Bob Hull's Richmond Report

Bob Hull represents the 38th district in the Virginia House of Delegates.

The biggest decision to be made this year in the General Assembly, like in all even numbered year sessions, is the two-year budget plan.

Unlike most years, when Governor Warner proposed that budget, he coupled it with a major tax restructuring plan.

As you have read, parts of the plan reduce taxes, while other parts increase taxes. The bottom line is a gain of about $1.3 billion.

That revenue increase is needed to prevent cutting education and other programs by that same amount.

This would be on top of $6 billion of cuts the Governor has had to make in the past two years.

Yet, the Republican majority in the House of Delegates has made it clear that they do not want to increase any taxes in any manner.

So, last week, the GOP majority on the House Finance Committee, on which I serve, voted to kill the Governor’s tax restructuring plan.

Not only that, they killed all bills that raised revenues in any way, including needed increases in fuel taxes for transportation.

The result of that evening of long knives means that the Appropriations Committee will have to report a budget that includes no new revenue.

Not only would that force major cuts to core services in the next two years, but even greater infrastructure cuts would be needed in future years.

Train Wreck

Unless the House Republican leadership changes its view, I see no way for us to avoid a budgetary train wreck.

If that happens, then for the first time in history, we will have failed to approve a two-year budget during a regular legislative session.

Yesterday, the House Finance and Appropriations Committees heard a presentation from the company that advises state treasury officials.

The main issue of discussion was the fact that Moody’s Investment Services put Virginia on a Watchlist for a possible downgrading of our coveted Aaa bond rating.

If that happens, then the favorable interest rates we receive when we sell bonds will end and the cost of borrowing will go up.

That will mean that more money will have to come off the top of our budgets for debt service and reduce the funds available for public services.

We have very little debt compared to other states and our ability to repay that debt has always been very high.

But, on September 4, 2003, Moody’s stated that their action was brought on by three main factors.

First is a significant decline in revenues brought on by the national recession and “exacerbated” by the high costs of the car tax cut.

Second, we drew down our “rainy day fund” without replenishing those reserves. Third is a failure to maintain “structural budget balance.”

What this means is what the Governor warned us about. Without tax restructuring, we will not be able to balance our budgets over the next six years.

All is Not Lost

The good news in the presentation was that we can take actions to prevent the downgrading of our bond rating.

First, Moody’s says that we need to address our current revenue shortfall. In other words, raise taxes.

Second, we need to restore our rainy day fund. The Governor has proposed adding over $300 million to the fund during this biennium.

Last, but not least, Moody’s has stated, and the financial advisor reiterated, that we need to restore the “structural balance” of our budgets.

What this means, we were told, is that we need to have a plan that shows balanced budgets over the next five to six years.

In doing that, we were advised not to use one-time fixes or cut essential services that damage our infrastructure.

I assume that this means school spending, transportation funding, and spending for entitlements such as Medicaid.

If we do not do this, then we will certainly face a bond rating downgrade that means that all government borrowing will cost more.

This not only hurts our general obligation bonds, but transportation bonds and local bond financing will suffer.

There are some of us here who realize that we must approve changes to our tax system to bring in more revenue.

Others, however, are living in a dream world where the people of Virginia are just pawns in a game of political rhetoric.

Hopefully, common sense will prevail and we will get approval of the type of budget and tax structure actions that are needed to restore this state to fiscal sanity.