DATE:                  Wednesday, August 23, 2006

 

JULY AND EARLY AUGUST HAS BEEN QUIET

After six months of “being in session” your legislators went home following the final struggle with the Governor and the passage of HB 5002 (you remember the 2006-2008 Appropriations Act).  Since then, many of them have taken vacations and others have returned to their districts trying to earn a living at their “real jobs.”  Of course, technically your Assembly is still in “special session.”  Visit the General Assembly Building (GAB) or even the Patrick Henry Building (PHB) to “walk the halls” and you soon realize there “ain’t many people around.”

 

The staffs of the money committees have been taking well deserved vacations. They have been alternating these so there are skeleton crews working at any one time, but not the full hectic pace that was evident during the June push to finish the budget.  You rarely see a legislator on the 9^th or 10^th floors of the GAB where the Appropriations and Senate Finance Committees have their offices.  Consequently the atmosphere is much more relaxed and the staff members can take a few minutes to talk to you and give you current information. 

Things are still happening in your state government.  The Governor has, as one editorial put it, “…loaded up his wagon and taken his crew on a summer road trip.”  His Secretaries and chief advisors, as you may have heard, are beginning a series of public Cabinet meetings outside of Richmond.  In my opinion, this will get him a lot of good points with the public.  I remember ages ago when I first came to Richmond as a young freshman and minority Republican Delegate from The Valley, most people in my district were absolutely convinced that all of the state government officials in Richmond thought that Virginia stopped at Short Pump.  (Now that I live there I know it is really the epic center of Richmond, and maybe the state!)

 

Gov. Kaine stated that a voter in Abingdon suggested he get the state government out of Richmond.  The voter even recommended the caravan approach.  The fact that this voter lives in a locale that is closer to at least 6 other state capitals than it is to Richmond might have influenced his thinking.*

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 *  (Footnote: For those of you from Eastern Virginia, Abingdon is in Washington County on heavily traveled I-81 19 miles from the Tennessee border and is closer, as a crow flies, to Atlanta, GA; Charleston, WV; Columbus, OH; Frankfort, KY; Nashville, TN; and Raleigh, NC. than it is to Richmond. The citizens might just feel a little isolated from “their state government.”)

 

Some other news from the Capitol came as no shock to most of us who have had the opportunity to tour Mr. Jefferson’s structure early on in the renovation process.  The 2007 session of the General Assembly will still be held in the PHB.  The scheduled December ’06 completion date will not be met.  Many felt this was an overly optimistic projection from the beginning, but the Department of General Services and the contractors kept saying they could do it.  Now the question is will it be completed in time to help attract to Richmond the expected influx of tourists for our nation’s 400^th anniversary?  The pressure is on and hopefully this will happen.

 

TRANSPORTATION—THE BIG ISSUE OF 2006—IS IT STILL?

 

THE PLANS for “fixing the transportation system in Virginia” were put on the back burner when the General Assembly finally passed the ‘06-‘08 Appropriations Act in late June.  But the idea was that legislators would come back in September (or in the fall) in a continuation of their special session to again tackle the “big crisis of 2006.”  Recent comments by a variety of legislators indicate there doesn’t seem to be much “fire in the belly for more tackling practice this year.”  (Pardon the football analogy, but it seems to fit before the start of the football season.) 

 

A recent, much publicized, Mason-Dixon poll found very little support for higher transportation taxes.  The “no-tax-increase” Republican Delegates have been elated and are spreading the word, “…that we have enough money to have a fine transportation system.”

 

State Senators are concerned this poll has convinced people there is “no sense of urgency” about the transportation problem.  Others have said the Senate is willing to look at any options, but most options hinge on finding new money. 

 

The regional plans which have passed the Senate and are in the bosom of the House Finance Committee, having been laid on the table “for an indeterminate time,” might now muster some support in the House.  But all of the House members know the Senate’s more influential leaders have said, “No regional plans without a full statewide plan that doesn’t throw the rural areas to the wolves.”

 

So the two houses aren’t any closer to finding common solutions for the “crisis” than they were in April.  With the Mason-Dixon poll, the landscape looks much different than it did in the spring.  According to the poll there is little support for “new, sustainable sources of income” to address transportation needs whether they be roads and highways, airports or sea ports.  In April, the efforts of the Governor and the Senators to promote new revenue sources seemed to be gathering stream.  The poll deflated that balloon. 

