Mirror image in Va. on budget, tax debate

Gaps: Virginia's $3 billion shortfall is much higher than Maryland's projected $800 million deficit, but the situations are eerily similar.

March 13, 2004|By David Nitkin | David Nitkin,SUN STAFF

RICHMOND, Va. -- Virginia Gov. Mark Warner has delivered the PowerPoint demonstration so many times that he knows precisely which chart best explains why a state known for its hands-off-my-wallet leanings needs to raise taxes by $1 billion.

It's the chart with the two upwardly slanting lines that never meet, the one that illustrates a budget gap swelling year after year unless something drastic is done.

Except for the Commonwealth of Virginia label at the top, the chart could easily be an illustration of Maryland's finances, where a similar gap infects state projections. But not so the prescription: Warner has proposed the most sweeping tax overhaul in a generation, one that calls for higher levies on retail purchases and high-income earners.

FOR THE RECORD - Because of an editing error, an article Saturday incorrectly reported that Patrick Henry delivered his "Give me liberty or give me death" speech at the current Virginia Capitol. In fact, he delivered the comments in 1775 at St. John's Church in Richmond, where the state Legislature was meeting.

"Anybody who reads a balance sheet knows we have to do it," Warner, a Democrat and former technology company executive, said in an interview this week.

Virginia's 60-day legislative session is scheduled to end today. But continued wrangling over the budget could send it into overtime.

On the north side of the Potomac River, in another Colonial state often at odds culturally and economically with Virginia, a Republican governor is resolute about not raising broad-based taxes. Gov. Robert L. Ehrlich Jr. would fill the gap through slot-machine gambling and still-unspecified future budget cuts.

A liberal-leaning, Democrat-controlled House of Delegates, however, wants to raise taxes on incomes, sales and corporations as part of a comprehensive plan for the future. In the Senate, casino-style gambling has been approved for the second year in a row.

Across the river is a mirror image. In the state Capitol -- where Patrick Henry, seething over the king's taxes, said, "Give me liberty or give me death!" -- the debate is not so much about whether taxes should be raised, but which ones and by how much. Even the state's famously low tobacco taxes, which haven't changed since 1966, could go up.

Gambling is not an option under discussion.

Republicans in the Virginia Senate have taken Warner's plan and raised the ante, offering a tax package four times as large. But the Virginia House of Delegates, dominated by no-new-taxes Republicans, has objected. It is promoting $550 million in new money by extending the sales taxes to items now exempt, such as airline fuel and free meals given to employees at restaurants.

The two legislative sides have barely budged after weeks of negotiations.

A similar fate?

Some say Maryland may be headed for the same kind of showdown. Perhaps not this year but maybe next, when the state exhausts it supply of one-time budget fixes.

Virginia's $3 billion yearly budget gap was much higher than Maryland's projected $800 million shortfall for the coming budget year, Ehrlich pointed out.

"Their numbers are worse over the past couple of years," Ehrlich said in an interview yesterday. "But it's a mirror image in terms of the rhetoric, yes."

But Ehrlich said he is not getting ideas that taxes are acceptable from the Virginia experience.

How a Democratic governor in the state that almost sent Republican Oliver North to the Senate could propose a large tax increase and still see his approval ratings remain above 70 percent is a lesson in budgetary politics, divided government and quirks unique to the commonwealth to the south.

Warner says he offered the tax plan only after using other budget-balancing techniques during his first two years in office. He cut an average of 20 percent in most state agencies and eliminated 5,000 state jobs. He has streamlined purchasing.

But when the governor drew up a six-year fiscal plan, he saw that the gap remained -- even without spending a penny more on higher education, public safety or economic development. Wall Street analysts told Virginia that without a broad solution, the state's treasured AAA bond rating was in peril, meaning that the cost of borrowing money would rise.

"I'm not going to be the guy that has our great colleges and universities -- the best public higher-education system in America -- go down the tubes. [I said] we'll put together a plan," Warner said.

He appears to have won over a state notorious for its anti-tax sensibilities, in part with a plan that he says would reduce income taxes on 92 percent of the filers.

Winning over residents

If the sales tax rate is raised from 4.5 percent to 5.5 percent, as Warner has proposed, "I won't even notice that," said James Baswell, 43, a fork-lift operator from Loretto, Va.

Barry MacDonald, a 39- year-old government contractor from King George, said he'd be willing to pay more if the money is spent wisely.

Warner announced his package in November and, to the surprise of some, got business groups on his side.

"His original budget and his original tax plan were fairly conservative," said Stephen D. Haner, a vice president for public policy for the Virginia Chamber of Commerce, which endorsed the governor's proposals.

"You're hearing more and more people say, `Just raise my sales taxes,'" Haner said.

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