|
Dear
County Committee Members and Friends,
I
often report to you at the end of the Session
when all the matters are settled and will do
so again this year. However, with all the
media coverage and rhetoric surrounding the
budget this year, I believe you deserve
information and explanations now while our
deliberations unfold.
All
the talk swirling around our state budget
reminds me of the ancient Indian folk tale of
six blind men examining an elephant. I am sure
you have heard it.
One
man feels the elephant's side and declares him
to be like a stone wall. Another grasps the
tail and proclaims the elephant to be like a
rope. A third feels the tusk and pronounces it
a spear. The fifth takes the squirming trunk
and says it is a snake. The last man, feeling
the wind generated by the ear determines the
elephant is a fan.
Each
man grasped a partial truth but in the end
drew the wrong conclusion. And so it is with
our state's fiscal situation. Many
well-intentioned persons grasp onto one
aspect, one fact or one statistic and honestly
come to believe they have the whole picture.
So
it is with the budget this year. A lot of
people are only seeing one small piece, but
the picture is much larger.
I
will be the first to admit it. I do not have
all the answers when it comes to the budget.
I
say this after 22 years of service in the
House and Senate. I say this after a 42-year
career as a CPA. I say this as a senior member
of the Senate's budget writing committee.
But
then, no one has all the answers -- not inside
government or outside government. No one can
possibly get his or her arms around every
aspect of this complex budget.
However,
everyone involved understands we face a real
dilemma. Let me share with you what I see as
the various perspectives.
The
intensity of the debate currently taking place
over the future of our state finances is
certainly understandable. The numbers are
huge. The differences are significant. The
states are high.
As
one of the conferees on the budget, I will be
exerting all of my energy and influence to
produce a budget on time that provides a
reasonable and adequate level of state
services while recognizing the tight budgets
families have. And I believe balance can only
be found somewhere between the positions of
the House and the Senate.
To
recite in detail every difference would extend
this letter to the length of an epistle. It
would be a case of information overload.
Instead I will present a general overview.
As
we began to focus more specifically on the
Governor's budget for the two-year period
2005-2006, we realized there were some serious
issues we needed to grapple with. The first
several weeks of the current Session were
devoted to examining the budget in detail,
cutting what we could, eliminating any board
of commissions we could not justify and
generally doing our due diligence.
After
all of that effort, both the House and the
Senate money experts and committees now agree
we must raise additional revenue, the question
is how. Some as, "Why can't you control
spending to the rate of growth in inflation
and population?" Well, the simple reason
is that the budget drivers: kids in schools,
healthcare for the mentally ill, retarded and
the elderly, prisoners and prisons, the
increasing amount of car tax relief, and a
host of other state responsibilities all
require amounts which exceed these type of
measures. And, no Governor in my tenure has
ever been able to actually cut spending or to
limit growth in spending to the sum of
population and inflation or from spending
levels of their predecessors for those
reasons.
I
am providing you with information regarding
the budget drivers, the historical spending
and the essence of the House and Senate budget
proposal now in conference. As you may know,
the conference committee, of which I am a
member, must now attempt to reconcile the two
proposals.
On
the revenue side, the House has raised taxes
in the amount of $527 million new General
Funds by eliminating certain tax exemptions
for such industries as public utilities,
airlines, shipbuilding and repair, research
and development, and other such industries. In
the last few days, the House conferees have
requested that we look at yet other industries
in an effort to meet the House budget needs.
The positive of this plan is it does not
actually raise a tax rate; the negative is it
is expected that most of these industries will
simply pass on the lost tax deductions in the
form of electricity rate and price increases.
The truth is that someone pays for all
government spending in some form, either in
taxes or prices of goods and services. Not
counting transportation and Medicaid, the
Senate plan would raise General Fund taxes by
about $1.9 billion for the two-year budget
period by raising some tax rates and reducing
certain taxes. I know this all sounds
complicated, but I will give you several
examples.
