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Lasting legacies

SoVaNow.com / December 17, 2009
Change at the Governor’s Mansion naturally brings on a debate on the legacy of Virginia’s outgoing chief executive. The end of Gov. Timothy M. Kaine’s term of office is bringing on something more: the pain.

Kaine is set to announce Friday his plans for closing a looming two-year budget shortfall estimated at $3.5 billion, coming on top of $7 billion in reductions that Kaine has wrung out of state government over the past two years. Just to put the numbers in perspective, general fund tax receipts will drop from $15.7 billion in 2008 to an estimated $14 billion in 2010, the worst revenue outlook since the Great Depression.

The road ahead is likely to be even worse. “In the 2010-12 biennium,” writes budget analyst James Regimbal Jr., “Virginia’s state budget will experience the full force of the worst economic downtown since the 1930s. Even more painful changes to state government policy are forthcoming.” Regimbal’s report, “Virginia’s State Budget — A Train Wreck Waiting To Happen,” is available at the web site of the Weldon Cooper Center for Public Service at the University of Virginia at http://www.coopercenter.org.

For the most part, discussions of Kaine’s performance in office have focused on his inability to prod the General Assembly to pass a transportation package (a meaningful one, anyway), his political hits and misses (the DNC chairmanship, gains by Virginia Democrats early in his tenure and the rout of Democrats in the 2009 election), his widely praised response to the Virginia Tech massacre, and even his success in enacting a restaurant smoking ban. What hasn’t received a lot of attention so far is Kaine’s orderly drawdown of state government. Perhaps this is as it should be; after all, what up till now has been a forced retreat could well turn into a rout if the economy doesn’t turn around.

As governor, Doug Wilder was hailed for guiding Virginia through a recession without raising taxes. Compared to the challenges Kaine has encountered, Wilder’s task was a walk in the park. Virginia’s problem isn’t excessive spending; rather, the state budget has been hamstrung by tanking tax revenues. In this, we’re hardly alone; states from New Jersey to Arizona to (especially) California have responded to shortfalls by gutting public services in ways thought inconceivable just a few years ago. Whipsawed by circumstances beyond his control, Kaine has overseen a contraction in state government that has been positively mild compared to circumstances elsewhere. Graded on the curve, our governor would seem to deserve high marks.

But appearances can be deceiving. Kaine and the General Assembly have been able to skirt the worst effects of the downturn by relying on short-term fixes such as raids on the state’s rainy day fund and accelerated tax collections (to say nothing of the federal stimulus bill). Virginia also has relied heavily on debt to maintain capital spending, but the state is bumping up against its ability to borrow more money while preserving its coveted Triple A credit rating. Lawmakers already have done too much to string out future pension obligations. And, of course, the transportation budget — which exists apart from the general fund — has been neglected to the point of utter disaster. Two years into the recession, more chickens are yet to come home to roost.

I nevertheless think Kaine deserves credit for making some tough decisions — even in cases where he has been unable to follow through on his ideas (particularly in raising revenue for transportation, thanks to a recalcitrant legislature). The governor was never going to make people happy presiding over down times — it’s hard to muster enthusiasm for the closing of Brunswick Correctional Center, with its 165 jobs lost, to cite just one example — and there have certainly been instances where Kaine has been quick to deflect the full scope of the state’s problems. (The mess with Northrop Grumman and technology procurement comes quickly to mind).

All that said, it’s never easy for a governor to rewrite budgets on the fly or impose cuts that cause real hurt, whether it’s towards a college student who can’t afford tuition increases or to a state employee about to lose his job. Virginia prides itself on being one of the best-managed states in the country, and for all its ups and downs the Commonwealth continues to run lean services in most areas, provide strong K-12 education and maintain a system of colleges and universities that is the envy of the nation. Kaine has done very little to stray from Virginia’s tradition of solid executive leadership, even if running the government isn’t as fun as it used to be.

