The Daily Press in Newport News has leaped to the defense of the Warner administration against Republican charges that the state’s massive budget surplus vitiates the case for the 2004 tax increase. The anonymous editorial responds that Warner was acting to protect Virginia’s AAA bond rating. I suspect that some subtle re-writing of history is occurring, but I’m not certain. Sayeth the Daily Press:
The 2004 revenue hike wasn’t about needs. It wasn’t about spending for the greater joys of liberalism’s causes. It was about preserving the state’s credit rating in the face of a threatened downgrade from one of the most influential bond-rating agencies in the country.
Thanks to five years of combining tax cuts with new spending commitments, Moody’s Investment Services put the state on its watch list in late 2003 and told state officials, in no ambiguous terms (they gave North Carolina officials the same message and made good on the threat), that Virginia needed to shore up its financial house or else.
As a point of fact, the tax increase was about needs, and it was about increasing spending on liberalism’s favorite cause, K-12 education. Gov. Warner made it a top piority in the current biennial budget to increase K-12 spending to meet Standards of Quality guidelines.
But on to the more interesting point. Yes, Virginia was indeed on Moody’s credit watch. However, my (very fallible) memory recalls that only Mark Warner, John Chichester and Vince Callahan met with Moody’s, and none of them were very forthcoming with details in public about exactly what Moody’s told them. I don’t know what Moody’s said, and neither does the Daily Press. Far from speaking in “in no ambiguous terms,” Moody’s adominition that Virginia “needed to shore up its financial house” was highly ambiguous. The only thing we know for certain is that Moody’s never told Virginia directly to increase taxes.
My sense is that Moody’s, like the Oracle of Delphi, spoke with such ambiguity that the listener could hear what he wanted to hear. I don’t get the sense that a Moody’s downgrade was imminent. Judging by Warner’s justification for the 2004 tax increases — he emphasized an intermediate-term mismatch between state revenues and obligations (based on now-discredited assumptions of low rates of revenue growth — Moody’s was worried that the state budget might be heading for a train wreck, not that a train wreck was about to happen. But, then, I never investigated the issue closely, so I don’t pretend to speak with authority on the subject. Perhaps my fellow bloggers can lend some insight.