The
Senate would propose to increase the tax rate
on incomes about $150,00 and reduce taxes on
all incomes below that level through increased
exemption allowances, standard deductions, the
elimination of the death tax, etc. Some would
say this is a tax increase; others would call
it reform. Because state income taxes are
deductible on federal returns, an increase in
state taxes to upper incomes costs the
taxpayers involved about 35 percent less than
other forms of taxes.
Also,
a part of the Senate plan is an increase in
the general sales tax on non-food products and
elimination of
the tax on food. The elimination of the food
tax has long been a goal of Republicans, but
it can only be done by shifting the tax bite
from food to other products. The theory is
that food is more of a necessity than non-food
products.
Why
does the Senate, which is controlled by
Republicans, all of whom believe deeply in the
philosophy of a limited, frugal and fiscally
responsible government, take a more aggressive
approach to raising the necessary revenues
than the House ($.9 billion vs. $527 million)?
We have successfully resisted any income tax
rate increases since 1972 and sales tax rate
increases since 1986. Few business or
individuals have no experienced a price
increase for such an extended period. but, we
are concerned about the long-term welfare of
our Commonwealth and believe we must now make
investments just like we would in business.
The
additional net revenue increases are used
primarily to pay for the substantially
increased costs of education, healthcare, the
car tax and public safety.
But,
we also have buildings in such a state of
disrepair (over $800 million in unmet repairs
and maintenance) that a number of large
buildings (including on Capitol Grounds) are
empty and cannot be inhabited while at the
same time alternative space is being rented
from private owners; our state troopers, with
a starting pay of less than $30,000, have a
very high turnover rate and many who risk
their lives for us each day, resort to food
stamps to help feed their families; there are
about 1,200 mentally ill and retarded citizens
on the critical waiting list because funding
for Medicaid is inadequate to meet the needs;
there are over 2,000 prisoners backed up in
local jails because there is inadequate state
prison beds or guards to man the prisons; the
law says the state must fund something known
as the "Standards of Quality" for
public education, K-12 and presently, the
state is not paying its share resulting in
local governments having to pick up the
difference through ever increasing local
property taxes. Perhaps you read the recent
article regarding localities having to raise
real estate taxes because the state is
reneging on its promises. And, of course, our
roads have deteriorated such that it is almost
a game to make sure you miss all of the
potholes. Each of you could no doubt name
other examples of neglect.
The
Senate believes that only bold steps and
actions will put Virginia back on the path of
prosperity our children and others who follow
us deserve. Our bottom line is that those who
elected us and many who could not vote, but
depend on us, expect us to lead and accept the
responsibility to weigh all the evidence, to
examine all the facts and to make the
decisions which will best carry out our duty
of stewardship in which we have been
entrusted.
No
one likes to pay more fees, taxes or prices. I
surely don't, either. But the day of reckoning
for past financial commitments has been
depleted; our obligations must be met. We can
either patch the budget together with the
financial equivalent of bubble gum and bailing
wire as has been done in recent years, or we
can make the decisions, as unpopular as they
may be in the short term, to restructure our
revenue base.
As
Thomas Jefferson said, "We are not afraid
to follow truth wherever it may lead, nor to
tolerate any error, so long as reasons is left
free to combat it."
Enclosed
is a comparison of the two budget proposals
now being considered by the confererees. (Editor's
note: Bacon's Rebellion is unable to reproduce
the multiple tables of data enclosed with Sen.
Stosch's letter.) Neither is all good or
all bad, they simply approach the needs
differently. The analysis was prepared by the
Senate Finance Staff for our use in making a
comparison and I hope you will find it useful.
Some highlights follow:
1.
K-12 Education
The
Governor instituted a policy change that
deducts from the amount of direct aid
localities receive from the state the amount
of federal aid they receive. This had the
effect of reducing education aid to our
localities by $418 million. This one policy
change alon would cost Henrico over $4 million
in public school funds. The Senate budget
completely reverses this unfair cut; the House
restores roughly one fourth.
