THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, October 1, 1995 TAG: 9510010140
SECTION: FRONT PAGE: A1 EDITION: FINAL
SERIES: ELECTION '95
THE CITIZENS' AGENDA
The Virginian-Pilot has asked people around the state what their major
concerns are leading up to the Nov. 7 election. Their responses will
appear in a series of reports between now and then. Today's topic: How
the state gathers and spends your money.
SOURCE: BY WARREN FISKE, STAFF WRITER
LENGTH: Long : 270 lines
When it comes to tax and spending issues, most Virginians aren't asking a lot of their state legislators. They're not demanding tax cuts or overnight expansion of services. Mostly, what they want assurances that the hard-earned money they send to the state is not wasted.
``Whatever money is coming out of my salary or taxes, to me, is like an investment,'' said Charles D. Taylor, a Norfolk clinical therapist. ``I like to see a good return.''
Voters are being offered clear policy choices by candidates in this fall's campaign for the General Assembly. Democrats are promising to hold the line on taxes and expand funding for public education. Republicans are vowing to reduce taxes and services to put more money in the pockets of citizens.
The outcome of this debate could affect the direction of state government for years to come. The balance of power in the General Assembly is up for grabs. Democrats have long controlled the legislature and state spending decisions. But Republicans need gain only three seats in the House and three in the Senate to seize majorities for the first time.
Whichever party wins will call the shots next winter when the General Assembly works on a new two-year spending plan for the state. With the federal government increasingly turning control of social programs to the states, Virginia's elected officials will have more power than ever to affect daily lives.
The Old Dominion prides itself on its frugality, and most citizens seem to agree. Two of three Virginians said they were pleased with the overall performance of state government in a poll commissioned by The Virginian-Pilot this summer. More than half said the state does not overtax them.
Still, citizens would like the state to re-examine its spending priorities. Generally, people would like to invest more money in education and less in prisons.
``What we need is a good economic policy and there will be some hard choices and some areas will be hurt, but you've got to get the house in order,'' says James A. Leftwich Jr., a Chesapeake attorney. ``Everybody's on a budget. We can't do all the things we want.''
Candidates are not eager to discuss the true costs of their proposals. Democrats and Republicans both say the state can pay for their programs painlessly through an expanding tax base and by eliminating waste.
Keep this in mind as you read the following explanation of the proposals: There are no easy choices to be made. The General Assembly is constitutionally required to pass a balanced state budget. That means every dollar of tax cut must be accompanied by a dollar of less spending or a dollar of growth in the economy. It means every dollar of new spending must be paired with a dollar of new revenue.
Lt. Gov. Donald S. Beyer Jr., a Democrat, recently suggested that neither party can initiate major programs without seeking some sacrifice from citizens. ``The easy things have been done a long time ago,'' he said.
Lawmakers from both parties acknowledge that ultimately, the budget decisions will be many times more complicated than they are portrayed this fall.
``This is a political year,'' said Del. John C. Watkins, R-Chesterfield, one of the architects of the Republican plan. ``People elect people for what they won't do to them most of the time. . . . I'm not going to kid anyone. If you want change to where government is less obtrusive, you're going to have to learn to do without things.''
And Del. Jay W. DeBoer, D-Petersburg, said: ``If you're asking me where the Democrats are coming up with money, I don't have the foggiest idea. Virginia has always come up with money to pay for programs it really needs.''
THE BACKGROUND
For most of the century, Virginia has prided itself as an extremely frugal state. The legacy is traced to the late 1920s when former Gov. Harry F. Byrd Sr., a Democrat, demanded ``pay as you go'' budgeting principles. An early opponent of big government, Byrd believed in low taxes and limited spending, and he abhorred borrowing money to pay for programs. He founded a political machine that dominated state government until the mid-1960s, and his conservative fiscal agenda became a cornerstone of Virginia's political heritage. State lawmakers still passionately declaim ``pay as you go'' principles during budget debates.
