Sunday, May 23, 2004

Virginia lawmakers said that a projected revenue surplus should be put in the state’s rainy-day fund and that the legislature should propose tax cuts next year if growth continues.

The surplus at the end of the fiscal year on June 30 could be about $200 million, according to the state’s Finance Department, which last week said there is year-to-date revenue growth of 9.5 percent, well ahead of the forecasted 6.7 percent growth.

The news comes one month after the Republican-controlled General Assembly passed a $1.38 billion tax-increase plan, which raised sales, cigarette and real-estate taxes. Lawmakers also capped the popular car-tax-relief program, ensuring that drivers will pay higher car-tax bills after 2006.

When antitax lawmakers heard of the likely surplus, they questioned whether the tax increases were necessary and said tax cuts will be proposed next year.

House Speaker William J. Howell, who opposed the tax increases because he believed the economy was growing, said he wasn’t surprised by the positive numbers.

“It makes someone step back and think, ‘Goodness, did we need taxes that much?’” the Stafford County Republican said. “What we really need is to be careful with the additional money that comes in and don’t spend it.”

Gov. Mark Warner said Thursday if the revenue grows at the same rate through June 30, as much as 75 percent of the surplus will go into the state’s rainy-day fund.

He cautioned that such growth is not the norm and that traditional growth has been at 5 percent for decades.

“To assume that you are going to have 9 percent revenue growth over the next few years would be a fool’s bet,” the Democratic governor said. “And I’m not going to bet the future of Virginia that we’re going to have that.”

Some conservatives accused the governor’s office of sitting on the positive growth numbers as lawmakers struggled over whether — and by how much — they should raise taxes.

“At some point, the governor’s people knew the numbers were coming in, and they should have encouraged a deal with a smaller tax increase,” said House Majority Leader H. Morgan Griffith, Salem Republican who opposes tax increases. “I’m suspicious.”

Attorney General Jerry W. Kilgore, the presumptive Republican candidate for governor in 2005, also suggested last week that Mr. Warner “sat” on and “downplayed” the economic news to get the tax increase passed.

Mr. Warner’s spokeswoman, Ellen Qualls, dismissed that notion.

The Finance Department sends monthly reports to those on its mailing list, including Mr. Kilgore. Miss Qualls said the March report, which showed the state was on track for 6.7 percent growth, came in as a bipartisan coalition was negotiating final details of the tax increases. The February report showed the state was below the 6.7 percent projected growth rate, she said.

Mr. Kilgore said that the growing economy means the increases weren’t needed and that next year, the state must offer cuts.

“The rainy-day fund is an appropriate place for [the surplus], but at the end of the day, it’s the taxpayers’ money,” he said.

Lawmakers applauded the growth and agreed the money should go to the rainy-day fund and perhaps to tax cuts.

Delegate Robert Hurt, Chatham Republican, said he voted for the tax-increase plan because of the budget deadlock and the threat of a government shutdown.

“I parted with the House leadership because it seemed budget negotiations were going absolutely nowhere,” he said. “The real question now is: If [the surplus] had been known, would we have been deadlocked?”

As first reported in The Washington Times on Friday, some legislators are calling for a continued phaseout of the car tax and reversing the $950 million cap.

House Appropriations Chairman Vincent F. Callahan Jr. will lobby for that next year, but he and others said the legislature will not repeal the tax increases.

Mr. Callahan warned that the fiscal growth should be put in perspective. The Fairfax County Republican said that the surplus is only 1 percent of the state’s general-fund budget and that much of the increase can be attributed to stock-market gains.

Mr. Callahan said the state should wait for the May and June reports to “see where we really stand on this thing.”

Delegate Riley E. Ingram, Hopewell Republican, who voted for the tax increases, said the legislature’s biggest priority should be using the surplus to fix the state’s accelerated sales-tax collection, a system under which large businesses pay sales taxes based on the prior year’s sales.

Mr. Ingram said ending the accelerated collection and requiring the state to collect the sales tax on a regular schedule would cost about $180 million, about the size of the projected surplus.

Delegate Danny Marshall III, Danville Republican, who voted for the tax increases, suggested that the state pay down its debt with the surplus.

“I still think the tax increase was needed,” he said.

Mr. Howell said the state should consider using some of the surplus for transportation, which was left mostly unfunded in the two-year, $60 billion budget.

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