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Virginia Underestimates Payroll Tax Revenues, Budget Growth Falters

Del. Simon addresses the Falls Church Chamber of Commerce. (Photo: News-Press)
Del. Simon addresses the Falls Church Chamber of Commerce. (Photo: News-Press)

In the wake of the Great Recession and federal budget sequestration, Virginia finished the fiscal year on June 30 with considerably less in revenues than earlier projected. The modest 1.7 percent general fund revenue growth was almost half the 3.2 percent that was projected when the coming two years’ budget was adopted in the spring.

Del. Marcus Simon, who represents the 53rd State Assembly district that includes the City of Falls Church, told the Falls Church Chamber of Commerce monthly luncheon this week that as a result “everything is on hold” in terms of any new spending until a process for making necessary adjustments is put into place.

It means that raises for public employees, including in areas of the state heavily reliant on the state for funding their schools, that were voted in the spring are now stalled at least until September, Simon said.

Consultations by legislators with Virginia Finance Secretary Ric Brown have been underway, and the Governor’s Advisory Council on Revenue Estimates will meet on Aug. 15 to develop a new forecast that will inform revisions that the legislature will make after Labor Day, Simon said.
Still, Gov. Terry McAuliffe noted that 135,000 net new jobs were created in Virginia in the last year and yesterday announced that homelessness is down by 10.5 percent, including down by 17 percent for family homelessness.

Simon noted that the shortfall in revenue projections had to do with payroll taxes coming in considerably lower than anticipated. It means that even with the net new jobs created adding to a net record $18.3 billion in new revenue accounting for the 1.7 percent growth, the salaries paid to employees around the Commonwealth turned out to be far less than projected.

Simon said that the leveling off of federal spending in Northern Virginia is a big factor in the slower than expected growth, and that rather than hoping that might rebound, the state is focusing on economic diversification, seeking new investments in biotech industries, such as at the Center for Personalized Medicine on Gallows Road and expanded academic centers affiliated with George Mason University.

He said that keeping federal dollars in the state is also a challenge in the face of some lost seniority in the Congress.

Another challenge to address this comes in the unsettling fact that 100 of incumbents in the state legislature were re-elected in the most recent election, although Democrats are looking at some opportunities to pick up both U.S. congressional and state legislative seats this year in Fairfax County and even in areas bordering it in Loudoun and Prince William counties.

But he said that the fact there are no longer any elected Democrats from rural southwest Virginia is not likely to change. He said there is a need to “change the culture” in Richmond (and Washington, D.C.) because the sense of cozy relationships between lawmakers and lobbyists has created a perception that “the system is rigged,” which deters voter enthusiasm.

One step toward this has been an initiative by freshmen State Del. Mark Levine from Alexandria to form a “Caucus on Transparency” with the aim that lobbyists providing gifts to legislators, even if not illegal, may make lawmakers uncomfortable if the public was informed about them.

Simon said that one of the biggest problems in the state is the legislature’s stubborn refusal to buy into the President’s Medicaid expansion initiative that would bring $6 million a day to Virginia to cover citizens who are in the 100 to 138 percent area below the poverty line.

Simon said he was one of a handful of Democrats to vote against the state operating budget last spring as a protest for the fact that the expanded Medicaid money was not in it. “I was just hoping to send a message,” he said.

He said the legislative session in the spring was characterized by two major compromises between Republicans and Democrats and one refusal to compromise.

The compromises, he said, were in the areas of transportation and guns. The third was Gov. McAuliffe’s “brick wall” refusal to sign any bill that would allow discrimination against the LGBT population, such as the HR 2 bill that was signed into law in North Carolina and has led to a huge exodus of economic activity there.

Knowing McAuliffe meant business and had the votes needed to uphold a veto in the legislature, the number of bills promoting discrimination (many in the guise of so-called “religious freedom” bills) dwindled.

On transportation, the Democrats agreed to permit but limit tolls on I-66 inside the Beltway in exchange for adding an additional lane to alleviate the bottleneck on eastbound I-66 from the Beltway to Glebe Road.

“The end of the impasse on that came when a Republican leader ran into me in a washroom in the state capital and casually asked if my district covered I-66,” Simon said. “It went from there, and before you knew, we had a deal.”

On guns, deals were cut to allow voluntary background checks at gun shows conducted by state police, the addition of permanent domestic violence bans that can be provided within 24 hours of a conviction, and the addition of statutory language to add the word, “possess,” to “purchase and transport.”