State government has become considerably more complicated since the Byrd days. But Virginia remains a low-tax state that provides services far below its citizens' ability to pay. Consider these figures provided by state agencies and a variety of independent statistical services:
Although Virginia's per capita income of $22,052 ranks 15th among states, its overall state and local tax burden ranks 49th. Of every $1,000 earned, state and local governments claim $194 in all taxes - levies on real estate, income, sales, gasoline, tobacco, and incorporations. Only New Hampshire ranks lower.
Virginia and Massachusetts were the only two states that did not increase tax rates during the recession earlier this decade.
Virginia is one of five states with a top-notch AAA bond rating, which allows it to borrow money for construction projects at low interest rates.
Twice in the past four years, Virginia has been cited as fiscally the best-run state in the nation by Financial World magazine. This year, the state ranked second behind Utah.
The trade-off for low taxes in the Old Dominion is that citizens also are provided with lower service levels than found in other states. Consistent with its low-tax ranking, Virginia also ranks 49th in spending per $1,000 of wages.
Lawmakers generally have believed that Virginians prefer low taxes over expanded programs. The results of that policy are felt widely. For example:
One way the state was able to avoid a tax increase during the recent recession was to cut $450 million from colleges and universities. Over five years, Virginia slipped from 28th to 43rd in tax support per college student. As a result, the average tuition at state colleges - $3,841 a year - is the second highest in the nation.
Virginia ranks 48th in per capita spending on welfare - $365 a year.
Virginia ranks 27th in state funding per public school student - $2,297 a year.
Virginia ranks 49th in per capita spending on the arts - 25 cents a year.
RHETORIC AND REALITY
Values and facts underlying the debate
At its core, the discussion about taxing and spending is about ideology and the direction of Virginia.
Gov. George F. Allen and his Republican allies argue that Virginians want less government, fewer services and lower taxes. They maintain that the best stimulus for economic growth is keeping money in the pocket of those who have earned it.
Democrats counter that taxes are already low in Virginia and services are lean. They say further reductions would be catastrophic to education and social services. Democrats aren't calling for a tax increase. They believe growth in Virginia's economy should provide additional tax revenues to put more money in public schools.
Allen and many Republicans argue that more money won't buy better schools. They are calling for rigorous academic standards, a back-to-basics curriculum and discipline.
They also characterize the bureaucracy as bloated and insist that big savings can be found in a government that spends $16.1 billion a year.
In campaign literature and debate, both parties back their claims by citing a variety of statistics. Some of them are misleading.
As evidence of what they consider to be runaway state spending, Allen and many Republicans say that state spending has increased 300 percent over the past 15 years.
The state budget has increased 182 percent over 15 years - from $5.7 billion in 1980 to an estimated $16.1 billion this year.
When adjusted for inflation, for example, the actual increase in spending since 1980 is 57 percent. The state's population grew by 25 percent during the same period, driving up tax collections and demand for services.
Mandates from the federal government hit hard. Virginia's share of paying for Medicaid - medical services for the poor - jumped from $164 million in 1980 to $1.1 billion this year. No other single expense in the state budget has grown as fast.
All told, 80 percent of the increase in spending over the past 15 years has gone to five services: Medicaid, public education, colleges and universities, prisons, and mental health programs.
Many Democrats argue that they are friendlier to education than are Republicans.
Democratic legislators defeated Allen's proposals to cut school funding last winter. But Democrats, who control the General Assembly, have not been overly generous to education in recent years. Since 1990, increases in public school funding basically have been held to inflation. And former Gov. L. Douglas Wilder, a Democrat, is responsible for the deep cuts that colleges and universities suffered earlier this decade.
Republicans say that the growth in spending over the past 15 years has outstripped that of the federal government.
The federal spending has increased by 160 percent - from $591 billion in 1980 to an estimated $1.5 trillion this year. That's 22 percent less than the growth in Virginia over 15 years.
The phenomenon isn't unique to Virginia. Spending for all states grew by 172 percent between 1980 and 1992, according to data published by the Council of State Governments. Virginia's spending during that 12-year period increased by 127 percent.
As evidence of high levies, Allen and many Republicans note that Virginians pay the second-highest per capita state income tax in the nation.
