DATE: Sunday, September 7, 1997             TAG: 9709050029

SECTION: COMMENTARY              PAGE: J4   EDITION: FINAL 

TYPE: Editorial 

                                            LENGTH:   97 lines

GOVERNOR'S RACE: THE MISSING AGENDA THE THREAT OF DEBT

Listen to James S. Gilmore III and Donald S. Beyer Jr. as they campaign for governor, and you are likely to hear words like ``budget surplus'' and ``tax cut'' and ``growth.''

Neither of these optimists is Scrooge enough to mention another powerful word on the state's horizon: debt.

That's debt with a capital D. While candidates are talking about curtailing the personal property tax and investing millions in new spending, the state's mounting reliance on borrowed money is a locomotive barreling down the same track from the opposite direction.

A head-on crash is a realistic threat unless Virginia's economic performance is splendid, unprecedentedly so. While anything's possible, banking on the phenomenal happening is risky (dare we say, un-Virginian?) public policy.

Here are a few statistics you probably won't pick up in any campaign brochure.

The amount Virginia pays for debt service has increased 645 percent since fiscal 1990 and is the fastest growing component in the state budget.

Since the mid-to-late 1980s, the state has done a flip-flop regarding its fabled belief in pay-as-you-go. Just a decade ago, about 60 percent of the state's construction needs were met with cash and about 40 percent with debt. Now about 68 percent of building costs are leveraged with debt.

Total state debt has grown to more than $9 billion, a figure that is pushing the upper limits of a self-imposed borrowing ceiling. So concerned are those in the know that lawmakers have set a one-year moratorium on authorizing new debt.

But previously approved bonds are still being issued, which means that state borrowing is still on the rise. And while the moratorium lasts, needs in the areas of transportation, education and prisons aren't going away. They've simply been put on hold. When the moratorium lifts, the clamor for attention is likely to be louder than ever.

Why does this matter?

For one thing, it means voters should take candidates' talk about "surpluses" with a grain of salt. Yes, the most recent forecasts project that Virginia will end the biennium with more than $200 million in the bank.

But that's $200 million more than was budgeted - not more than is needed. In fact, as we reported Friday, transportation officials make a compelling case for billions of dollars of new road spending. And, as we detailed yesterday, public school superintendents say billions must soon be spent rebuilding and expanding classrooms. A variety of other state departments, from prisons to mental health, can argue just as persuasively for construction dollars.

There are basically three ways to handle those requests. Pay with cash up front. Borrow the money. Or ignore the needs.

Both Gilmore and Beyer imply that the economy will generate enough tax revenue to fund tax cuts and new initiatives. For instance, Gilmore estimates that the state will glean an extra $5.5 billion in revenue from an expanding economy over the next governor's term. When his priorities - including the costly elimination of the personal property tax on most cars and trucks - are funded, he imagines $1.4 billion will be left for other new projects over four years.

Some experts think Gilmore's estimate is too optimistic. But even if it isn't, Gilmore's four-year "surplus" would not cover even one year's shortfall in highway construction funds: Projected to be $1.7 billion for 1999 alone.

That leaves Virginia borrowing more money or ignoring needs.

Throughout the 1990s, Virginia has done both. The trend began in earnest with the 1990 recession. At that point, lottery revenues that had been earmarked for capital needs were rerouted to help cover the operating costs of state government.

Debt became the primary vehicle for doubling state prison beds, building college dorms and financing special transportation projects.

Now, with the state bumping up against debt limits, that adventure in creative financing has about run its course. Virginia can continue to issue debt, but only at a moderate pace. Anything like the growth rate of debt that we've allowed during the 1990s would almost surely cost the state its prized AAA bond rating.

Where do we go from here?

The candidates' solution is to promise both tax cuts and new spending. Beyer's plan to reduce auto taxes is less aggressive than Gilmore's, but both ignore some sober realities.

For example, a recent forecast of state finances by the Senate Finance Committeestaff suggests that at current growth rates the state can keep pace with inflationary costs and mandated spending increases for the next two years.

If no recession strikes, there should even be enough surplus to fund salary increases, some capital outlays and other modest initiatives, they said. But nothing in the forecast suggests an ability to provide a major tax cut and fund huge school and transportation needs at the same time.

Interestingly, voters appear to be realistic about the prospects. In a poll commissioned by The Virginian-Pilot that appears in today's news section, 82 percent of respondents favored cutting the personal property tax. But when asked whether they'd rather pay less in taxes or spend more on the needs of public schools, those polled opted for education by a 2:1 margin.

That ought to send a powerful message to the men who aspire to be Virginia's next governor. Voters care about more than their pocketbooks. And voters deserve, and apparently would welcome, a leader who feels no need to sugar-coat the truth. Virginia doesn't need a tax cut. But it badly need better roads, better schools and controlled debt.

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