Virginia General Assembly: Budget Negotiations
Robert Holsworth
Political Science Professor and Director, School of Government and Public Affairs, Virginia Commonwealth University (VCU)
Friday, March 19, 2004; 3:00 p.m ET
Budget negotiations continue in Richmond and lawmakers, lobbyists and administration officials have said that the protracted standoff between the House and Senate could extend Virginia's budget uncertainty for days, weeks or even months.
Full Coverage: GOP Delegates Push Tax Vote (March 18)
Robert Holsworth, political science professor and director of the School of Government and Public Affairs at Virginia Commonwealth University, was online Friday, March 19 at 3 p.m. ET, to discuss the budget negotiations and what effect the standoff could have on the state.
A transcript follows.
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Arlington, Va.:
When are the legislators going to get that they were voted to enact laws, not to ACT LIKE CHILDREN. They need to stop messing around with the state's reputation on wall street and get their ducks in a row. Why can't a group of adults work out the budget?
Robert Holsworth: This is the question that most citizens who are watching what is happening in Richmond are now asking. If the legislators cannot succeeed in reaching agreement relatively quickly, the continued impasse will damage the state's credit-rating, make it far more difficult for local governments to operate and increase the already high level of public cynicism in the political process.
The impasse is the culmination of an almost decade long-time debate between what might be called the "populists" and the "investors." The former believe that state government can run more efficiently, that state government has been growing above the rate of inflation for some time, that taxes eventually stifle economic growth and that more money can be put into core services such as education without "general" tax increases for the entire population. On the other hand, the "investors" believe that core services in Virginia (education, higher ed., public safety, transportation and health care) are not being funded inadequately and that without substantial reinvestment Virginia will be not be competitive in the 21st century. Moreover, the "investors" do not believe that the additional revenue that accrues to the state from economic growth will be adequate to fund our needs; ergo, the need for a general tax increase.
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Fairfax, Va.:
How likely is it that the tax issue will actually make it to referendum? And if it does, aren't the prospects of any significant tax hikes hopeless?
Robert Holsworth: I really do not believe that the Senate and the Governor will agree to a referendum, especially given the recent experience with the transportation referendum. The House obviously believes that to the extent that the tax debate is played out on the terrain of electoral politics, the anti-tax side is likely to emerge victorious.
The one voice who doesn't accept this analysis at the moment is political strategist Paul Goldman whoo believes that carefully tailored referendum focused on education might actually be favored by the public. At the moment, however, I don't believe that the Governor and the Senate will retreat from their position that it is an abdication of duty to hold a tax referendum and would turn Virginia into California.
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Hollin Hills, Va.:
Recently hired state employee here: If the budget issue isn't resolved soon, what are the chances of shutdown like that the feds saw in the early 90s?
Robert Holsworth: We're still a long way from an actual shutdown and the odds of having one are, I still think, quite low. But the problems that Ireferred to above in terms of the state's credit rating and the uncertainities facing local governments could occur long before we actually face ashutdown.
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Arlington, Va.:
How does Warner come off looking in this debate so far? Should he be more assertive in forcing some hands here or what?
Robert Holsworth: This is one of a number of questions about the Governor so I'll answer them all at one time.
At the moment, part of what all sides are doing is "framing the blame." The Governor points to both chambers of the Assembly, says that his daughters can't understand why grownups can't compromises and stays above ther fray." On the other hand, the House says that the Governor is not exercising any leadership and that until he tells the Senate to come closer to his bottom line number for additional tax revenues (approximately $1 billion over two years), there is no chance for a compromise. The Senate essentially says that this is a dispute between the two chambers and the Governor cannot be expected to do very much.
Long story short. The continued impasse is good for nobody. The Governor, for example, was being "considered" for a slot on the national ticket. Now while I think it is highly unlikely that he would be chosen, it is difficult to "consider" someone whose state doesn't have a budget, even if the legilsature is controlled by the opposing parties.
It seems to me that Warner's dilemma is this. He benefits politically from any agreement that can retain the Triple A bond rating. And while his "heart" is with the Senate's plan (the "investor" perspective), his own bottom line number for additional revenue through taxes is far closer to the House. He doesn't want to criticize the Senate too loudly because he is much closer to the membership in term,s of his political views, but his own proposal was described in my class by a leading member of the Senate as "far too shallow."
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Short Pump, Va.:
I'm wondering whether Dr. Holsworth sees any long-term political fallout for Jerry Kilgore in the budget impasse. Will this hurt his chances of eventually becoming the GOP nominee for governor?
Robert Holsworth: The Attorney General has been very supportive of the referendum idea, largely because he shares the "populists'" notion that tax increases are very popular in elections. At the same time, the Attorney General cannot be comfortable with the perception that the Republican Party is unable to govern.
At the moment, Kilgore remains the presumptive nominee for the party and this is not likely to change as a result of the budget fiasco. The challenge, however, for Republican statewide candidates is to find a way to transcend the divisions that are coursing through the party between its funding base (the investors) and its foot-soldiers (the populists). This is the general election challenge that will face the AG.
At the same time, Lieutentant Governor Kaine faces his own set of challenges as a result of his stance in this debate.... but that's another question.
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Richmond, Va.:
Article X, Section 7 of the Virginia Constitution states: "No money shall be paid out of the State treasury except in pursuance of appropriations made by law; and no such appropriation shall be made which is payable more than two years and six months after the end of the session of the General Assembly at which the law is enacted authorizing the same."
If there is no appropriations act for the biennium beginning July 1, 2004, what authority does the Constituion provide for the state to expend funds for any purpose?
Robert Holsworth: This is a question that all the lawyers in state government are examining. There is some thought that it might be possible for the Governor to exercise emergency powers, though others dispute that this can be done. If we find ourselv es amonth from now still without a budget, disucssion will probably shift to this issue very quickly.
