- The Washington Times - Sunday, November 23, 2003

RICHMOND — Gov. Mark Warner today will present a package of state fiscal reforms that would raise some taxes, cut or end others, make government leaner and allow revenues to better keep pace with the state’s changing needs.

Mr. Warner’s overhaul of a tax structure with roots in an agrarian Virginia where horses and buggies outnumbered automobiles emerges after months of closely guarded planning by the governor and a few of his senior advisers. It will be the focus of the General Assembly session that begins Jan. 14.

Though the plan will increase total state revenues, it won’t fully offset a projected shortfall of at least $1 billion the state faces as it budgets for fiscal years 2005 and 2006, according to interviews with Mr. Warner and legislators. Nor will it avert additional spending cuts.

“Even if my plan is passed in its entirety, it’s still going to require that we find ways to make some cuts in the next budget cycle,” Mr. Warner said.

The plan will shift more of the tax burden from the poor, who he says pay proportionately much more in income taxes than the wealthy.

“An awful lot of Virginians are going to see our plan’s going to make it a lot fairer in terms of who pays for the operations of the state,” he said.

In conversations with selected legislators from both parties in recent days, Mr. Warner, a Democrat, revealed few specifics. Based on broad outlines of his plans, however, lawmakers from both parties predicted the plan will reflect some of the themes the governor outlined July 10 when he addressed the inaugural gathering of a legislative panel created to study tax-code reforms.

It’s unlikely, however, to be as sweeping or as ambitious as the goals he asked the Tax Reform Commission to study, said senators and delegates who have discussed tax reform with the governor.

Among the options Mr. Warner asked the panel to study: extending the sales tax to payments for services rather than retail sales alone; reducing the income-tax burden on the working poor; closing loopholes corporations use to avoid state taxes; and taxing some online services.

“I don’t believe it’s going to have all of that in there,” Sen. Emmett W. Hanger Jr., Augusta Republican and a co-leader of the tax-reform panel, said during a retreat of the Senate Finance Committee.

in Fredericksburg on Thursday.

The plan emerges into an uncertain political climate. Republicans who control the House and the Senate held varied views about tax reform and whether it should make the state more money.

House Republican leaders wanted no net increase in taxes and no increases in major taxes, but were more amenable to increasing taxes on cigarettes or gasoline.

“I’m not adamantly opposed to user fees, and cigarette taxes and gas taxes are user fees. I just don’t think it’s necessary to have a general increase in taxes at this point,” said House Speaker William J. Howell, Stafford Republican.

Mr. Howell said Mr. Warner needs to keep tax reform and tax increases separate. “If you’re looking at a tax increase, then present that as a separate bill,” he said during a two-day House Appropriations Committee retreat in Williamsburg, also last week.

Committee Chairman Vincent F. Callahan Jr. said the House might approve a 25- to 30-cent increase in the state’s 2.5-cent tax on a pack of cigarettes, the nation’s lowest. Antismoking and health organizations want a tobacco tax twice that size, similar to one that died in the General Assembly last winter.

And without a boost to the gasoline tax to generate revenue for transportation, the state would have to use all its resources for highway upkeep and forget about building new roads, said Mr. Callahan, Fairfax County Republican.

Senate Finance Chairman John H. Chichester said that restructuring the state’s budget would require a comprehensive approach to have any chance of success.

“If you’re going to do any kind of tax reform, everything needs to be on the table,” said Mr. Chichester, Fairfax County Republican.

This is the second time in the first two years of his term that Mr. Warner has staked a position on taxes. He campaigned for referendums to increase sales taxes in Northern Virginia and Hampton Roads to alleviate highway overcrowding last year. Both were soundly defeated.

Mr. Warner will begin a statewide barnstorming effort to promote his tax plan tomorrow, with stops in Roanoke, Falls Church and Virginia Beach. Entering 2004, a few factors may help Mr. Warner press his case with the public and the assembly.

Moody’s Investors Service has warned the state that unless it shores up a fiscal structure that has created $6 billion in budget shortfalls the past two years and depleted the state’s rainy-day reserve fund, it risks having its bond rating downgraded for the first time.

A slip in the state’s superlative AAA rating from Moody’s could force the state to pay marginally more to finance long-term projects. That increase would be painful to a state proud of its tradition of living within its means.

The state is about $700 million short of meeting public education needs required by state law. The state’s costs for Medicaid, the federal-state health program for the needy and elderly, have soared by hundreds of millions of dollars. The state needs a new prison as inmate populations increase. Cash reserves and easy cost-cutting options have been exhausted to balance the budgets the past two years.

If legislators are forced to reconcile the looming $1 billion shortfall with cost-cutting alone, it would result in 4 percent reductions to every state agency, institution and program, according to Senate Finance Committee estimates.

“I don’t know that anybody has the appetite to reduce K-12 [public school] funding by $325 million, which is what 4 percent across the board would be,” said Sen. William C. Wampler Jr., Bristol Republican.

Mr. Howell said he promised Mr. Warner he would keep an open mind about the reforms. Other Republicans also showed cautious willingness to hear the governor out.

“There’s a greater willingness to look at it [tax reform] than there was last year, but nobody knows where it will lead,” said Delegate L. Preston Bryant Jr., Lynchburg Republican. “We’ve had two years of picking the low-hanging fruit.”

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