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2004-02-23 Warner defends State of the Commonwealth address

Arthur says “Spending is up by $2.5 billion, not down by $6 billion.”

Below are rebuttals to Fairfax County Taxpayer Alliance criticisms of Governor Warner's State of the Commonwealth address, of January 14, 2004. FCTA responses to the rebuttals are included.

The original FCTA evaluation of the Governor's address is located on the Fairfax County Taxpayers Alliance website,

The evaluation of Governor Warner's address was written by FCTA president, Arthur G. Purves.

Arthur says “Spending is up by $2.5 billion, not down by $6 billion.”

-Governor Warner has had to close $6 billion in budget shortfalls since becoming Governor through a combination of budget cuts (an average of 20% per agency, but protecting K-12 education), drawing down the Rainy Day Fund, and other “one time” budget actions.  Arthur is not taking into account population and enrollment growth and is specifically not taking into account the rising costs of Medicaid, public education, prisons, the car tax cut, and aging roadways.  He is also not reflecting the significant dollar figures that now have to be included in the Non-General Fund side of the budget, as a “truth in budgeting” measure recommended by our state auditor of public accounts.  These things include pass-through money to localities for homeland security, increasing college tuitions and fees, and other items that the Governor and General Assembly have no control over but now have to appear in the state budget.

            -Specific numbers and details can be found on slide 13 of the PowerPoint.

Purves:  The response confirms that my statement is true.

I did consider inflation, enrollment, and population.  This year's General Fund budget has $2B more than needed to keep up with population, enrollment, and inflation since 1996.

I also considered the car tax cut, which accounts for $1B.

The response ignores the surge in revenues and spending regarding the dot-com bubble (FY1996-FY2000).

 It also says that most of the increase is due to accounting changes in the Non-General Fund side, a point not important enough to be mentioned in slide 13.

Even if only the General Fund is considered, General Fund spending has increased $.5B since Warner became Governor; it did not decrease by $6B.

The response ignores the destructive influence of welfare on families  and the ineffectiveness of public education. 

The response  also ignores the assertion that prisons are full of the casualties of the failed public education and welfare systems.

Transportation is underfunded because no income taxes are spent on transportation.  Welfare and education monopolize income tax revenues.  Therefore while inflation-adjusted education and welfare funding grows faster than enrollments and population, funding for the Department of Transportation barely keeps up with population and trails vehicle-miles traveled.

Arthur says “Governor Warner reduced the number of state employees by three percent, far less than the 20 percent reduction he cites.”

-Cutting every agency by 20% is different than the percentage of state employees that have been cut from the payrolls.  Indeed, the Governor has eliminated more than 50 agencies, boards, and commissions, eliminated several thousand positions from state government (the number varies from payroll to payroll, but is around 3,000 at this point), and cut every agency’s spending by an average of 20% (while protecting K-12)..  This also does not account for significant existing and projected savings through government-wide efficiency plans. (Slide 2)

Purves:  So my statement is true.

The response does not address how much agency spending increased during the dot-com bubble.

I would like to see agency spending in FY1996 (before the dot-com bubble), FY2000 (at the end of the dot-com bubble),  and FY2002 (when the alleged reductions occurred).

The Governor's $1B tax hike restores most of the positions that were eliminated.

Arthur says “Either way, taxpayers will have higher taxes, either higher state income and sales taxes or higher local real estate taxes.”

-Under the Governor’s plan, 65% of the public will pay less in their overall state tax burden. (Slide 4 sums up the plan.)  The methodology by which we calculate that has been validated by four independent economists including Federal Reserve Board governor Al Broaddus.  While the sales and cigarette taxes go up, 92% would pay less in income taxes, and everyone would get a food tax cut and the eventual phase-out of the car tax.

Purves:  The response implicitly confirms my statement.  For the 35 percent who pay higher state taxes, there is no claim that their local taxes will decrease.  For the other 65 percent that allegedly pay lower state taxes, the response allows the possibility that their local taxes will increase.  In fact the Governor authorizes counties to raise cigarette taxes.

The 65 percent figure ignores the cigarette tax hike.  Also, we just had a cigarette tax increase in the form of the tobacco settlement, where the proceeds went to lawyers and state governments.  This settlement gives Virginia an extra $120M per year, almost as much as the $140M the Governor gets from raising cigarette taxes (again).

