted to assign a fiscal impact for all the proposals using publicly available information from reports from the Department of Planning and Budget, the Virginia House and Senate Appropriation Staff, and other entities involved in the allocation and appropriation of Virginia’s Budget.
Our budget projections are based on current spending, excluding the American Rescue Plan Act funding. According to our analysis, a McAuliffe budget would have the following significant effects:
- Virginia’s Operating Budget spending would increase by $8,312,224,332 over the biennium. The General Fund would increase by $7,634,029,721, and the Non-General Fund (NGF) would increase by $678,194,611 (See Table 2).
- McAuliffe’s proposals would represent an increase of 5.99% to the 2022-23 Operating Budget in new proposals.
- The costliest proposed policy would be allowing Virginia’s state government employees to engage in collective bargaining, which would cost the Commonwealth more than $1,874,965,290.
Goochland County’s location within the Richmond MSA
by James A. Bacon
Ken Peterson, a leader of Goochland County’s turnaround from fiscal basket case to bearer of a AAA bond rating, thinks he has discovered the holy grail of fast-growth county governance: how to make development pay for itself.
In previous posts I described how Peterson and his fellow fiscal conservatives swept into power in the so-called Goochland Revolution of 2011 and began implementing strict financial discipline. The exurban county west of Richmond, population 23,000, put management systems into place that identified the Level of Service (LoS) desired for schools, utilities, roads, and other public amenities, and then set up a 25-year capital improvement plan that identified how much money would be needed to pay not only for the upgrades but the ongoing maintenance. Goochland would not fall into the deferred-maintenance trap on Peterson’s watch. To the contrary, the county has accumulated large reserves.
Skeptics might say that Peterson and his allies benefited from fortunate timing. The year 2011 coincided with the nation’s recovery from the great real estate crash of 2008. Growth in fast-urbanizing Henrico County had reached the county line and was leap-frogging into Goochland. Tax revenues gushing from the economic revival made it easy to balance budgets and keep the base property tax rate at an incredibly low $0.53 per hundred dollars of assessed value. However, one might argue, if Goochland follows the same path as Virginia’s other fast-growth counties — Fairfax, Loudoun, Prince William, Stafford — it could experience the same fiscal stresses that they have. Continue reading
Goochland Supervisor Ken Peterson
by James A. Bacon
In February Goochland County Supervisor Ken Peterson and top county officials met with New York bond raters in the hope of winning a coveted AAA bond rating for their small, exurban county west of Richmond. Only a hundred or so counties in the United States have AAA ratings. None of them had Goochland’s tiny population, only 23,000. Indeed, to Peterson’s knowledge, of Virginia’s twelve AAA-rated counties, none had a population smaller than 60,000. Moreover, only a decade previously, Goochland had nearly defaulted on its water-sewer bonds. It didn’t even have a bond rating then. Winning Standard & Poor’s stamp of approval would represent an extraordinary turnaround.
The Goochland team gave its pitch. The S&P bond raters were quizzical. They’d never seen a county’s numbers like Goochland’s. Not only did it have an incredibly low base property tax rate and a steadily growing revenue stream, it had built financial reserves equivalent to 60% of its annual budget. Such reserves were unheard of, the bond raters said. Fifteen percent is recommended.
The county had a 25-year capital investment plan, Peterson explained, and it made a practice of setting aside funds for future building and maintenance needs. Astonished, the S&P team quipped that the company needed to create a separate bond rating for Goochland — AAA+. Continue reading
by James A. Bacon
The “Goochland Revolution” might be the most under-appreciated political upheaval in recent Virginia history. In the early years of the Obama administration the Tea Party movement energized small-government conservatives against the big-government policies of President Obama. The populist surge petered out in Virginia, as it did elsewhere, and it had little lasting institutional impact — except in one place, Goochland County, an exurban locality of 23,000 inhabitants west of Richmond.
Flocking to the polls in record numbers in 2011, the Goochland revolutionaries voted to throw the bums out. And when I say “throw the bums out,” I mean they swept the Board of Supervisors clean of every member but one (who was allied politically with the insurgents) and tossed out every member of the School Board.
