On Tuesday, November 5, 2002, citizens in the counties of Arlington, Fairfax, Loudoun, and Prince William and in the cities of Alexandria, Fairfax, Falls Church, Manassas, and Manassas Park will be asked to vote for or against increasing the sales tax from 4 1/2 cents to 5 cents for transportation.

MYTH: The tax hike will end gridlock.

FACT: The pro-tax group, Citizens for Better Transportation, states in their June 21 fundraising letter that the tax hike is only a "first step". Of the current 4_-cent sales tax, one-half cent is already dedicated to transportation, and that did not end gridlock.

MYTH: The tax hike provides $5 billion for transportation.

FACT: This amount is what will be available over 20 years and is a fraction of what transportation will cost over that period. According to the pro-tax Northern Virginia Transportation Alliance, the half-penny increase "..… barely dents the region's annual shortfall." Also, much of the money is obtained by selling bonds. After twenty years taxpayers will still owe $2.6 billion on those bonds.

MYTH: The sales tax increase will cost the average family only 25 cents a day.

FACT: This assumes a two-person family. It also excludes sales taxes paid by businesses and nonresidents. However, businesses pass their taxes on to the consumer, and higher taxes discourage nonresident shoppers. A family of four now pays, directly or indirectly, about $2700 per year in sales taxes. Proponents say the tax hike would raise $140 million from 1.9 million residents. That would increase the sales taxes paid by a family of four to about $3000 per year.

MYTH: The sales tax hike funds 24 specific transportation projects.

FACT: It partially funds those projects. Completing the projects would require additional tax hikes. For example, the sales tax pays $350 million for rail to Dulles, whose total cost is $3 billion. Additional funding is slated to come from doubling tolls on the Dulles Toll road and increasing commercial real estate taxes.

MYTH: The sales tax hike will be "dedicated" to transportation.

FACT: To balance the budget, the state this year transferred from the transportation fund to general government $317 million of revenue from the _-cent sales tax that is already "dedicated" to transportation. To cover up the transfer, the state is replacing the money by borrowing against future federal transportation revenues. Governor Warner has explicitly refused to rule out doing the same thing next year.

MYTH: By law, the revenue will stay in Northern Virginia.

FACT: Unless it is written into the state constitution, the legislature can change a law with a majority vote, as they did this year with the $317 million in "dedicated" transportation taxes. You cannot always trust politicians.

MYTH: There’s not enough tax revenue.

FACT: This year’s state budget has $2 billion more than needed to keep up with inflation and population growth since 1992.

The state’s so-called budget crisis exists because the state based its spending on unrealistically high revenue projections made during the "dot-com" boom. Also, Fairfax County revenues are at an all-time high. Fairfax County real estate taxes for the typical household have increased 37 percent in just three years. A fourth big increase is likely next year.

MYTH: Real estate taxes and state income taxes are spent on transportation.

FACT: Income and real estate taxes, which are the major sources of state and local revenue, are NOT spent on transportation. They are monopolized by education and welfare. While Fairfax County school staff has increased four times faster than enrollment (and SAT scores remained at the 65^th percentile) and while welfare spending has mushroomed, inflation-adjusted transportation spending per resident is the same now as it was in 1979. To end gridlock, transportation must be allowed to compete against wasteful social programs for income and real estate taxes.

You may download this one-page flyer from the FCTA website

http://fcta.org/PDF/H20020920ref.pdf

Arthur G. Purves, president of the Fairfax County Taxpayers Alliance (FCTA), announced today that an FCTA analysis shows that the typical Fairfax County household is paying $1700 more per year (or nearly $5 more per day) in state and county taxes than it paid ten years ago. This is despite the decline in revenues following the "dot-com" collapse and is adjusted for inflation. With inflation the typical household is paying nearly $3300 more per year or $10 more per day. This includes sales, personal property, real estate, and state income taxes. Fairfax County real estate tax increases have also completely wiped out the savings from the car-tax reduction. The so-called car tax cut masked a 20-percent increase in state and county taxes.

Don’t kid yourself. We are fighting more than just a _-cent sales tax increase. We are fighting to determine the direction of the Virginia state budget for the next several years. Your efforts in this fight will redound to the benefit of smaller government for years to come.

Governor Warner and his tax-hiking allies in the General Assembly are watching the referendum to gauge public sentiment for more tax increases. Will we close the current budget gap with spending cuts or tax increases? The answer to that question hangs heavily on the outcome of the referendum. If you want to slow the growth of Virginia government, then the single most effective thing that you can do right now is to fight the referendum.

Our opponents will outspend us by vast sums, but they still have an uphill battle if we maintain our grassroots efforts. The reason is simple — the more people are educated about the referendum, the more they vote NO. Your efforts are gradually turning more and more people against the tax. The real key is not how much money each side raises; it is simply a question of getting our message communicated to enough people who will in turn talk to other people, etc. This is a classic grassroots effort — you are the key to success — and so far, you are getting the job done.

We are confronted with opponents that have a strong financial incentive to push the tax through, as they are going to make a lot of money off the the Northern Virginia Transportation Authority (NVTA)! Don’t be shy about telling folks that… but for all their money and effort, they are losing ground to us.

A reporter called me the day the Mason Dixon poll came out showing the referendum up 52-39. I was not aware of the poll until she called, and she asked what I thought about those numbers. I said loudly "That’s great!" She was stunned. I explained that in my race, with a much more anti-tax sample than the Mason Dixon poll (37^th Sen. vs. all 9 jurisdictions), the referendum polled ahead 24 points (in early July)… and I won by 10 points with my opponent blaming her loss on the referendum! I told the reporter that for the other side to have a decent chance of winning, they needed to be up by more than 20 points going into election day. We’re ahead folks! Keep fighting and we will win!