 

All of these conditions have impacted on the legislators “loss of appetite to come back for a transportation session.”  They are tired of the frequent back and forth travel from their home districts and of the “confrontations which seem inevitable between the two bodies.”  In my opinion, they have also gathered from their grass roots listening that the constant meeting with nothing being resolved is not setting too well with the voters. 

 

If these impressions are accurate, I predict there will not be any real tackling of the transportation issue in September.

 

Having said that, you should know the Governor, his advisors, and his staff are still saying publicly and privately, “…we will secure a solution to transportation.  It may not be all we want but it will include a sustainable source of revenue and take a large step toward a long time fix.” 

 

TRANSPORTATION AND THE MASON-DIXON POLL

 

There have been several editorials about the Mason-Dixon poll on transportation.  Most of them point out the inconsistencies in the results.  For instance, 50% of those polled “…oppose the very concept of increasing taxes for transportation.”  (Larger majorities indicated opposition to specific taxes and fees put forth as possibilities by Kaine and the Senate lawmakers during the regular assembly session.)

 

While they were opposing new taxes, more than half of those polled also opposed the idea of cutting spending in other areas to free up funds for roads and transit systems. 

 

Now, of course, despite the positions noted above, over two-thirds of the registered voters in the poll “…support the idea of having a special legislative session on transportation this year.”  They also want the General Assembly to do something about the State’s transportation problems. The polled citizens haven’t given the legislators much room to solve the problem or much leadership in how to solve the problem.  (Oh, maybe that’s what voters elect governors and legislators to do--Give Leadership rather than follow opinion polls.  Gee, what a novel idea.)

 

The ending of two of the editorials on this topic give more insight into the situation.  Senate Brandon Bell, who voted for the Senate plan to increase taxes for transportation, is quoted in the Roanoke Times, “The question is never asked: ‘If we do nothing, would you be happy?’  The difficulty is you’re dealing with a long-term problem and needing to deal with it now,” Bell said, a member of the Senate Transportation Committee.  “If you wait until you actually see the potholes and congestion and deteriorating roads, it’s too late.”

 

The editor of the Danville Register and Bee stressed, “It’s a political parlor game to try to determine if Gov. Timothy M. Kaine and the Senate Republicans have done a poor job selling a tax increase for transportation or if the people are more worried about the rising cost of fuel than they are about building the roads they hope to one day drive.  Fixing Virginia’s road construction crisis will take money – and someone will have to pay, especially if new or higher taxes are taken off the table.” 

 

BUDGET RELATED ITEMS

 

Where, oh, where do the Sales Taxes go?  Despite the opinion of a number of legislators that we are “awash in surplus money,” the state is now faced with covering a $137.2 million “over-estimation of the portion of the sales tax that is dedicated to paying for the Standards of Quality” for FY 2007.  As most of you may know, the SOQ are the minimum requirements for operating a school system.  What you may not know is that because of the way the school formula works when the sales tax allocation for the SOQ is reduced, the state and local shares of the SOQ increase. 

 

In the normal budgeting process, the state calculates the cost of providing the SOQ.  Then 1-1/8 cents of the state sales tax is deducted from the cost.  The remaining cost is split between the state and the localities based on a composite index formula.  On a statewide basis the state pays 55% of the balance of the cost of SOQ while the localities pay 45%.  This varies from locality to locality based on the composite index that theoretically measures each locality’s ability to pay.

 

Presently in Virginia, the Executive branch of government estimates all tax revenues.  The State Tax Department has the responsibility to fulfill this task.  Normally they do a pretty darn good job of this rather difficult job.  This year, however, they goofed -- not in the estimates of the tax revenue but in how the sales tax portion was to be allocated.  This “came to light” after the state budget was adopted and too late for most localities to adjust their budgets to address what in effect will be a short-fall in the sales tax allocation they will receive. 

 

Governor Kaine has stated he will recommend to the General Assembly that they amend the budget to solve the problem in FY 2007.  The Governor, in all likelihood, will send down a bill to the Assembly session called for Monday, August 28^th. The bill will appropriate sufficient General Funds to “hold local governments harmless from the increased local costs due to the mistake.”  Now remember, the GA is still in special session for “transportation and budget issues.”  Thus your legislators have the ability to amend the state budget prior to the beginning of the school year, shifting the sales tax receipts to help localities meet their school requirements for FY07. 

