- The Washington Times - Sunday, March 28, 2004

RICHMOND — A seething dispute over one of the most ambitious tax increase proposals in any state this year has stalemated Virginia’s legislature and risks shuttering its government.

With no end in sight, the imbroglio pits the Senate’s $2.4 billion in proposed tax increases against a resolute antitax majority in the House, also ruled by Republicans. It could close the state government if not resolved by July 1, the start of a new budget year.

“Come June 30th, it shuts down, baby,” Delegate Johnny S. Joannou, Portsmouth Democrat, said as budget negotiations dissolved in bickering earlier this month.

Already, local school boards, city councils and county budget officials statewide are angry and anxious as they work on their budgets. Without guarantees of state funding, they are uncertain how to pay their teachers and policemen and how they will operate their courts and jails.

“The main thing that upset the locals now is that we can’t deal with our budgets — our mental health facilities, our education issues or any other issues. All these things we can’t deal with until we know what they’re going to do in Richmond,” said Rita Wilson, a member of the Staunton City Council.

“And what do we get from Richmond? We get rhetoric,” Miss Wilson said.

Wall Street also is scrutinizing Virginia’s budget stalemate.

Moody’s Investors Service last year put the state on notice that unless it ends chronic budget shortfalls that have totaled $6 billion in the past three years, its perfect bond rating will be downgraded for the first time. That would increase marginally the state’s cost of borrowing for major projects, but it would be a major psychological blow to a state that has kept its finances in order in the toughest of times.

“It damages the state’s pride. It means Virginia’s becoming less distinctive and more like other states when it wrestles with these problems,” said Tom Morris, a political scientist who is president of Emory & Henry College in Emory, Va. He oversaw a panel that studied updating the 80-year-old state tax code rooted in Virginia’s agrarian past.

In November, Gov. Mark Warner, a Democrat, proposed boosting the sales tax from 4.5 percent to 5.5 percent, raising the nation’s lowest state cigarette tax from 2.5 cents per pack to 25 cents and allowing local governments to boost it an additional 50 cents. He proposed higher income tax rates for the wealthiest Virginians and tax breaks for middle- and low-income taxpayers, closing corporate tax loopholes and reducing the sales tax on groceries. The plan would provide an additional $1 billion for his proposed $59 billion two-year budget.

The Senate, led by Republican centrists, proposed a $62 billion budget based on nearly $4 billion in new taxes. It included the sales tax increase, ending corporate loopholes, higher income tax brackets for the wealthy, boosting the state cigarette tax to 35 cents per pack, and $1.6 billion in new fuel taxes for transportation projects.

The House offered a $58 billion budget and recommended stripping sales tax exemptions for a dozen major industrial sectors, including railroads, airlines, oceangoing shipping and telecommunications.

Supporters said this would generate nearly $600 million, but the state Department of Taxation disputed the estimate, saying the numbers were too tentative to yield a reliable forecast. Virginia-based corporations such as America Online and US Airways warned lawmakers that the move would drive jobs out of the state.

The House and Senate tax plans are probably the broadest and most sweeping in any state this year, said Scott Pattison, executive director of the District-based National Association of State Budget Officers and Virginia’s former budget director.

“When you look at Virginia, it’s a very significant wholesale change, while what the other states seem to be doing is more like tweaking,” Mr. Pattison said.

The House, rejecting any sales or income tax increase, killed the governor’s and Senate’s budgets. The Senate, insisting on those taxes, reciprocated. Each side made speeches criticizing and ridiculing the other.

“You got government by mob down there, and until that changes, we’re going to be here a long time,” Sen. Richard L. Saslaw, Fairfax Democrat, said March 15 as budget negotiations disintegrated and the regular legislative session came to a rancorous end.

Mr. Warner angered the House further by immediately reconvening a special session to draft a budget and accusing delegates of preferring vacation time to doing their jobs.

“Sorry, governor, but the gloves are off,” Delegate Leo C. Wardrup, Virginia Beach Republican, said in an angry floor speech.

More than a week later, the sniping continues and the two sides remain poles apart. The Senate dropped its transportation proposal and the fuel tax that would have funded it, but House Republican leaders are adamantly against income or sales tax increases.

House Republicans have hired a political consultant to coordinate a direct-mail and phone-banking campaign. The Foundation for Virginia, a nonprofit group run by Warner loyalists, has aired television ads urging Virginians to back increased spending for education and other government services. Mr. Warner has barnstormed the state to promote his plan at rallies and forums.

“This whole battle has played out publicly, and it’s gotten to the point where too many people would lose face if they compromise now,” said Mark Rozell, a political science professor at Catholic University in the District. “It makes you long for the good old days of backroom deals.”

As each day passes without a budget, anxiety increases statewide.

School districts usually know by now how much state money they will get. By mid-April, they have to let teachers know whether they still have jobs the next school year.

“This year, since the school boards don’t know, it’s creating a lot of confusion,” said Bill Godsey, a fifth-grade teacher at Lynchburg’s Paul Munro Elementary School. “Teachers know that this budget impacts them, and the first-year teachers are especially at risk because they’d be the first to go.”

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