October 10, 2001 debate between now-Gov. Warner and Republican Attorney General Mark Earley:

Chart 2: This is the same as the previous chart with two additions: It also shows revenue projections made in December, 1996, before the "dot-com bubble" and projections made in December 2001. The currently projected revenues for FY2003 are still $700 million more than the revenues that had been projected in 1996. If the state had limited expenditures during the dot-com boom to the amounts projected before the boom, there would have been a $700 million budget surplus this year instead of a "budget crisis".

The purpose of borrowing is to obtain an amount of money that is many times, generally ten times, larger than the annual debt service payment. This is called "leverage." The greater the amount borrowed compared to the debt service, the greater the leverage.

Interest is the price of leverage. Leverage should be about ten, i.e., bond revenues should be about ten times the annual debt service. High leverage, however, is obtained by not selling more bonds until current bonds are paid off.

As the following charts show, both Fairfax County and the state sell bonds annually. The result is almost no leverage. Fairfax County’s highest leverage in the last 12 years was "2", in 1989.

The state of Virginia has obtained higher leverage than Fairfax County over the last ten years. However, the state’s highest leverage was only "3", in 1993.

This means that taxpayers are paying higher taxes for hundreds of millions of dollar of interest for bonds that have little or no leverage.

In Fairfax County’s case, annual bond sales provide just about enough money to pay the debt service. This year the county will pay about $200 million in debt service. Since each penny of the $1.21 real estate tax rate generates $11 million in county revenue, debt service on county debt accounts for about 18 cents of the $1.21 rate. Of the 18 cents, six cents is for interest. The remaining 12 cents pays for principal.

Governor Warner is sounding pretty scary on the state budget these days. He is so scary that after interviewing him one badly confused Washington Post reporter recently told readers that Virginia’s tax revenues are at their lowest point in 40 years. For the record, the latest official forecast projects state general fund revenues to total $10.7 billion this fiscal year. Forty years ago, these revenues were $286.3 million, only about 3% as much as today.

The bottom line on the much ballyhooed budget crisis is that all the supposed cuts and shortfalls you hear about are cuts and shortfalls from the large state spending increases for this year and next year that the Governor and the legislature adopted this past winter. The key fact you must know is in the official state budget documents and was widely reported when the budget was adopted earlier this year. The total state operating budget adopted for this fiscal year provided for a 7% spending increase over the prior fiscal year.

That state budget provided for an increase in total spending in this fiscal year of $1.6 billion. Indeed, that adopted operating budget set a record for spending, the highest ever in the history of Virginia. The latest official state projections show that the state’s revenues will be $523.8 million less than was expected. That would still leave a spending increase in the current budget of over a billion dollars.

Gov. Warner spent $215.9 million last year in funds that were scheduled to be spent this year. Even if that is all covered with further spending restraint this year as well, that would still leave a spending increase in the current total budget of about $860 million. The $1.5 billion budget shortfall the Governor talks about actually covers three fiscal years, last year, this year, and next year. The latest official state projections predict that revenues for next year will be $760 million less than was expected when the budget for that year was adopted last winter as well.

But that budget provides for another $1.7 billion in increased spending over this year. So even with the revenue shortfall, state spending next year would still increase $940 million. The budget problem has arisen because the Governor and the legislature just tried to increase state spending too much and too fast, before the economy and revenues had recovered from the recent slowdowns. After the enormously rapid state spending growth of the late 1990s, continuing through 2001, a couple of years of restrained spending growth would be quite desirable.

All of the Governor’s budget hysteria is part of the effort to trammel voters into supporting the permanent 11% sales tax increase on the ballot this fall. The Governor wants these sales tax increases to bail out his budget mess so he can quickly resume rapid spending increases. The sales tax increase for transportation would reduce the pressure to spend other state funds on that critical need, allowing the state to spend more on other big-government boondoggles.

The hot new debating point among the sales tax increase proponents is to ask what is the alternative to their supposed solution to Northern Virginia’s transportation problems. Most of all, the budget hysteria is meant to obscure the true alternative solution that would be supported by the vast majority of voters.

The revenue projected by the state to be raised by the 11% sales tax increase is equal to about one half of one percent of total state revenues and spending each year. When the economy is weak and revenues are flat, like now, that is no time to start a massive, 20 year, road building and transportation program. Nor is it the time to whack the economy with an 11% sales tax increase.

But as the economy and revenues recover, the state could slow the annual increases in total state spending it would otherwise adopt for everything but transportation, by a modest one half of one percent each year. That money could then be directed to transportation and would be enough to fund everything the sales tax increase would fund.

So, for example, a budget with a 7% increase overall, like the one adopted for this year, could be cut back to provide for a still too-rapid increase of 6.5% for everything but transportation, with the saved funds then devoted to increased transportation funding. Or a budget with a total spending increase of 9.1%, like the one adopted for 2001, could be cut back to a still too rapid increase of 8.6% on everything else, with the savings devoted to transportation. Or a total budget increase like the 13.3% adopted in 1999 could be reduced to a still far too rapid increase of 12.8% for everything else, with the savings again devoted to increased transportation.

This just involves reprioritizing state spending to meet the most urgent priorities of voters. The state’s political establishment doesn’t want to do this because it has been taken over by big spending liberals who want massive long term spending increases on everything wxcept transportation. But that is going to change soon.