Vivian's Views > Budget & Taxes

COMMITMENT

2005 NEWSLETTER

What a roller coaster! After two tough years of cutting $6 billion in state spending and 5,000 state jobs from what the last administration had budgeted, this year we had a $1 billion surplus.

The first priority had to be covering the increased cost of Medicaid, which now takes 12% of the state’s general fund.
Our next priority was tax cuts. As of July 1, the food tax will drop to 2½ cents. When you do your state income tax next year, your personal deduction will be $900 instead of $800. And retailers will no longer have to send money to the state for sales taxes before they actually collect it.

Transportation took the bulk of the remaining surplus as part of a $848 million state/federal 2-year funding package. Regrettably, since only $108 million is on-going state funding, this makes better headlines than any real relief it will deliver.

2004 NEWSLETTER

The work that the House of Delegates did in 2004 to balance the budget had a lot of positive outcomes and there were still things that we need to work on, some of which we tackled this session. Some of the good things were:

• Virginia preserved its AAA bond rating. Wall Street said that unless we brought state revenue and spending in line, Virginia would lose the top rating, which we’ve had since ratings began in the 1930's. Losing it would cost millions in higher interest. More importantly, losing status as a well-managed state would effect local bond ratings and our ability to attract new employers into depressed areas.
• Education and services for disabled persons received much needed funding.
• Fairfax County taxpayers got some real estate tax relief. Without over $50 million in additional state funds, Fairfax County’s real estate tax rate could not have been cut 3¢ this year.
• Neither Northern Virginians nor senior citizens bore the weight of tax increases, as some proposed. A higher income tax bracket – which would have fallen principally on this region – was rejected. We will benefit equally with taxpayers throughout the state from increasing personal deductions to $900, eliminating the marriage penalty, and raising the filing threshold. Those now receiving the full Age Tax Credit will see no change; however, for those not 65 by January 2004, it will be reduced by $1 for every $1 over $50,000 ($75,000 for joint returns.)
• Virginia no longer will have the nation’s lowest cigarette tax. On August 1st, the current 2.5¢ per pack increases to 20¢; then, to 30¢ next March. The revenue will go to health needs, including Medicaid.
• We closed major corporate tax loopholes that most states had already closed regarding holding companies.
• We put over $400 million back into the Rainy Day Fund, which was virtually drawn down to zero to keep recent budgets afloat.

It is important that we in the House of Delegates keep working to have a balanced budget but still be able to wisely spend the state's money to improve transportation, keep class sizes low in our schools, provide the resources that our law enforcement officials need to keep our communities safe, protect our natural resources, make sure everyone has access to the higher education and health care they need, and keep taxes low for it's citizens.

2003 NEWSLETTER

BUDGET STRUCTURE
Virginia’s budget crisis is twice as serious as it might appear from just reading headlines. Most of the shortfall affects only half the budget, because the rest comes from payments for specific services.

Our $26 billion annual budget is split between 2 funds. The General Fund is $12 billion and used to pay for basic state government operations. One-third of it goes to pay for K-12 education, followed by state expenditures for medicaid; police, courts, and prisons; higher education; mental health and other human services; and car tax relief (7%). Money to fund these programs comes from sources everyone pays (i.e., individual income taxes, the sales tax, business taxes, lottery and ABC store profits, liquor and cigarette taxes, and court fees). These revenues have been driven down by the sluggish economy. We have had to repeatedly cut General Fund budgets starting in January 2002 into 2005 to absorb a $6 billion shortfall.

The reason most of the cuts had to be from the General Fund is because, by law, most of the rest of the budget – $16 billion in the Nongeneral Fund – comes from and goes to specific areas. Federal dollars must be used for programs such as Medicaid (41%). College tuition payments and hospital charges go to the institutions (23%). The gas tax and vehicle fees are designated for transportation.

Opportunity The Chinese character for “Crisis” combines the words for “dangerous” and “opportunity.” Indeed, we’ve used this opportunity to streamline state government and make real longterm savings: We eliminated 12 agencies and 43 boards and commissions. 6,000 state jobs were cut. With individual state agencies having over 100 separate contracts to purchase Dell computers, some of us on the Science and Technology Committee worked long hours this Session with the Governor to consolidate information technology services for an annual savings of over $35 million. Services to veterans will improve because fragmented programs have been consolidated. And, of course, repeated budget, averaging at least 20%, have forced agencies to produce efficiencies.

