Issue Position: The Economy and Budget

Issue Position

... how national news plays out in Virginia
Virginia's challenges are very different from the federal government's. Our budget must be balanced. We can't run up a deficit ...we can't print money.
Therefore, every time we pass a budget, we must project what state tax revenues will be more than 2 years out. Typically, we underestimate income rather than over-commit spending ...Virginia is not California. In fact, Virginia consistently is ranked* at the top of all states for the quality of our economic management. (*www.pewcenteronthestates.org)
Nevertheless, despite every effort to accurately forecast revenue, Governor Kaine began spending cuts in 2007 and we've cut the Budget three times since March 2008. Instead of a conservative* 2.2% revenue growth as originally projected, for just the 3rd time in the last 50 years state revenue has actually declined and we're now experiencing a -4% revenue loss. (*State revenue typically grows 6-7%.)

... Budget choices ahead
Some are predicting that the state budget may have to be cut another $4 billion. We've already made the "easy" cuts to address a $3.7 billion deficit. These included $1.6 billion in across-the-board job and program cuts plus another ½ billion dollar loss in transportation funds, eliminating salary increases for 2 years, and shifting $350 million of capital projects to bond funding.
Further cuts will be extremely difficult. The fact that Virginia is 37th in state spending per capita means most programs are basic. Most of the 5,000 state jobs we cut in 2002-04 weren't replaced.
15% of Virginia's budget goes to match federal Medicaid, even though Virginia spends less than almost every other state. Indeed, public safety is the only area of state spending where we exceed national averages. Of great importance, about 50% of the state budget goes to local governments for schools, jails, mental health, emergency services, police, and car tax relief. Cutting such state support to localities could raise real estate taxes.

... my commitment
Fiscal integrity must be maintained which has earned Virginia our long-standing AAA bond rating and rank of best-managed state. Open processes with full discussion of alternative economic viewpoints and actuarial projections are essential -- no blue smoke and mirrors.
Lack of transportation funding absolutely must be addressed, without cutting other essential services by raiding the General Fund. Beneficiaries of transportation improvements should bear the cost and it is wrong to raid the General Fund at the expense of public education, mental health, nursing home care, environmental protection, or job creation initiatives.
Cuts in state funding for local governments must be equitably applied and not single-out Northern Virginia. I'm a "numbers person" and know the devil is in the details. I will use my tenacity and knowledge of funding formulas to make sure that Fairfax County is not unfairly impacted by population caps or cost-of-living manipulation in proposals to change state funding for K-12 education, court functions, mental health, or social service delivery.

... last to recover
Even though Virginia is 2 points below the national average because we have a diverse economy, we're still at a 25-year high. In Fairfax, unemployment insurance claims more than doubled this year.
National news focuses on the fact that hiring always trails behind economic recovery. It is rarely mentioned that state government revenue recovery always trails job recovery. 63% of Virginia's general revenues comes from the individual income tax and 20% from the sales tax: No job, no income tax... No job, little spending.

... creating new jobs
Virginia has great potential to expand high-paying jobs by using those assets that have led highly-respected sources to repeatedly name Virginia as one of the best states to do business: strong universities, community college workforce development, low taxes (44th per $1000 of personal income), and access to world markets.
Congestion is the greatest impediment to expanding Northern Virginia high-paying jobs, while broad-band internet access is the greatest infrastructure need for areas of the state where there is widespread double-digit unemployment. If we can avoid extremely restrictive stemcell restraints as passed by the 2009 Session, bio-tech research potential is extremely strong and large pay-offs can come from start-up grants, wet lab construction, and business/academic partnerships.
Virginia is well-situated to expand green energy related employment from off-shore wind energy to alternative biofuel research centered in Blacksburg and fossil fuel rich Appalachia. We must actively compete to be part of an east coast highspeed rail corridor.

... preserving existing jobs
The economy is hitting small businesses hard with fewer sales, cutbacks in work hours, job losses, and even home foreclosures. We need to help small businesses through increased access to business loans, reducing government paperwork, pooling health insurance, and increasing state and local outreach to bid on government contracts.
Having more than $1 billion stimulus money for general spending this year from the federal American Recovery & Reinvestment Act (ARRA) kept us from having to cut public education and make further cuts in public safety and Medicaid ... this year.
Some believe the federal stimulus should just target public construction projects. As critical as transportation needs are, a nursing home job, a state police position, a teacher, etc., etc. are just as important as a construction job. If state or local governments do not have funds, these jobs will be cut.

... unemployment
The most controversial item in the ARRA stimulus turned out to be rejecting $120 million for unemployment benefits. To receive this federal money, Virginia had to expand coverage by choosing among various options and, by a close vote, the House rejected extending unemployment benefits both to (1) people who've lost part-time work unless they're looking for a full-time job and (2) people enrolled in approved training programs.
Despite the fact that $120 million was far more than the cost of these options, businesses feared that, once the federal stimulus ended, the expanded coverage could raise the unemployment tax they pay. In fact, only South Dakota has a lower tax than we do and, if Virginia kept the options, the cost would be just 22¢ per employee per month.

