Tax Wars: 2006 vs. 2004

The looming showdown in the General Assembly looks like deja vu all over again.

In 2004, a Democratic governor and a Republican-controlled state Senate agreed on the need to raise taxes, primarily to fund increases in K-12 spending, while a Republican-controlled House of Delegates fought the increase.

Two years later, the situation is eerily similar: A Democratic governor and a Republican-controlled state Senate want to raise taxes, this time for transportation improvements, while the Republican-controlled House of Delegates finds itself in opposition. Indeed, yesterday, the House Finance Commitee nixed measures backed by Gov. Timothy M. Kaine to boost the tax on car sales and car-insurance premiums.

We all remember what happened in 2004: The House buckled under pressure from the Governor and the Senate, and a tax increase was pushed through. Will history repeat itself in 2006?

I don’t think so. My sense is that the House sentiment against a tax increase is even stronger than in 2004, and public support for another tax hike is considerably weaker.

In 2004 , Gov. Mark R. Warner and his allies, including then Lt. Gov. Kaine, argued that the state faced a long-term, “structural” budget deficit in the years ahead. It turns out they were wrong. Economic growth brought in far more revenue than the Warner team had forecast, and the state piled up massive surpluses.

The embarassment of riches has two implications. First, as the House Republicans have argued effectively, it’s ridiculous to raise taxes when the state is enjoying large surpluses. Secondly, the fact of the surpluses casts the pro-tax camp as the boy who cried wolf. The Big Tax zealots cried “fiscal crisis” in 2004, and it turns out they were wrong. The Big Tax apologists argue that road funding is facing a crisis as well, but they have less credibility than they did two years ago.

Here’s another important difference. The Democrats are less united behind a tax increase today than they were in 2004. Two years ago, the tax hike went to a cause that all Democrats could feel good about: public schools. Democrats are more ambivalent about raising money for transportation improvements, the bulk of which will go to roads. The influential environmentalist/ conservationist wing of the Democratic Party loves Gov. Kaine’s proposal to give local governments more power to restrain growth. But the Smart Growth activists have been less than vocal in their support for more money to build more roads. Indeed, many Smart Growth proponents regard it as a huge mistake to ramp up spending on transportation until fundamental land use reforms have been put into place first — and the Governor’s land use reforms only scratch the surface.

Here’s one more difference. In 2004, spending money on schools had broad bipartisan support across every region of the state. In 2006, voter frustration with traffic congestion is concentrated mainly in Northern Virginia and, to a lesser degree, in Hampton Roads. Outside those two metropolitan areas, legislators aren’t feeling any pressure to raise taxes. As long as a transportation tax scheme is statewide in scope while traffic congestion is localized, it will be a very hard sell.

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9 responses to “Tax Wars: 2006 vs. 2004”

  1. Anonymous Avatar

    The push on transportation initiatives isn’t a localized as you think. Certain State Senators would like to see the Coalfields Expressway and I-73 completed as soon as possible for economic development purposes.

    And a high speed link between Roanoke and Tidewater via a significant rail-transloading facility and intermodel inland port is forthcoming as well as part of the I-81 discussions.

    Thus far I fault Kaine for not including these projects in the discussions.

  2. Anonymous Avatar

    If there was some legal way to invest the surpluses to use when times are lean, you might have an argument. Instead we have this constant see-saw battle over getting the money when it is available or cutting vital services when it isn’t.

    The only way we have to invest the surplus is to overspend on needed capital projects when we can.

  3. Rtwng Extrmst Avatar
    Rtwng Extrmst

    Anon 11:28, just what is the rainy day fund for then???

    “Instead we have this constant see-saw battle over getting the money when it is available or cutting vital services when it isn’t.”

    VITAL services? Since when have any “vital” services ever been cut?????

  4. GOPHokie Avatar

    anon, that is part of the transportation arguement right now. Some want to spend the surplus, but that can only be (should be) on one time projects (building a road, etc). One the other side some people want to raise taxes to set in place a structural surplus which can then be used for long term projects and programs.
    I personally think the problem isnt the lack of money, its the lack of using right.
    That why I am opposed to another tax increase.

  5. kingfish Avatar

    I think the question is what does the House ultimately espouse as a way to address the transportation problem. They can’t just say no. If they adjourn without doing something to address these needs, they will get the blame again… and deservedly so. So let’s reserve judgement until we see what they propose.

  6. Anonymous Avatar

    RTWING -=- the Rainy Day fund is just that, a cushion to soften the landing in a down year or a series of down years. It cannot be tapped for any other purpose. Once it is full it just sits there. One idea I’ve heard — now that it’s full, keep the formula and use that for capital projects. But I don’t see that in play and it will take a constitutional amendment.

    The problem: The surplus as it is is all General Fund, and transportation is traditionally funded by NGF “Special Funds.” Last year the GF grew 15 percent, but the transportation funds only 3 percent, and the gas tax actually shrank last fiscal year.

    One time surplus funds are meaningless. The GA could change the split on the sales tax long-term and acccomplish something. But what the education folks come down here in buses if that is tried. It will be special funds or nothing.

  7. Anonymous Avatar

    I don’t think the House has this thing won just yet.

    The Senate plan could be full of details, the where, when, how much kind of stuff to justify the spending.

    If anything I think the House move is somewhat premature.

    I guess we’ll see.

  8. Sign me as one who doesn't like taxes but likes Virginia more Avatar
    Sign me as one who doesn’t like taxes but likes Virginia more

    Jaw all you want about no taxes, surpluses etc. remember, the commonthwealth is 2 billion a year short of meeting its total transportation needs, roads, rail transit etc. It has been 20 years since a tax increase for transporation. In less than 5 years the total transportion budget will be used for maintence alone.