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Hampton, Va.:
Newport News Shipbuilding, one of the largest employers in Virginia, competes for contracts with other companies for federal defense business. Will Del. Hamilton's bill to eliminate sales tax exemptions on materials used by shipyards in constructing and repairing ships have an adverse effect on its competitive position in obtaining defense contracts?
Robert Holsworth: There are a couple of questions about the House's plan to end sales tax exemptions and what it will mean for business.
This is another issue where the conventional political divisions have been turned upside-down- we have a heavily Republican House attacking what they are labeling "corporate welfare" and the Democrats steadfastly defending tax breaks as incentives to do business in Virginia.
There are two main issues related to the "exemptions" issue as it is playing out. First, are the numbers that are being used actually accurate. The Governor's budget folks abd the Senate's money people do not believe that we could depend upon the hundreds of millions of dollars that the House's money committees say will result from the elimination of the exemptions. Second, there is concern that some major industries (airlines and shipbuilding) will take part or all of their business elsewhere if these exemptions are eliminated.
But once again this is a manfiestation of the basic problem: the House says that it will not agree to the Senate's basic instruments for rasing additional revenues (sales and income tax increases) and the Senate says that the House's basic instrument (exemption elimination) is bogus and ill-conceived. Whew!
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Fairfax, Va.:
I am appalled that the House Republican leadership is being allowed to propose a budget that will ultimately, if passed, necessitate yet another hike in our local property taxes. Do you think there is any way the Governor and Senate can effectively convince the citizens of the Commonwealth that the House's budget is disingenuous and they are attempting to "have their cake and eat it too" -- essentially coming off as anti-tax by passing a bare-bones budget while knowing that services won't suffer because the local legislatures will be forced to pick up the slack, and take the heat, with local tax hikes?
Robert Holsworth: Interesting question- because it goes to the heart of the state-local jurisdiction relationship. I think that it very difficult for the Governor and the Senate to convince the "citizens of the Commonwealth" that their position is far superior to the House's. One of their basic problems that many citizens know far more about their local government than they do about state government- if only because of media coverage. When we realize that most folks today get their news from television and then when we recognize that the vast majority of Virginians live in parts of the state in which Virginia state government is not even covered on television, you can see how daunting the task is to convince people that they should pay more "state" taxes.
Also, for a variety of reasons, state legislators are currently more inoculated from direct citizen pressure than local officials are. In the last round of General Assembly elections, one incumbent was defeated. All throughout Virginia, however, local incumbents were knocked. I like to illustrate this point by noting that in 2003, there was 4 times as much turnover on the Powhatan Board of Supervisors than in the Virginia General Assembly.
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Richmond, Va:
Professor,
I think that it would be more accurate to label this budget debacle as a dispute between the "tax and spend" crowd and the "cut taxes and spend" crowd. Meanwhile, the politicians point fingers and the people suffer. While this dispute has not made the commonwealth look good, I, for one, am grateful for the House's fight against the endless tax increases that folks like Chichester and the Governor (who promised not to raise taxes) desire.
I believe that Government spending has far outstripped inflation and population growth. And a politician's appetite for "revenue" is insatiable. I also think that all of this talk about the bond rating is a red herring, because it presupposes that the only way to protect the rating is a tax increase.
I would prefer to keep the government's hand out of my pocket. And, based on the results of the referenda in NoVa and Tidewater, most people would agree with me. While the Governor and the Senate accuse the House of being unwilling to govern, I believe that their refusal to follow the will of the people and reduce the size and functions of government demonstrate the real "inability" to govern.
Robert Holsworth: You might be right, but I tend to think that each side actually does have very principled beliefs and that it is important to explain these as best we can.
As the bond rating- you are again right that it has been used as a political instrument. What Moody's wants to see, in least in my estimnation, is a budget that replenishes the reserve fund and, more importantly, demonstrates that revewnues and expednitures are in balance in ways that do not rely on gimmickry. A tax increase is one way of getting there, but reducing expenditures is another. I do not believe that Moody's is telling Virginia to raise taxes.
Having said this, it is not only a red herring. Fiscal responsibility is a hallmark of Virginia's political culture and identity. If we discard this commitment, I do believe that we will be a different state and not necessarily a better one.
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Amherst, Va.:
Will this be an ongoing battle to see which Republican Party (social conservative, no-taxers vs. fiscally conservative, moderates) controls Virginia or will it give an opening for the Democratic Party to regain relevance in the legislature?
Robert Holsworth: Let me try to answer the second question first. At the moment, there is little indication that the Democrats qua Democrats have an indentifiable position in this debate. The Senate's position is essentially (at least at the moment) a bipartisan alliance between a slim majority of Republicans an all the Democrats. In the House, it is hard to say precisely what the Democrats' position is- are they, for example, closer to the Senate or the Governor in terms of their beliefs about the additional tax revenues needed? At the moment, it appears that the Democrats are willing as a party to stay on the sidelines and watch the Republicans rough one another up- I'm not certain that it is a very positive long-term strategy.
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Fairfax Station, Va.:
I assume that Virginia isn't the only state grappling with budget issues this year. But are we in the minority in not reaching an agreement more readily? Are other states, especially southern ones, raising taxes without big problems? What are they doing?
Robert Holsworth: A number of other states are grappling with similar issues. You may recall (I'm certain that the House Republicans remember) that the GOP governor in Alabama put a tax referendum on the ballot and had it defeated. In any case, a number of state may bew raising additional revenues through some form of tax increase, but Virginia is the only state that is trying to marry a reform of the tax system to raising significant additional revenues to fund services.
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Robert Holsworth: Thanks very mcuh for the excellent questions- let's talk again soon.
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