Virginia relies heavily on the income tax, collecting 56.2 percent of its general revenues from the levy. The trade-off is that Virginians pay among the lowest sales, corporate, gasoline and tobacco taxes in the nation.
Some Democrats accuse the Allen administration of padding its personal staff at the same time it is trying trim the rest of the state payroll. They say the first place to look for savings is in reducing the personal staffs of Allen and his Cabinet secretaries.
Allen has 29 people on his personal staff. That's eight fewer than Wilder had. And the overall size of his Cabinet members' staffs is not appreciably different than in the Wilder days. An Allen administration effort to add 32 positions in the Cabinet offices was blocked by Democrats last winter.
PLANS AND TRADE-OFFS
Party platforms offer options
All of the Democrats' budget proposals this fall center on improving education. They want to appropriate $266 million over the next two years to ensure there is at least one computer in every public school classroom and reduce class sizes for kindergarten through third grade.
Democrats say they can pay for that initiative through new revenues they anticipate from economic growth in Virginia. They are not seeking a tax increase or proposing cuts to other state programs.
Democrats have made no other unified pledges this year. They defend the state's financial policies and are not seeking to change them.
Republicans, in contrast, are offering a sweeping and complex plan for change. Most Republican candidates signed a pledge that commits them to three spending principles: returning lottery profits to local government, ``eliminating wasteful spending'' and ``reducing excessive taxes.''
The lottery's $318 million in annual profits now goes into the state's general fund. Republicans argue that voters were promised the profits would be earmarked for schools and local construction projects when the lottery was approved in 1987. They are proposing phasing in a five-year program to give the money to local governments for use in public schools, law enforcement or property-tax relief.
But localities may not be in for a windfall if other elements of the GOP plan succeed. Although Republicans are not defining the ``excessive taxes'' they plan to chop, tops on the hit list is the Business, Professional and Occupational License (known as BPOL) tax - state law allows localities to tax gross business receipts. The tax brings $300 million a year to municipal coffers.
A Republican effort to kill the tax was defeated last winter. Allen - who believes the tax stymies business growth - has said he'll renew the fight next year. If he succeeds, revenues that localities gain from the lottery would be wiped out by the loss of the receipts tax.
Allen also is still talking about cutting income taxes next year. He said he will not unveil a specific plan until after the election, when he has year-end financial projections. His unsuccessful effort last winter to cut income taxes by an average of about $33 per family was balanced with cuts to education, ``Meals on Wheels'' for senior citizens, dropout prevention programs and aid to local police departments.
Similarly, Republicans have not specifically identified ``wasteful spending'' they want to eliminate. But they've been eyeing the state's 105,000-person workforce. Last spring, 5,000 state employees took an early retirement offer that will save $40 million a year.
Democrats and Republicans say they can enact their plans without asking citizens to sacrifice services. They are estimating that the tax base in Virginia will grow by about $500 million next year, providing new funds for all of their proposals.
What office seekers are not saying is that the state already is confronted with a list of $700 million in new spending demands for next year that are not a part of anyone's campaign platform. They include:
$232 million to staff and build new prisons.
$180.5 million to fund educational standards adopted by the state Board of Education.
$129 million for a cost-of-living increase for state pensioners.
An $80 million refund to federal pensioners who were illegally taxed by the state and refused to accept an out-of-court settlement.
$35.8 million for each 1 percent cost-of-living pay raise granted to state employees and teachers. ILLUSTRATION: Graphics
ROBERT D. VOROS/Staff
STATE AND FEDERAL BUDGETS
SOURCES: DPB's ``Trends in Virginia Government''; ``President's
Budget of the U.S. Government'' 1995
VIRGINIA'S REVENUES & APPROPRIATIONS
SOURCE: Secretary of Finance
Research by WARREN FISKE
graphic by ROBERT D. VOROS/Staff
HOW VIRGINIA RANKS AMONG U.S. STATES
SOURCES: The State Policy Reference Book, 1995; various state
agencies
[For complete graphics, please see microfilm]
by CNB