Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, July 17, 1990 TAG: 9007170411
SECTION: VIRGINIA PAGE: A/1 EDITION: EVENING
SOURCE: MARGIE FISHER RICHMOND BUREAU
DATELINE: RICHMOND LENGTH: Medium
Moreover, Timmreck said the Wilder administration still does not have a good fix on why its revenue projections were so far off the mark.
The administration is still trying to figure out exactly what went wrong when it made revenue projections last winter. But Timmreck told the House Appropriations and Finance committees that it appears the culprit was "taxpayer behavior" that the forecasting process could not have predicted.
He said Virginians apparently have learned how to avoid paying more taxes under the revision of federal and state income tax laws that took effect three years ago.
For example, he said, taxpayers may be taking out home equity loans because they can deduct the interest they pay on those loans while other types of interest payments are no longer deductible.
Timmreck said taxpayers also may be waiting to sell capital assets until federal budget negotiators decide whether to reduce capital gains taxes. Those taxes are paid when real estate, stocks and other valuables are sold.
He defended the state's revenue forecasting system as "basically a good process."
But that explanation did not satisfy some legislators. A billion-dollar-plus deficit is "a hell of a lot of behavior," said Del. Warren Stambaugh, D-Arlington.
House Finance Chairman Richard Cranwell, D-Vinton, said he would rather think that the state's recent problems are related to a turndown in the economy, because the state could then expect to see "dramatic improvements" when the economy improves.
If the problem is taxpayer behavior, "These numbers are going to track us out to millennium" and potentially skew estimates for a long time to come, he said.
Gov. Douglas Wilder is due to give new figures to the General Assembly's money committees Aug. 17 and also tell legislators how he plans to deal with the shortage. With the exception of a tax increase, Wilder has said "everything is on the table" as a means to make up the shrinking revenue.
Contrary to news reports that he had called for a special session of the legislature to deal with the state's continuing revenue problems, Cranwell said Monday that such a session would be premature until legislators get a better grip on why the shortfall has occurred.
"I don't think we found out today," he said, after hearing an extensive briefing by Timmreck, other administration officials, and Gerald Godshaw of Wharton Econometrics, which provides the model for Virginia's revenue forecasting.
Timmreck explained that the Wilder administration has already covered a $400 million revenue shortfall in the fiscal year that ended June 30, including a $151 million deficit that popped into view last month. The $151 million gap was met by a series of bookkeeping maneuvers that are "perfectly acceptable cash-management techniques," he said.
At the same time, Timmreck said, some of those techniques involved delays in spending obligations. That, in effect, carries over part of the $151 million deficit to the 1990-92 budget period, which began July 1.
In February, the state lopped $420 million from the revenue estimate it expects for 1990-92, which means it still must make up for part of the $151 million while it also prepares for another downward revision next month.
Timmreck was careful not to say how much more the revenue estimates will have to be reduced. But indications are that it could be another $400 million - putting the cumulative shortfall for fiscal 1990, 1991 and 1992 well over $1 billion. The state budget for those three years is about $39 billion.
When legislators decide how to make up for the shortfall, Cranwell said he thinks everything, including a possible tax increase, ought to be on the table. He added that it is unlikely the assembly will try to raise taxes if legislators know the governor would veto the proposal and they would have to override his veto.
The administration has warned that a new round of budget repairs may have to include cuts in state appropriations for local governments and pulling back lottery proceeds that are earmarked for capital improvements.
Several lawmakers are balking at this approach, but Timmreck said, "It is pretty unrealistic" to think the state can deal with the worsening financial crunch by simply cutting state agency budgets more than they have already been cut.
Other revenue problems seem to be tied directly to economic jitters over the sluggish housing market and reductions in defense spending. Still, "the state is in relatively good economic shape to be able to weather some of this, compared to most states," Godshaw said.
Meanwhile, Cranwell and other House Finance members served notice that they want to have more voice in the state's revenue estimating process in the future. There's "too little legislative input" and oversight, and as it is, all lawmakers can do is make adjustments in the budget once the executive branch has made its revenue estimates.
by CNB