In only one area would I give Kaine an “F”: his unfathomable decision to sign off on the repeal of Virginia’s estate tax. The tax, levied on Virginia’s wealthiest citizens, raised $140 million annually, cash I’m sure the state could use right about now. (And please, spare me the “it’s not the state’s money” nonsense. Somebody has to pay taxes, and I don’t think it’s too much to ask that a fair share of the burden should fall upon sons and daughters of wealthy parents. If inheritances are tax-free, then why not groceries, or paychecks, or homes?) Notably, the estate tax isn’t the only tax reduction made during the Kaine years. The administration and legislature also lowered the sales tax on food and provided relief for low-income taxpayers, while also shifting existing levies to the transportation fund. But all this transpired before the bad times arrived. A weakened tax base has given way to cratering income and sales tax receipts, leaving us where we are today.

I fully expect Kaine’s speech Friday will be met by screams across the board — from school divisions, police departments, colleges and universities, the works. It is very possible the Department of Corrections will suffer another round of significant cuts — speculation centers around the closing of state prison field camps, including Camp 23 here in Halifax County. Local school divisions should expect to be hit hard; with almost half of the general fund budget devoted to education, and K-12 funding largely spared in previous rounds of budget-cutting, it’s hard to see how the schools escape the knife this time around. Having run out of the easiest budget fixes, Kaine’s final speech as governor will offer a truer test of his mettle than all that have come before.

It’s widely believed Kaine will propose scaling back Virginia’s $950 million car-tax relief — the legacy of Jim Gilmore that continues to haunt budget writers to this day. Whatever Kaine proposes Friday, of course, will be subject to the actions that incoming Gov. Bob McDonnell takes upon entering office. And Republicans have made it clear they have no intention of touching the car tax program, no matter how poorly designed and costly it has been.

I’m of a mixed mind when it comes to the car tax. People rightly despise it, but for reasons that defy simple explanation the partial repeal of the levy has been very bad for local governments (and not so great for taxpayers in counties like our own, where the personal property tax has crept back up in the years since the 1999 repeal took effect). Nevertheless, even if his proposals are destined to go nowhere, I hope Kaine will argue for curtailing the car tax and other breaks and loopholes because it’s high time Richmond (and the rest of the state) had a conversation on the relative merits of tax increases and spending cuts. With $7 billion cut from the budget so far, it behooves us to ask: should Virginia continue to gut essential services that contribute to the economy and the public well-being, or is it finally time to take a look at the revenue side?

At a cost of almost $1 billion annually, the car tax relief program offers a fat target. But it’s hardly the only candidate for clawback. There are other sizeable “tax expenditures” in the budget that ought to be looked at to restore the state’s cash flows. Aside from reinstating the estate tax, which should have been done yesterday, one option would be to curb tax credits for land conservation and historic preservation. These credits serve worthy goals, but shouldn’t be off-limits to downsizing. With residential and commercial real estate in the dumps, does the state really need to keep offering millions in tax relief to large landowners to shield their tracts from development? Virginia also offers generous corporate tax subsidies that could be jettisoned. As long as Virginians are going to be asked to sacrifice during tough times, I don’t think it’s too much to ask that the sacrifices be spread evenly.

Government spending will be hamstrung for quite some time into the future, and the impact is likely to wreak further harm to education, public safety, transportation and other essential services. If Kaine departs office with a challenge to Virginians to face up to this reality, then his legacy, such as it is, will be no worse for the wear. Ultimately, though, the outgoing governor’s power is restricted to advocacy, not action. Even his proposed spending cuts will depend to some degree on McDonnell’s good favor — and amazing as it may seem, the governor-elect already is making the sort of happy-talk noises that politicians can’t seem to resist. Last week, McDonnell promised to restore what would seem to be a low-priority state government service: highways rest areas, 18 of which were closed this year by cash-strapped VDOT. (Part of McDonnell’s plan involves staffing the shuttered centers with prison labor. Wait till the travel writers get a load of that news).

I fully expect McDonnell will turn out to be Jim Gilmore redux: a governor dressed in populist clothes who traffics in phony-baloney numbers and budgets, to the state’s lasting detriment. I will be happy to be proven wrong. By contrast, Kaine, for all his faults, managed to be a governor who did some real good and didn’t screw up much. We may develop a greater appreciation for such virtues in years to come.

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