Danger Other ways that were used to handle the budget crisis simply aren’t available to be used again or, if they are taken further, basic services will be crippled. We’ve drawn a total of $845 million from the Rainy Day Fund and what it took 8 years to build up is now essentially gone. Reducing what we put aside to fund state pensions hopefully was actuarially sound but going further won’t be. An amnesty period to entice people to pay back taxes without penalty is expected to yield a $40 million surge but will reduce the normal flow of collections in future years. In fact, state revenues must grow 5% in the next 2 years just to cover such one-shot “fixes.”

Examples of questionable cuts to basic services are many. For the first time, all qualified graduates of NVCC will not be able to complete their last two years at GMU. Eliminating beds in large mental health institutions is not matched with adequate increases in community care and prescription drugs. Re-opening DMV offices with less than half the windows staffed still leaves incredibly long waiting lines. Finally, the fact that state employees have received no salary increase in 3 years affects the quality of our workforce.

TAX REFORM
No tax is fair. I can make strong arguments against each and every one. However, by balancing one with another we can achieve the fairest possible tax system to raise what is necessary, as broadly, equitably, and efficiently as possible.

Ideally, revenues from taxes should be split equally between income, real estate, and sales. Virginia has moved considerably away from this balance. 60% of the General Fund now comes from individual income taxes, while only 20% comes from the sales tax. Having the lowest cigarette tax in the nation adds to the imbalance.

For many Fairfax County taxpayers, high real estate taxes are what is really out of balance. This is much less true in Arlington, Alexandria, and cities throughout Virginia because they have local tax sources, such as hotel rooms, restaurant meals, and cigarette taxes as high as 50-cents a pack.

There also are unfair and antiquated aspects of both our sales and income taxes. We’re one of the few states that tax groceries but not services. We don’t tax Internet purchases. Virginia’s income tax schedule hasn’t changed since the 1930's, except for adding the 5.75% rate for income over $15,000. And, yet, even though the result has been to shift more and more of Virginia’s tax burden away from the wealthy, the only tax change that passed this Session would have given $50 million to 50 multi-millionaires by eliminating the estate tax...

OUR FAIR SHARE
The car tax rebate has become a critical part of the tax reform debate, not only because of the mushrooming annual cost of this major tax cut, but also because so much of the benefit goes to Northern Virginia. People throughout Virginia hated the car tax so much, they didn’t realize that using state funds to reimburse localities for not collecting this tax was not a good deal for them.

Over the years, local car tax rates grew to reflect how state school funds are distributed. Those localities with high car tax rates – who are the big beneficiaries of the state rebate – are those that traditionally get little state school support. Fairfax is a prime example. Without significant state school funds coming in and without the broad taxing power given to cities, raising the local car tax became the only alternative to higher real estate taxes.

The effect of state funding on local taxes makes the school funding formula a key issue in whether tax reform will actually achieve a fairer tax structure across the state. 111 of Virginia’s 134 school divisions get more than 50% of their school budget from the state, including Prince William and Loudoun counties. Fairfax County gets 18%. This is supposed to reflect each locality’s ability to fund its own schools from local taxes. It does not...

Unless the school formula is changed, even if tax reform does produce more revenue, it won’t make a dent in the inequity of high real estate taxes in Fairfax or benefit our school children. The challenge will be to not lose car tax gains in the process.

I have been working through the crises in 1999 and 2001 to make sure that a suitable negotiation took place in the House of Delegates, and that a solution was put forward that would make sure that unfair taxes were phased out and the state did not suffer from misuse of money. We are facing tough times in many areas, and my job has always been to make sure that we spend money in the right places so that we can do the things we need to do, while not raising taxes too high for everyone.

2002 NEWSLETTER

UN-FAIR STATE FUNDING
One of the most important goals of tax reform MUST be to reconcile how the state funds local schools with how local governments are allowed to make up the difference. With 1/3 of all state taxes going to K-12, how this money is re-distributed is critical to Fairfax taxpayers.

The gross unfairness of the current school funding formula is well-illustrated right here in Northern Virginia. Fairfax County has 3 times as many students as our neighbor, Prince William. We both will have about 5,000 new students in 2 years. And, yet, Prince William will get $45 million MORE in state funds while Fairfax will get $29 million LESS.

Fairfax is being penalized because 50% of the 2003-2004 state subsidy calculation was based on our income per person in 1999 – the heyday of dot.com salaries and capital gains. Even if that segment of the economy was still booming, we can’t tax income; we only can tax real estate. Many of you know first hand that the assessed value of the house you’ve lived in for 25+ years does not reflect your current income and ability to pay.