After taking over, the board demanded the resignation of the entire Planning Commission, and replaced the directors of public utilities, community development, human resources, and economic development. The school board hired a new school superintendent. And for good measure the county treasurer was convicted of embezzlement and sent to jail. But the changes didn’t end with personnel. The new crew implemented far-reaching changes in fiscal policy. Continue reading
by James C. Sherlock
Governor Ralph Northam has raised an important issue relative to the budget negotiations. He has asked that the final bill not include an extension of a 12.5% increase in rates for Medicaid home- and community-based services for people with developmental and intellectual disabilities. The General Assembly put it in there anyway.
That amendment, submitted by Sen. Emmett Hanger, R-Mount Solon, extends the expiration date for the increases from the end of calendar year 2021 to the end of the fiscal year on June 30, 2022. Hanger’s amendment claims that:
“The costs of extending the rates are covered by the state savings in Medicaid from the 12 months of enhanced federal match for Medicaid Home and Community-based services included in the American Rescue Plan Act of 2021.”
That is a budget offset of “free” money from federal taxes and the deficit, but not defense of the program itself. Continue reading
by Steve Haner
The Virginia Division of Motor Vehicles is now hiding only 22% of the state’s existing motor fuels tax with misleading website data, not the 26% it was hiding when I wrote about this last year.
In the chart you first find searching DMV on motor fuel tax rates, set out below, there is no reference to a statewide wholesale tax of 7.6 cents per gallon on gasoline. It is MIA, leaving the chart reporting a tax of only 26.2 cents. (That is up 5 cents from a year ago, and that is why the percentage “hidden” dropped.) Continue reading
Why is this man smiling?
by James C. Sherlock
The Governor’s 15-month emergency powers expired June 30, and, God, does he miss them.
From The Virginian-Pilot:
“School districts that aren’t requiring masks, including several in Hampton Roads, are running afoul of state law, Gov. Ralph Northam said Thursday.”
The bigger questions are
- how long the governor will put up with the lack of emergency powers;
- when he will start to follow Virginia’s Pandemic Emergency Annex to its Emergency Operations Plan; and
- is the General Assembly even interested?
by Steve Haner
I warned everybody to watch for extraneous issues buried in the new budget bill pending at the special session which starts tomorrow. Who knew that regulating the potential income of student athletes was a vital COVID emergency issue that couldn’t wait for the regular General Assembly meetings in January?
What follows should have been a stand-alone bill, but that would have opened the door to plenty of other issues. Clearly this is a response to the recent court decisions opening this door, and the new NCAA rules on the subject.
Herewith the provision, as it appears in Governor Ralph Northam’s introduced bill:
18.a. That no institution or an agent thereof; athletic association; athletic conference; or other organization with authority over intercollegiate athletics shall:
1. Provide a prospective or current student-athlete with compensation for the use of his or her name, image, or likeness;
2. Prohibit or prevent a student-athlete from earning compensation for the use of his or her name, image, or likeness, except as set forth in this subsection; Continue reading
Manna from heaven
by James A. Bacon
Before departing for the private sector, former Secretary of Finance Aubrey Layne outlined his thinking for the disposition of $4.3 billion in federal COVID-helicopter money: The funds are a one-time windfall. Spend them on one-time projects. Do not use the money to fund programmatic expansions that will make an ongoing claim on future tax dollars.
In recent days, the Governor’s Office has been issuing press releases on how Governor Ralph Northam proposes to allocate the manna from heaven, technically known as the American Rescue Plan. To a significant degree, the Governor is hewing to what might be called the Layne Doctrine. Here are the ten announcements he has made so far, listed in the order in which he made them: Continue reading
By Steve Haner
First published Tuesday by the Thomas Jefferson Institute for Public Policy.
In 1972, a Virginia taxpayer needed a taxable income of $12,000 before the state’s maximum income tax rate kicked in. Adjusted for inflation, that threshold should be $78,000 today.
There has been one adjustment since, to $17,000 in income before the maximum rate is now applied. Adjusting that for inflation since 1987, when last amended, that should now be $40,000. In Virginia today, even a lower middle-income couple can be paying the same maximum tax rate as the richest Virginians on parts of their income. Continue reading