 

Two interesting factors figure into this situation. First, many localities do not rely on the state’s “official estimates of sales tax allocations” so they may get a “wind fall” while the smaller localities who do rely on the state’s forecasts will be “made whole.”  Secondly, the Governor was very careful in how he stated his intentions to hold the localities harmless.  He didn’t mention 2008, when the over-estimation is a forecasted $151 million.  Most believe this could lead to some serious discussions in the 2007 session.  With a belief among many legislators that the localities have benefited greatly from the increased values of real estate in recent years, there will be those who feel the localities will have plenty of time to adjust their budgets for FY08.  If this is the action taken by the Governor and/or the Assembly, then there would be about $68 million more in the GF for appropriation at the state level.

 

AT THE UPCOMING MONDAY MEETING OF THE MONEY COMMITTEES -- THERE WILL BE QUESTIONS AND MORE QUESTIONS 

 

Some reliable sources have indicated the leadership of the legislature, wondering why such a misallocation took place, asked the Joint Legislative and Audit Review Commission (JLARC) to look into the matter.  Well, it now appears JLARC may have discovered that the originators of the 2006-2008 Budget discovered this over-estimation prior to going out of office.  Somehow this failed to get communicated to the incoming administration and to the General Assembly when it started to meet.  If this had followed the regular sequence of events, the state would have covered their 55% of the cost and the localities would have had the opportunity to know they needed to cover the $61.7 million they were told they would receive “off the top.”  Then they could have adjusted their budget accordingly (some did anyway because they used their own estimates).  Of course, once assured they would have the money, don’t you bet most localities spent it all rather than saving some of it?

 

So the Governor will recommend the localities be held harmless.  Logic certainly dictates that after the Governor gives his presentation to the money committees on Monday, that his financial representatives -- Secretary of Finance Jody Wagner, and the Director of the Department of Planning and Budget, Ric Brown -- will receive a grilling from the members.  The questions will probably be particularly tough from the House Republicans.  The questions would have been tough enough under regular circumstances, but add to the recent, contentious budget deliberations the political factor.

 

The Governor is now publicly touting his belief that the Democrats may take control of the legislature come the 2007 elections and that he will “…lead an aggressive fundraising campaign to make it happen!”  (This statement was made in a recent speech to the state’s AFL-CIO convention in Vienna.)  This may just possibly cause some more caustic questions, don’t you think?

 

WHO SHOULD ESTIMATE REVENUES

 

As noted above, in Virginia, the Executive Branch does the official forecast of revenues.  Legislative leaders now participate in this process.  However, their participation is limited. By statute the Governor’s Advisory Council on Revenue Estimates has legislative members.  The Governor’s financial staff puts together the forecasts with the help of an Advisory Board of Economists without direct legislative input.  In a number of states the legislative branch also exercises its muscle by having an “official group to forecast the state’s revenue.”  Since my early service in the House, in practically every Assembly, some legislators advocate that Virginia’s legislature adopt a similar process. 

 

This idea may have acquired traction when a small group of up-start Republicans had an unofficial advisor gauge the accuracy of the Governor’s revenue estimates.  Interestingly, they found a continuing tendency of Governors to underestimate the forecasted revenue. Back in 1965 and in 1969, Linwood Holton made the accurate forecasting of state revenues one of his goals “…so that any tax dollars collected from Virginia citizens would be properly spent for the benefit of the citizens or they should not be collected in the first place.”

 

This latest incident of “misallocation” will surely bring forth additional pressures for the legislature to do its own forecasting.  At the least I would suspect some of the leadership may be motivated to request JLARC or a joint study committee to look at the feasibility of the General Assembly making its own forecasts or having the legislative leadership take a more active role in the administrative forecasting process.

 

From long experience the latter possibility seems the most practical to me. Developing two different forecasts would just increase the debates about who is right.  Then you have the “spending” questions with which to deal.  After the 6 month struggle this year the state certainly doesn’t need additional causes to extend the decision making process any longer.

 

 

Links to Previous Giesen Perspectives:

June 30, 2006 June 1, 2006 May 24, 2006 April 10, 2006 March 30, 2006 March 20, 2006 March 6, 2006 Feb. 27, 2006 Feb. 17 and 19 2006 Feb. 10, 2006 Feb. 3, 2006 Jan. 27, 2006 Jan. 23, 2006 Jan. 16, 2006 Dec. 21, 2005 Nov. 9, 2005 Oct. 21, 2005 Sept. 16, 2005 Aug. 26, 2005 Aug. 19, 2005 July 7, 2005 June 8, 2005 May 27, 2005 April 7, 2005 March 10, 2005 February 21, 2005 February 14, 2005 February 8, 2005 January 31, 2005 January 15, 2005 December 23, 2004 November 19, 2004

 

 

© 2007 Eldon James & Associates, Inc.