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2002-10-15 Virginia's bogus budget crisis

"taxation by misrepresentation"

rthur G. Purves, President of the Fairfax County Taxpayers Alliance, today accused Virginia Governor Mark R. Warner of concocting a budget crisis by misrepresenting Virginia revenues.  Purves stated, "This evening the Governor is poised to announce large budget cuts due to a so-called budget crisis.  The fact is Virginia revenues are still near their record high.  The alleged shortfall is not so much a fall-off in revenues as it is a fall-off from overly optimistic budget projections made during the dot-com boom."

Fairfax County Taxpayers Alliance budget analyses conclude the following (visit for graphs):

  • Between 1998 and 2002, Virginia inflation-adjusted spending per person grew by an extraordinary 18 percent.
  • Although current-year inflation-adjusted spending per person is below the record high of 2002, it is still eight percent greater than in 1998.
  • Governor Warner’s $5 billion budget shortfall is based on overly optimistic state revenue projections made in December, 2000, before the dot-com boom collapsed.
  • Current revenue projections are still greater than revenue projections made in December, 1996, before the dot-com boom began.
  • Currently-projected FY2003 revenues are still $2 billion more than needed to cover population and inflation growth since 1998.
  • In Fairfax County, per-household real estate tax increases have exceeded savings from the car tax cut.

According to a Virginia Joint Legislative Audit and Review Commission report, "Review of State Spending: June 2002 Update" (p. 11), between 1981 and 2001, public school inflation-adjusted spending per student increased nearly ten times faster than enrollment and public-college spending increased four times faster than enrollment.  Mental health spending increased while the number of clients in the program decreased.  The state inmate population increased almost ten times faster than population.

Mr. Purves stated, "State revenues between 1997 and 2003 are $8 billion more than were projected in December, 1996, prior to the dot-com boom.  How then can the Governor declare a budget crisis?  Instead he should be asking why huge spending increases produced so few results and what are the underlying reasons behind the huge increase in prison inmates.  If the Governor suggests that a so-called budget crisis resulting from an unexpected $8 billion windfall in extra revenue is justification for passing the sales tax referendum, he will be advocating more taxation by misrepresentation."

Chart 1: Governor Warner has proclaimed a budget crisis because recent projections of state revenue (middle line) - made August, 2002 - are much less than the projections (top line) - made December, 2000 - that were available when Warner was running for governor. However, the state budget has grown much faster than was required to keep up with population and inflation (the bottom line). If the state had limited expenditures to the amount required to keep up with population and inflation, there would have been a $2 billion budget surplus this year.

Virginia's budget crisis is a spending crisis

Chart 2: This is the same as the previous chart with two differences: 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".

Virginia's budget crisis is a spending crisis