- The Washington Times - Tuesday, November 18, 2003

Gov. Mark Warner yesterday said he will call lawmakers back to Richmond for a special General Assembly session if they adjourn in March without having passed a package of state and local tax reforms.

Without reforming a tax structure that dates to World War I, the state faces annual budget shortfalls at least through the end of the decade even if revenue continues to grow modestly, the Democratic governor said on his monthly call-in show on WTOP Radio.

“That’s a structural imbalance that we have to deal with. There’ll be a great deal of debate about this, but this will be something we will debate from November, December, January, February, March and if the legislature needs to stay till summertime, I’m going to keep them,” he said.

It’s the first time Mr. Warner has publicly proposed a special session for next year to restructure the patchwork of state and local taxes, which critics say unduly burdens young, low-income and working families.

In a speech later to the Greater Washington Board of Trade, he said with no new state spending, even for public schools, higher education, transportation and the state prison system, and assuming a normal 4.9 percent annual economic-growth rate, “the Commonwealth of Virginia has a business plan that will have a shortfall every year until the end of the decade.”

Mr. Warner’s comments came as key legislators gathered in Williamsburg for a two-day House Appropriations Committee retreat to examine the 2005-2006 budget.

“It’s premature to be calling for a special session. We haven’t even had the regular session yet,” said House Speaker William J. Howell, Stafford County Republican.

“If we had seen the proposal three months or six months ago, and had plenty of time to look at it, we could probably get it done in the regular session,” he said.

Mr. Howell also said that special sessions cost additional money that the state cannot afford to spend.

Appropriations Chairman Vincent F. Callahan Jr., Fairfax County Republican, said 2004 could be the year Virginia finally raises its 2.5 cent-per-pack cigarette tax — the nation’s lowest — and possibly the gasoline tax. “They’re options out there for people to look at,” he said.

“If we’re going to do anything like a cigarette tax — and there doesn’t seem to be a whole lot of opposition to that — direct [the revenues] to something like Medicaid,” Mr. Callahan said.

“We’re projecting an increase in Medicaid obligations over the next biennium of $650 million in addition to what we’re paying now, which means we will exceed $2 billion a year in general fund Medicaid expenses,” he said.

Without new transportation revenues, the state risks running out of cash to build new roads, Mr. Callahan said. “We’re getting to the point where we don’t have any construction money left. It’ll all be maintenance.”

Mr. Howell, an opponent of using a tax-code rewrite to increase revenue for the state, embraced neither higher cigarette taxes nor gasoline taxes, but said he wouldn’t preclude them, at least not yet.

“I made a commitment to the governor I’d keep an open mind” on tax reform, Mr. Howell said.

Delegate James H. Dillard, Fairfax County Republican, said it’s quite possible that tax reform will not be resolved by the time the session ends in mid-March.

“That’s because we’re probably going to have a train wreck,” said Mr. Dillard, who projects a shortfall of at least $2 billion. “It could be that the House and the Senate and the governor are not going to be able to get together on what they want by then.”

The Senate’s ranking member, Finance Committee Chairman John H. Chichester, Stafford County Republican, said Mr. Warner has a responsibility to keep legislators at work on pressing problems if need be.

“He’s the governor and he has the obligation, I guess, to keep us there if we don’t perform as the executive branch thinks is necessary,” Mr. Chichester said.

When the state begins writing its next budget for the two budget years that begin July 1, it faces a revenue shortfall of at least $1.2 billion, Mr. Warner said.

Even with revenues beginning to rebound, the state faces a minimum of $700 million in education-funding needs, plus about $800 million in additional needs for Medicaid, the governor said.

Virginia also has been put on notice by Moody’s Investors Service, one of three major Wall Street bond-rating firms, that unless the state swiftly begins replenishing its depleted reserve fund, it risks losing its superlative AAA credit rating.

“We have a $1.2 billion shortfall, a structural imbalance through the end of the decade, and on the books we have a law to finish the car tax, on the books now we have a law that says provide additional food-tax relief, and clearly, it was the sense of the legislature last year that we have to do some reforms of the estate tax,” Mr. Warner said.

A slip in the state’s bond rating means it would cost state government more to issue bonds used to finance long-term projects.


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