THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, January 20, 1995 TAG: 9501200039
SECTION: FRONT PAGE: A12 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 81 lines
Gov. George Allen has proposed cutting state taxes. At the same time, he proposes borrowing money to build prisons. Democrats say it makes no sense to return money to the taxpayers with one hand while, with the other, borrowing money that the taxpayers will have to pay off over time.
Virginia would forgo an estimated $393 million in revenue over the next two years as a result of Allen's proposed tax cut. That's roughly the amount he wants to borrow during the same period to pay for prisons.
``If we have the revenue available, why go into debt?'' asked Del. Clinton Miller of Woodstock, a Republican, though hardly a stalwart Allen supporter. (He sought the governorship Allen won.)
``It's the first time in the history of Virginia,'' said Del. Clarence E. Phillips, D-Lebanon, ``we've given a tax cut and gone into debt to do it.''
Speaker of the House Thomas W. Moss, D-Norfolk, said, ``I am absolutely amazed that a governor of Virginia would put the hard-working people of this commonwealth in debt for a generation to finance a politically attractive tax cut.''
Jerry Kilgore, secretary of public safety for Virginia, responded that more than $300 million in Virginia Public Building Authority Bonds has been used for corrections projects since 1988. ``Virginia,'' he said, ``has a history of financing prisons through bonding.'' It's ironic, he said, that Speaker Moss is complaining now, after Democratic governors borrowed heavily for prisons.
Allen Finance Secretary Paul Timmreck, who also was finance secretary under Democrat Doug Wilder, said that if Democratic governors had believed so strongly in pay as you go for prisons in the 1980s, they could have done more of it - and less borrowing - by cutting spending for other items.
``If they had paid 5 percent annual teacher salary increases instead of 10,'' Timmreck said, ``wouldn't there have been revenue for pay as you go?''
``They not only bonded,'' Public Safety Secretary Kilgore said, ``but they spent more money as well. We are not only bonding but we are providing tax cuts and cutting back the budget.''
Both parties agree that Virginia voters want prisons and are willing to pay for them.
If the proposed prisons - some 20 in all - are to be built, the choices for at least the next two years are:
1. Pay for them with additional debt, and go ahead with Allen's proposed tax cuts.
2. Forget the tax cuts and pay cash for the prisons over the next two years. If tax revenue falls short later in the 10-year building program, borrow then.
Traditionally, Virginia paid as it went when it had the money, and borrowed money when it didn't.
Historically, few if any states have managed their money better. This held true through the recent recession, when Gov. L. Douglas Wilder cut spending ruthlessly and neither raised taxes nor incurred burdensome debt. While most states upped taxes to cope with hard times, Virginia dieted. As a result, the three big bond-rating agencies still love us. We're one of five states with the highest possible bond rating, AAA. Our top credit rating enables us to borrow money at lower interest rates than most states.
The Allen administration argues that it has made hard budget choices, ones Democrats shied from, and thus can cut taxes.
Finance Secretary Paul Timmreck said the state debt payments, after all jail bonds are sold to finance building over the next 10 years, will not exceed 5 percent of annual revenue, so repayment will not strain taxpayers. The current bond debt, he said, is 2.77 percent of annual revenue.
The Allen administration makes a good case that the borrowing will impose no unusual burden. Still, it seems odd, even unprecedented in Virginia, to borrow money for prisons when there would be ample tax money to pay cash - were it not for the proposed tax cut. These are good times. The bills for the prisons may come due during hard times. Better to pay during good times.
The fate of Republicans' drive to gain control of both legislative houses this November may hinge on whether voters agree with Allen that cutting taxes and borrowing money at the same time makes sense.
Democrats will argue that it's senseless for taxpayers to pay for their tax cut with long-term debt.
But voters love a tax cut. by CNB