Further,
the State Board of Education has recalculated,
as it is required to do, the actual costs to
meet the minimum of a quality education, often
referred to as the Standards of Quality. The
Senate funds this revised cost of education
basics to the tune of $430 million; the House
revenue base would not allow this to be funded
at all. Right there you have about a $750
million difference in education funding
between two budgets. We must now decide which
vision -- with the related need for funds --
is the right choice for Virginia.
2.
Transportation
The
House budget provides $46 million in new
highway construction. The Senate provides $949
million each year. The Senate would fund every
project in the Six-Year Program approved as
minimum needs by the Commonwealth
Transportation Board. But the gasoline tax
would have to be increased to accomplish this
work and to maintain existing roads. Is is
worth spending this kind of money to provide
better roads? Should this be a priority?
Another decision the House and Senate must
make.
3.
Public Safety
The
House budget freezes state support for local
police departments, including Henrico and cuts
local jail reimbursements (Henrico would lose
over $2 million); the Senate budget allows an
increase equal to the growth in revenue. The
Senate budget includes $20 million the State
Police say they desperately need in higher
salaries to retain troopers; there is no money
for trooper salary increases in the House
budget. The Senate budget accommodates the
money needed for the next medium security
prison; the House budget provides construction
funds below actual costs. Should we invest
more money to recruit and retain good law
enforcement officers? Can we afford the new
prison? What happens if we do not spend this
money? These are among the questions we are
pondering.
4.
Health Care
Virginia's
Medicaid program ranks at the bottom of the 50
states in the rate of nursing home
reimbursements, which results in fewer health
care options for seniors. The Senate tacks on
a 35 cent per pack cigarette tax and dedicates
it to Medicaid payments. The House reduces
payments to nursing homes and hospitals. Is it
fair to make smokers help pay for the nursing
home care of the elderly? Is if fair that
private pay nursing home patients cover the
shortfall produced by Medicaid underpayments?
Conclusions
These
three examples are just the tip of the
proverbial iceberg. There are countless other
items to consider and resolve as you will note
from the information enclosed. And these items
go beyond dollars and cents. They go to the
very core of what direction Virginia
government should take and what our priorities
should be.
When
these and all other budgetary matters are
finally determined, I will give you a full and
complete report to the best of my ability. In
the meantime, all I can say is that I will be
searching for every possible savings and
efficiency in government. But we cannot be
penny wise and pound-foolish. The state's
budget has grown under every governor I have
served under, Republicans and Democrats.
There
are many persons to whom I owe a personal and
political loyalty and without whose support I
could not serve in the Senate of Virginia.
As
a member of the Henrico County Republican
Committee, you are among a relatively few who
actively participate in the political process.
Without you I could not serve and your
opinions carry a lot of weight with me.
There
are also tens of thousands of citizens who are
not politically active but who vote in State
Senate elections. These are often the
advocates for schools and healthcare. Without
their support I could not serve and they
deserve my attention to their opinions too.
There
are those who provide the necessary campaign
financial support, mostly businesses and
professionals,
who
advocate a strong, jobs-oriented business
climate and who help finance a successful
campaign. Without such support, I could not
serve.
There
are many who do not participate, who do not
vote, or contribute financially, but who still
have needs and, often, are among our most
vulnerable citizens. They deserve
representation and a voice in state
government, too. If I could not consider their
needs and opinions, I would not serve.
Finally,
my pledge to you is to use my best efforts,
energy and intellect to thoughtfully and
professionally examine each issue, weigh every
alternative and to make the tough decisions I
believe best refelct the consensus and best
interests to those I serve.
After
you have reviewed the enclosed information, I
would be pleased to receive your comments or
respond to any question you may have.
Sincerely,
Walter
A. Stosch
Senate
Majority Leader
--
March
12, 2004
|
