Senate and House budget negotiators have finally completed a budget for the next two fiscal years. Although the $74 billion behemoth offers no broad tax relief and institutionalizes Virginia’s chronic budget surplus, it could be worse.
The best thing that can be said about the budget is that lawmakers resisted the temptation to use surplus revenues to ramp up expensive new spending programs. (There was loads of new money for old spending programs, but that’s a different issue.)
Instead of cranking up programmatic spending, the General Assembly devotes more than $1 billion to one-time capital outlays — without borrowing any money. That means if revenues fall short of projections in future years, Virginia can easily cut back direct outlays for capital improvements and make up the difference by tapping the bond markets. Combine that with a fully replenished “Rainy Day” fund, and the state budget should have lots of insulation from the next revenue shortfall. The bond-rating agencies should be very happy.
Even though there was no broad tax relief, the budget does offer the following targeted initiatives (to quote from Senate spokesman Scott Leake):
- The repeal of the state estate tax, or so-called death tax takes effect July 1, 2007.
- A back-to-school sales tax holiday will begin this August.
- A tax credit for the payment of long-term care insurance premiums is established.
- A tax credit for contributions designed to reduce tuition at schools for children with disabilities begins next year.
On the downside, legislators continue to throw money at K-12 education to meet the Standards of Quality standards without any regard to the efficacy of that spending. Medicaid spending is still out of control — tax breaks for long-term care insurance don’t address the real source of Medicaid budget inflation, which is payments for disabilities. And, of course, we still have the transportation issue to address, presumably later this summer.