Cigarette taxes are regressive.  If the Governor's wants to reduce smoking, he should make the cigarette tax hike revenue neutral by reducing (not increasing) sales taxes.

The car-tax phase out would result from higher taxes elsewhere.

Arthur says in regards to 100,000 more students entering public schools by the end of the decade that “What this statement overlooks is that public school spending has been increasing much faster than enrollment.”

-The Governor’s plan will properly fund the Standards of Quality (SOQ).  Due to factors such as enrollment growth, inflation, English as a Second Language and special education needs, and teacher retirement, properly funding the standards will cost $774 million in the coming year.  In addition, our institutions of higher education are chronically underfunded. (Slide 11)

Purves:  Again, the response, by trying to justify why school spending increases faster than enrollment and inflation, confirms my statement.

The Governor's budget increases public-school spending next year by 8 percent, compared to an expected  1.5 percent inflation increase and historical increases in enrollment of 1.5 percent.   The spending increase is excessive, especially when the Joint Legislative Audit and Review Commission (JLARC) reports that inflation-adjusted public school spending has been increasing nine times faster than enrollment.

The Wilder Commission said that benefits for government employees are far more generous than private-sector benefits.

Many of the schools' special needs are the result of not employing phonics-based instruction for teaching reading.  Children who cannot read become "special needs" students.   Public schools have a conflict of interest because the  more special  needs students they can identify, the more money they can demand.

Also, how can colleges be "chronically underfunded" when the JLARC reports that inflated public-college budgets have increased more than three times faster than enrollment?

Arthur says “Virginia’s bond rating is at risk due to excessive bond sales”

-The bond rating is at risk because Virginia is not proving to credit agencies that is has the revenue to continue to support its core government services.  A lack of revenue in recent years has kept Virginia from strengthening its infrastructure and has forced the Commonwealth to deplete the rainy day fund.  Moody’s is signaling that cuts combined with the idea of “growing the economy” will not be sufficient to saving Virginia’s AAA bond rating.  A loss of the AAA bond rating will do more harm to the economy than almost anything else that has been done in recent years.  Additionally, it will cost Virginia taxpayers tens of millions more in debt payments each year for the same amount of borrowed money.

Purves:  The response does not deny my statement that Virginia has indulged in excessive bond sales.

 Moody's is not going to tell Virginia to sell fewer bonds.  There has been plenty of revenue for infrastructure (transportation).  However the revenue has been monopolized by soaring public education and welfare spending, since income taxes (the major source of General Fund revenues) are off-limits to transportation and by default go to education and welfare.  Also, only 12 percent of sales taxes are "dedicated"  to transportation.

The Governor has admitted that during the current biennium he has raided about $500 million from transportation for schools and welfare - $317M from "dedicated" transportation sales tax revenues and $200M from insurance-premium taxes that had been "dedicated" to transportation.

The depletion of the rainy day fund is due to out-of-control spending.

Arthur says “However, the Governor’s plan has those making $17,000 per year paying the same higher sales tax as those earning $500,000 per year.”

-  Mr. Purves is being cute here.  Consumption taxes are not applied to people on the basis of income.  Income tax changes proposed by the Governor mean those making less will pay a lower income tax than those making a taxable income of $100,000 or more.  The income taxes of the vast majority of Virginians will go down, which does goes along with the Governor’s statement that “To me, it just doesn’t make any sense that someone earning only $17,000 a year in Virginia should pay the same tax rate as someone earning $500,000 a year.”

Purves:  Again, the response explains why my statement is true.

Because consumption taxes are not applied based on income, consumption taxes affect the poor as much as the rich.  This hurts the poor more, because they have less discretionary income.  When Governor Warner spoke to the Fairfax County Chamber of Commerce at Wolftrap, he defended his increase in the regressive sales tax by saying that poor people should pay more taxes since they use more government services.

Governor Warner's tax hike is an attempt to win the Virginia Education Association's support when he runs for senator against George Allen.  Of Governor Warner's $1B increase, $774M goes to the already-overfunded and mismanaged public schools.