  9. Jim Bacon Avatar

    Anonymous 3:35. I’m not “jawing.” My colleagues and I in the Road to Ruin project have developed a body of work elaborating our point of view. To quote from a recent summary…

    Advocates of higher transportation spending argue that the state is facing a transportation funding crisis. With maintenance spending eating up the road construction budget, Virginia faces $108 billion in unmet needs over the next 20 years. Is this true?

    The Road to Ruin team believes that the commonly quoted numbers paint a highly misleading picture. Yes, traffic congestion is increasing in Virginia, as it is across the nation, but our transportation system is in much better shape than the tax-hike advocates let on. The following columns show why the official forecasts are next to useless:

    The Maintenance Mantra. The Road Gang wants you to believe that the surging maintenance budget for Virginia’s roads justifies another tax increase. Take a closer look at the numbers before you buy their story.

    Does Not Compute: VDOT’s forecasting model is the best yet devised, but it’s still grievously flawed. Virginia does not face $108 billion in unmet transportation needs over the next 20 years.

    As an aside, the opportunity exists to squeeze hundreds of millions of dollars of costs out of Virginia’s maintenance budget through outsourcing:

    The Waste in Maintenance: If the General Assembly doesn’t tackle the $200 million-a-year waste in road maintenance, lawmakers can’t even pretend to be serious about curtailing state spending.

    The Road to Ruin team argues that worsening traffic is largely the result of 40 years’ accumulation of scattered, disconnected, low density development (commonly referred to as suburban sprawl). Increasing taxes without reforming human settlement patterns, we argue, will not bring about lasting relief from traffic congestion.

    Tax-and-spend advocates respond that we can’t wait another 40 years to fix suburban sprawl — we need to build roads to provide relief now.

    Yes, it could take decades to un-do a half century of badly planned development. But the right kind of development in the right places can accommodate future growth without adding more stress to Virginia’s transportation system.

    The Road to Ruin team favors development projects that provide a balanced mix of homes, offices, stores and services in a pedestrian friendly environment. The idea is to create communities where people can conduct much of their daily business locally and minimize their use of regional transportation arteries.

    A number of promising new developments are on the drawing boards in Virginia, and municipalities are considering innovative strategies for revitalizing older neighborhoods. See:

    Street Cars and Zoning Codes: Arlington County is trying novel tools to revitalize Columbia Pike, an aging traffic corridor.

    Albemarle Place: Can a Giant New Development be Part of Charlottesville’s U.S. 29 Traffic Solution?

    The Gunst Guide to Life, Liberty and the Pursuit of Happiness: Government regs have made a mess of real estate development, says the creator of Innsbrook. It’s time to rewrite the rules and start over.

    Not all development projects are created equal. Some have a smaller transportation “footprint” than others. See:

    Traffic Buster: Pulte Home’s challenge: Slash the number of auto trips generated by the proposed MetroWest project in Fairfax County. Success there will show how the right kind of growth can make traffic congestion better, not worse.

    Similarly, even projects that work well on a “micro” level may not be well located from the regional transportation perspective. Ideally, we need to rethink how we build our communities at both the micro and macro levels. See:

    It’s the Location, Stupid: The Smart Growth and New Urbanism movements share similar critiques of suburban sprawl, but they don’t always agree on the solutions.

    While re-designing our communities is the most important thing we can do to ameliorate traffic congestion, we acknowledge the magnitude of the task. Changing zoning codes, subdivision ordinances and highway funding formulas will require years, if not decades, of work.

    In the meantime, we believe, there are other strategies for improving the efficiency of our transportation system that don’t entail raising taxes.

    One core principle is adopting a road transportation formula that, to the greatest extent possible, charges motorists for their use of the roads. See:

    Congestion Pricing: Too many drivers and not enough roads — traffic congestion is nature’s way of telling us that we need a pricing system to allocate scarce highway capacity. VDOT is studying a plan to demonstrate that radical idea in Hampton Roads.

    Roads and Reason: Virginia is evolving toward a market-driven transportation system. Let’s pick up the pace. Here’s what an economically rational funding system would look like.

    Also, there are ways to increase transportation capacity without the considerable expense of adding new lanes of roadway. See:

    Seeing the (Traffic) Light: Synchronizing traffic lights is an indispensable tool for coping with traffic congestion. There are limits to what it can accomplish, but the return on investment is better than for most alternatives.

    Pavlov’s Pols. Politicians act as if the only solution to traffic congestion were building more roads and rail lines. Perhaps they should stop salivating over higher taxes long enough to read the VTrans2025 report.

    Likewise, technology is making tele-work a more feasible option than ever before. See:

    Rush Hour Will Never Be the Same. Technology is liberating workers from the tyranny of the central workplace, scrambling commuting patterns in the process. Our transportation policies are still catching up.

    Finally, the Road to Ruin team is skeptical of any transportation “solution” that puts more money in the hands of politicians. When political considerations override economic considerations, the results are seldom pretty. See:

    Blind Spot: Local officials look to state government to solve the transportation crisis, but show no sign of changing their own policies that helped create it.

    When Good Highways Go Bad: There was a justification for Route 288 — a decade ago. Today, Richmond’s newest highway stands as a monument to bureaucratic inertia and the power of special interests.

    You can follow the links to these stories here. Furthermore, Ed Risse and I have written many, many more columns elaborating our arguments, which can be found in the Bacon’s Rebellion archives.

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