The state budget is leaking money like a sieve once again, and that means renewed calls for either cuts in services or increases in taxes will soon begin anew. Following months of declining tax revenues to the state, April’s tax receipts (the most significant month for tax collection) were 21 percent lower than April’s of last year, and the declines don’t look to be ending anytime soon.
It’s not just the poor economy that’s to blame, but rather rosy, unrealistic financial projections that politicians come up with to push the tough decision-making off into the future. In February, the General Assembly passed another bloated state budget (mistake #1) relying on the Governor’s projection (mistake #2) that Virginia’s tax receipts will grow at an annual rate of 4.5 percent beginning on July 1 (mistake #3).
There is no way an economy can turn around on a dime after months and months of double-digit revenue decline, and all of a sudden start to grow at 4.5 percent. The Governor knew this. The legislators who voted for a budget without any significant cuts knew this. But they all decided it was easier to push the problem off to a future date, perhaps hoping it would just go away. Now, as with any time you let a wound fester without getting medical attention, the infection is deeper and the problem will take more time and money to resolve.
Virginia State Senator Mark Obenshain (R-Harrisonburg), who represents the Shenandoah Valley, was one of a few lonely voices who warned us back in February that budget cuts had to be made to balance the state’s budget. Few were listening. Now Obenshain is saying that “every time [revised] revenue figures come out, they flatly contradict the projections issued just a few weeks or months prior.”
Governor Kaine is now predicting a $225 million budget shortfall by the end of this fiscal year (June 30). So in four months (February (when the budget was adopted) through June), the state has lost an additional $225 million. That’s bad enough, but Obenshain says that the bigger problem is that no one is even talking about the next fiscal year. Since the budget covers two years, with the “next year” starting on July 1, legislators are going to have to reconvene a special session fairly soon to decide how to balance it. The Virginia Constitution requires a balanced budget, and there are only two ways to achieve it – raise taxes and fees, or cut government.
Raising taxes is not an option. First, Virginia already ranks in the top seven states with the highest combined tax burden on its citizens – right up there with New York, California, Connecticut, and Taxachussetts (source: Tax Foundation). Second, raising taxes even more on people as they are losing their jobs and homes is just plain evil and immoral. Third, yet another report has come out which shows the states that have high taxes have stagnant economies and suffer job losses when companies move out to lower tax states (see Rich States, Poor States by Arthur Laffer and Stephen Moore).
Budget cuts are the only responsible thing to do, but most politicians don’t like that option, especially with elections coming up in November. To illustrate that point, while we are operating in the hole, the Governor continues to request – and the General Assembly often continues to give him – money for NEW spending, such as for universal preschool and a pilot light rail project for Northern Virginia.
“If revenue declined across the board this coming fiscal year at the rate we’ve seen this year, another budget hole of $3 billion or more is an all-too-real possibility,” said Obenshain.
Be on the lookout for some very tough sledding ahead in the coming year.