Real estate values are 40% of the state subsidy calculation but, since the local sales tax base only accounts for the remaining 10%, tourist areas – like Virginia Beach – get large school subsides from the state, despite all the local revenue they get from hotel, restaurant, and general sales taxes.

The down-state leadership was adamant that Fairfax voters couldn’t be given their own source of funding out of fear we would refuse to help meet state needs. They were un-willing to acknowledge how much we already contribute, much less how much we need to be able to help ourselves.

RESPONSIBLE TAX REFORM (RESPONSE TO SUN GAZETTE QUESTIONAIRE, OCTOBER 12, 2001)
Besides transportation, education and taxes, what issue do you place the highest priority on?
We must restore integrity to the state budget. Borrowing 20 years ahead to fund current tax relief is not responsible. Delaying payment of $50 million to citizens due tax refunds to make the budget look more balanced is reprehensible. Not funding even cost-of-living increases for employees, from law enforcement to teachers, is flat unfair. Finally, un-willingness to compromise to update the budget especially hurt growth areas like Fairfax with 4,000 new students and not a penny more from the state. We can continue responsible tax reform, including phasing out the car tax, but only with full information and rational compromise.

STATE REVENUE INCREASES AND PROGRAM CUTS (JUNE 28, 2001 E-MAIL RESPONSE TO CONSTITUENT)
I totally agree with all of the points that you made about the car tax. It is an awful tax and the issue is not whether its roller coaster impact on individual taxpayers should be phased-out on cars under $20,000. The issue is how fast we can prudently accomplish that goal...: by next year, the year after, or in two years if the economy stays sluggish.

...because the cost of the car tax rebate had been so under-stated, other pressures on the state budget are very difficult to balance. For example, we adopted the budget for the fiscal year that is just ending in March 2000. It assumed a 10.5% revenue increase. This $1.1 Billion was allocated as follows:

$ 600M public schools -- for increased enrollments, reduced class sizes in kindergarten through the 3rd grade, and increased teacher salaries

$ 300M transportation -- because we haven't increased the gas tax since 1987, we have lost 60% of its buying power to inflation and reduced gas sales in relation to road usage because of more fuel efficient cars. For the first time, therefore, we had to take monies from the General Fund to supplement the Transportation Fund.

$ 200M car tax relief -- this was the cost of going from 27.5% to 47.5%. The total cost of 47.5% was $600M

These 3 items alone equal the $1.1Billion projected revenue increase. Other program increases ($60M for Medicaid growth in elderly population; $30M for Mental health to respond to federal investigation of deaths in facilities; $30M for SABRE the Governor's anti-drug initiative; $28M for higher education principally for increased enrollments and partially to balance the freeze on in-state tuition; and $9M to buy land to control run-off into the Chesapeake Bay) were funded by cutting costs elsewhere.

In reality, we haven't even come close to the 10.5% revenue growth projected in March 2000. We won't even reach 4% for the year. Therefore -- with the exception of car tax rebates, which of course have already been sent to taxpayers and those elements of Medicaid and public school support that are controlled by federal or state law -- programs were cut or not initiated.

2001 NEWSLETTER

VIRGINIA'S BUDGET STAND-OFF
For the first time in 400 years, the Virginia legislature adjourned without passing a current budget. We tried again ... and again ... and yet again ... but a compromise could never be reached.

The major issue is the economy. The budget we passed last year assumed a 7% revenue growth and, as of this writing, we are at half of what we need and far below the 5% required by law to move to the next phase of car tax relief. Cuts must be made.

The Senate and 1/3 of the House took the position that all areas of spending have to be examined. The Governor and a majority of the House insisted that increasing car tax relief to 70% couldn’t be touched. I voted against both the Senate’s 50% rebate rate and the House’s 70%, assuming that a responsible middle-ground would be reached in conference committee. However, the time-honored process of negotiation never took place.

Important principles are at the heart of this unprecedented impasse: (1) keeping a campaign promise, (2) conservative budgeting, and (3) the balance between taxes and government responsibility.

Keeping a Campaign Promise – Although bumper stickers read "No Car Tax," in fact, the Governor never promised to eliminate the tax. What he proposed was phased-in relief over 5 years on the first $20,000 of a car’s value starting at 12.5%. He said when we reached a 100% rebate, it would cost the state $600 million a year.

That estimate was way off. It’ll actually cost more than twice as much, or $1.3 billion, to reach 100%. In fact, at 47.5%, we’re already delivering $600 million a year in promised tax relief.

