Patrick McSweeney


 

Shoot 'em and Bury 'em

 

Jerry Kilgore and Paul Goldman have floated some bad ideas regarding debt and taxes. Their proposals should be quickly and expeditiously disposed of.


 

Two proposals surfaced in recent days regarding state and local finances. Both deserve a prompt burial.

 

The first was offered by Attorney General Jerry Kilgore, who suggested that the Commonwealth borrow $1 billion for the construction of local schools.

 

The second proposal came from Democratic strategist Paul Goldman, who urged Gov. Mark R. Warner to recommend legislation allowing voters to decide whether state taxes should be increased.

 

Kilgore’s proposal is ill-conceived for at least three reasons. First, the Commonwealth already has too much debt. Second, borrowing distorts the process of state budgeting. Third, abandoning a pay-as-you-go method of financing school construction in favor of borrowing inclines decision-makers to ignore important questions, such as whether school construction costs can be reduced.

 

Much has been made on this page about the fact that Virginians are awash in debt incurred by all levels of government. Equally important, borrowing creates an unhealthy rigidity in public finance.

 

Because Virginia has experienced relatively sharp declines in revenues once in every recent decade, we should assume the pattern will continue. Our elected officials should have more flexibility, not less, to deal with these downturns.

 

On top of the debt the already owed, the state just recently committed itself to pay for construction of almost $1 billion in college facilities by issuing general obligation debt for that purpose. This ties the hands of the governor and the General Assembly for decades.

 

Kilgore wants to put another $1 billion off limits for the same period of time. Traditionally, one of the first steps taken when budget gaps occurred was to defer spending on capital projects until the revenue situation improved. That can’t happen when those projects are debt-financed. This means that other programs must bear disproportionate cuts.

 

A pay-as-you-go approach is preferable. Whether we borrow or pay for the program out of state revenues in two-year increments, we would need to find additional state revenues. Borrowing simply postpones that day of reckoning. It isn’t a source of new revenue.

 

Debt financing seems relatively painless. The benefit is front-loaded, while the burden is postponed. This undermines fiscal discipline.

 

Before we shift much of the responsibility from localities to the state for funding school construction, we should be looking more carefully at its cost. We need to find ways to build schools for less even if it  means taking on the U.S. government. New schools simply cost too much to build, principally because federal regulations impose unnecessary design requirements. Private schools and other government buildings are required to meet the requirements of the statewide building code, but not excessive supplemental requirements imposed by the feds.

 

Neither Kilgore nor Goldman suggests controlling state spending, which is growing at about 8 percent per year.

 

Must the answer always be more state funding?

 

Turning to Goldman’s idea of holding a statewide referendum on whether to raise taxes, there is one obvious objection. It offends the Virginia Constitution.

 

The Constitution provides that all legislative power is vested in the General Assembly. The Virginia Supreme Court has ruled that the power to levy taxes, one of the most important of legislative powers, can’t be delegated — even to the electorate itself. If new taxes are to be imposed, members of the General Assembly must vote on the question. Any tax law must be signed by the governor before it can take effect, as is true for every state law.

 

Let’s start shoveling dirt on both of these proposals.

 

-- December 1, 2003

 

Bring Home the Bacon

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Contact Information

 

McSweeney & Crump

11 South Twelfth Street
Richmond, VA 23219
(804) 783-6802

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