
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, February 3, 1991                   TAG: 9102040266
SECTION: EDITORIAL                    PAGE: F-3   EDITION: METRO 
SOURCE: DRUCILLA K. BARKER and MARY D. HOUSKA
DATELINE:                                 LENGTH: Medium

HISTORY LESSON/ FISCAL DISCIPLINE FOR STATE IS NO MAGIC FORMULA

THE STATE of Virginia faces a nearly $2-billion revenue shortfall during the 1990-92 budget cycle. In his address to the General Assembly, Gov. Wilder vowed neither to raise taxes nor to use the $200-million reserve fund to meet this shortfall. Instead, he said that he welcomed the chance to instill new fiscal discipline in Virginia government and argued that this will ensure a better future for all Virginians.

This all sounds fine in the abstract and will play very well on the national campaign trail. But one must ask: How will fiscal discipline ensure a better tomorrow?

Presumably, a better tomorrow means a Virginia that has experienced sustained economic growth and well-being. Moreover, it implies that the state has worked toward a more equitable distribution of resources and income across geographic regions. Will Wilder's fiscal conservatism promote these conditions in the long run?

History provides us with an interesting and informative parallel.

Some 120 years ago, Virginia prepared to establish its first free public schools. There was just one problem. Virginia had accumulated a huge (for that time) debt of about $47 million.

Although Virginia had decided to honor most of its debt, it also decided not to levy much of the tax burden on the railroads or businesses. A panic in 1873 and a continuous drop in the prices of agricultural products led to hard times in rural areas and caused local assessors to lower assessed property values and, therefore, tax revenues.

The more the governor cut state expenditure, the larger the state's operating deficit became. By 1878, half of those new free public schools had closed because of a lack of operating revenue. This fiscal disaster caused the General Assembly to increase taxes on businesses and to negotiate major reductions in interest obligations.

The stress on Virginia caused by honoring this mostly antebellum debt eventually led to Virginia's pay-as-you-go fiscal policy. Virginia persisted in being a low-tax state, while government expenditure for essential state functions - particularly education - was woefully inadequate. As recently as 1964, Virginia ranked 39th in expenditures per public-school pupil.

A number of progressive governors since have invested considerable state resources to overcome Virginia's former backward legacy. By 1989, Virginia ranked 16th in expenditures per public-school pupil. Even in 1989, however, Virginia ranked 48th among the 50 states in state and local tax revenue per $1,000 of personal income.

There is no doubt that Virginia faces some very tough choices in the times ahead, and there may be a great deal of unnecessary spending. However, sustained economic growth and regional equality will only come about through government policies based on thoughtful planning and vision rather than political expediency.

Wilder repeats the call for fiscal discipline like a mantra, in the hope it will produce the desired results. History has shown us, however, that this is not necessarily so.

by CNB