Nevertheless, because we failed to pass a current budget, the full 70% rebate will proceed on schedule. A Fairfax County taxpayer – who owns a $10,000 car and got a $240 tax rebate last year – will receive about $90 more this year. This costs $890 million statewide, and the Governor has the legal authority to cut programs to find the money... starting with no salary increases for state employees and teachers.

Conservative Budgeting – The intensity of the budget battle also reflects concerns many of us have about Virginia losing its reputation for sound financial management. Proposals to avoid program cuts relied heavily on borrowing, such as using tobacco settlement money this year that will come in over the next 20 years and shifting maintenance costs to long term bonds. Legislative tempers also flared when the Governor did not provide current revenue estimates to his economic advisory council as required by law...

Taxes vs. Programs – Fully funding car tax relief will take over 8% of our General Fund annually, equal to what we spend on higher education...School enrollment is booming. It’s getting harder for in-state students to get into Virginia colleges. George Mason University, especially, has never been funded equal to others that provide the same academic program. Transportation now competes for General Fund dollars because we’ve run out of gas tax monies. Virginia’s low Medicaid rates and lack of coverage are causing life-threatening problems in nursing homes and are undercutting mental health/mental retardation programs. A fledgling land conservation program to protect the Chesapeake Bay was gutted. Even the State Police have not had an increase in force for the last decade (except for federally funded or toll supported positions).

THE COST OF THE CAR TAX REBATE: (RESPONSES TO CONSTITUENT LETTERS - MARCH 20, 2001)
...When the Governor took office he promised to adequately fund education first and then cut taxes...He promised during the campaign that the tax rebate would only cost $600 million annually; it is now projected to be twice that amount. His SABRE initiative was a promise to fight major drug operations, but he is cutting the over $25 million currently in the budget for 140 new state police positions and increased prison funding. His original request for over $10 million to fund remedial math programs in middle schools and reading initiatives in the early grades was a promise that Standards of Learning tests will be used to target resources to help students learn, not just point out their failure.

Finally, and perhaps most importantly for longterm progress we’d all want to achieve, the Governor and every member of the General Assembly promised that we would be fiscally responsible by establishing a trigger by law that the schedule for the full car tax rebate would be based on annual revenue projections of at least 5%. By borrowing, reducing contributions to the Virginia Retirement System and inflating economic projections, the Governor has declared there will be a 5.5% increase despite that fact that the actual increase to date is less than 3.8%. The economy continues to worsen. Virginia, for the first time in my memory, has been down-graded in a major ranking of fiscal management (Governing Magazine). I am concerned.

I voted against the proposed House budget that was based on the full 70% rebate. I voted against the proposed Senate budget that was based on only a 50% rebate. I assumed that, as always, a responsible compromise* would be reached. I deeply regret that the House majority and the Governor decided there would be no negotiation.

While I never thought I would see this kind of government in Virginia, I am determined to be part of a responsible middle course that, not only, will keep us one of the lowest tax states in the nation but also a state that strategically invests in the future. I hope you will be part of making this balance reality, for us and for future generations.

1999 NEWSLETTER

CAR TAX
You’ll get more than twice as much relief this year. Last year you received a rebate check from the state for 12.5% of the taxes you paid to Fairfax. Instead of this costly rebate process, this year you’ll see a direct reduction of 27.5% in the tax bill you get and Fairfax will be reimbursed in one lump sum from the state treasury for the taxes you weren’t assessed.

This State tax relief will be 47.5% of your County car tax bill in 2000. If the economy remains sound, it will rise to 70% in 2001 and 100% in 2002. (Remember this applies to the first $20,000 of value for each vehicle you own; cars assessed under $1,000 are not taxed.)...

MILITARY
Active duty military will not pay any income tax if their basic pay is less than $15,000 and will receive partial relief up to $30,000.

HOME CARE
If your income is less than $50,000, you may be able to take $500 off of your income tax bill if you provide un-reimbursed care to a mentally or physically impaired relative for at least two activities of daily living.

LOCAL TAX RELIEF
... the work of Northern Virginia legislators to win over $30 million in unprecedented new funding for Fairfax County does reduce the pressure on your real estate taxes. The largest increases were:

$16.8 million both this year and next year for construction, renovation, and debt service; and

$14.5 million more starting July 1st for law enforcement.

Again, the really good news is that Fairfax received its fair share compared to other localities when these monies were allocated.

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