... the challenge of poverty
Virginia has one of the greatest spreads between wealth and poverty of any state. One in 4 Virginia counties and cities have double-digit unemployment.
Despite this long-standing poverty, welfare reform in 1996 cut by half the number of Virginians qualifying for TANF (Temporary Assistance for Needy Families). The amount families receive has only been increased once in 23 years.
Poverty among the elderly heavily impacts Medicaid, which is the fastest growing area of state spending. Traditionally, half is covered by federal funds, half by state tax revenues.
Only 3 states spend less per capita than Virginia on Medicaid benefits. This means as needs grow with an aging population and increased health care costs, we have very little room to cut. Virginia's Medicaid program currently covers less than 70% of hospital costs, inflating the bills of other patients.
In fact, rather than further Medicaid cuts, I've tried to extend Medicaid and establish nursing home staffing standards. Unlike in most states, the 30,000 Virginians in nursing homes aren't protected by even minimal staffing requirements. My bill has always failed because it would cost $25 million in state funds to match increased Medicaid costs.

BACKGROUND

TAX REFORM

* Eliminated the estate tax (2007)
* Cut the food tax 2½ cents (as of July 2005)
* Increased state income tax personal deduction to $900 instead of $800. (2006 Tax Year)
* Retailers no longer have to send money to the state for sales taxes before they actually collect it. (July 2005)
* Increased the 2.5¢ per pack cigarette tax to 30¢ (March 2005)

* Closed major corporate tax loopholes regarding holding companies. (July 2004)

SPENDING

In the decade from July 1999 to July 2008, the general fund budget grew 80%. However, taking inflation (29%) and population (12%) growth into account, the actual growth was 23%.

The three largest State spending initiatives were

* setting aside money for a Rainy Day Fund
* growth in Car Tax Relief from $220 million to $950 million where it's been capped
* use of general funds for transportation which grew from $44 million to $150 million

These three areas of increased spending totaled $1.2 billion or about 7% of the total general fund budget.

Other areas that grew more than inflation and population:

* The Medicaid inflation-adjusted increase was 53%.
This was slightly more than the 48% inflationary growth in medical care because Virginia significantly increased its participation in FAMIS to get more children of the working poor covered by insurance. Matching funds for Medicare Part D also increased state spending.
* Federal mandates including
* No Child Left Behind Act and special education funding requirements,
* environmental programs such as the Clean Water Act,
* enforcement of court-ordered child support payments, and
* the Real ID Act
* The Tobacco Master Settlement Agreement brought in more that $581 million since the program began in FY2000 to be used for replacement job creation and health.
* Debt service fund grew 134% to $244 million reflecting the State's increased issuance of bonds used mainly for construction-related expenses for toll roads and universities.

We also increased state funding to reduce waiting lists for mental health and mental disability services. In addition, we increased the state share of funding for local schools to better reflect what localities actually pay.

The higher education fund increased 108% to $5.15 billion (14.3% of FY08 budget). This fund consists of tuition and fee payments by students at Virginia's colleges and universities, revenues generated by campus related activities, and university hospital revenues at, for example, the University of Virginia Medical Center. This increase may be explained by a combination of enrollment growth, increased tuition and fees, and increased revenues at university hospitals. For example GMU general fund appropriate grew from $86 million to $151 million.

I believe it is important to balance the budget but still be able to wisely spend the state's money to improve transportation, keep class sizes low in our schools, provide the resources that our law enforcement officials need to keep our communities safe, protect our natural resources, make sure everyone has access to the higher education and health care they need, and keep taxes low for its citizens.

BUDGET STRUCTURE
Virginia's budget crisis is twice as serious as it might appear from just reading headlines. Most of the shortfall affects only half the budget, because the rest comes from payments for specific services.

Our $26 billion FY09 annual approved budget is split between 2 funds. The General Fund is $16 billion and used to pay for basic state government operations. One-third of it goes to pay for K-12 education, followed by state expenditures for medicaid; police, courts, and prisons; higher education; mental health and other human services; and car tax relief (7%). Money to fund these programs comes from sources everyone pays (i.e., individual income taxes, the sales tax, business taxes, lottery and ABC store profits, liquor and cigarette taxes, and court fees). These revenues have been driven down by the sluggish economy.

Most of the rest of the budget -- $20 billion in the Nongeneral Fund -- comes from and goes to specific areas. Federal dollars must be used for programs such as Medicaid (41%). College tuition payments and hospital charges go to the institutions (23%). The gas tax and vehicle fees are designated for transportation.

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