Gov. Mark Warner said yesterday Virginia, which passed a record $1.38 billion tax increase this year, will actually end the year with a $323.8 million surplus.
Of that figure, only $13.1 million is available for use, since the rest is earmarked by law. Most of it will go into the state’s Rainy Day Fund. Ten percent of the surplus will go into the Water Quality Improvement Fund.
“Although the revenue surplus is good news, it will not be used to start new programs, or increase spending for government operations,” said Mr. Warner, a Democrat who championed the tax-reform package this year. “We will continue to press for improved efficiency in state government, and to ensure that every dollar is put to effective use.”
The $13.1 million will be carried over without being allocated until Mr. Warner submits his budget proposal in December.
In May, the year-end surplus was expected to be about $200 million, but strong stock market returns and a robust housing market helped to boost that figure.
House Speaker William J. Howell said the surplus is “good news” that he and other opponents of the tax increases had predicted.
“A lot of us had felt for some time that the economy was expanding significantly,” the Stafford County Republican said. “It says that there was not this need to raise taxes as dramatically as we did.”
Mr. Howell said if the growth continues, the surplus could be more than $600 million over the two-year budget cycle.
The Virginia Department of Finance indicated there would be a surplus just a few days after the Republican-controlled legislature passed the tax-reform plan that raises the sales, cigarette and real estate taxes while cutting other taxes.
Lawmakers also indefinitely capped the popular car-tax-relief program, ensuring that drivers will pay higher car-tax bills after 2006.
Moody’s Investors Service in New York credited the tax-reform plan when affirming Virginia’s coveted AAA bond rating at the end of May. The rating, the highest the firm offers, ensures the government pays the lowest interest rate on its loans.
But anti-tax lawmakers have vowed to propose tax cuts next year, when all 100 delegates are up for re-election. Senators are not up for re-election until 2007.
“I’m sure there will be talk of tax cuts,” Mr. Howell said, noting any cuts are not likely to pass the more moderate Senate or stand a chance with Mr. Warner.
News of the surplus also has prompted some lawmakers to call for reversing the $950 million cap and continue the phaseout of the car tax.
Please read our comment policy before commenting.