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Friday, March 17, 2006

Money Keeps Pouring In....

Wednesday the Governor’s office announced that state revenue has grown by over 10% from the last fiscal year. Wow. This is great! The state economy is taking off.

The article also mentions that we are expecting to end this fiscal year with a $1.4 billion surplus.

With all of this good news you would think the state of Virginia is in excellent financial shape. We are meeting our obligations and we still have money left to spend. Heck, many would say we have a windfall of new revenue. But, if you listen to the Governor and many in the administration we should not get comfortable—the state’s unprecedented economic growth will come crashing down soon.

What the Governor says is exactly right. Eventually the economy will slow and less revenue will enter the states coffers. Anyone who passed a basic business or economics course knows that economic growth does not continue at such a break-neck pace forever.

The problem with the Governor’s logic, and the logic of many that run our government, is they refuse to take the next step and realize you can not spend every dime in the bank account. When the state plans its budget it should take into account the slow times when less revenue will be produced by our economy, but instead of taking such a common sense course, they spend every dime taxpayers send to Richmond. This lack of vision seems to show extremely poor judgment and is a path that will surely repeat the budgetary woes Governor Warner experienced when he came into office.

So you ask, “Rob, how can we do things differently?”

There is a perfect example in our own state. Right here in the Commonwealth there is a jurisdiction that takes a long term approach to budgeting—Prince William County.

Now, I am of course biased due to my previous work with members of the Board of Supervisors and the fact that I grew up in the little town(at least when I was growing up) of Woodbridge. But, let’s look at the facts.

The Board of County Supervisors and the County staff take a long term vision when writing their budget—five years versus the two year budget plan for the Commonwealth. Each spring the Board and Staff looks at the previous year’s plan and the expenditure forecast. Some items are added, some deleted and a modified five-year plan is developed, but it very closely resembles the previous budget. This system is much like the amending of the biennium budget during the second years of the General Assembly session.

What the Prince William process does is establish long-term guidelines and direction for the county. At the beginning of each budget cycle the Board and Staff have a vision of where the county is going and what amount of revenue is necessary to accomplish these goals. With this long term vision they can adjust revenues to ensure that only the amount needed to fulfill the agreed upon goals enters the coffers of the county.

This model has led to over 20 new schools, $300 million in new roads, one of the lowest crime rates in the country and the coveted AAA Bond Rating.

On the surface there is a downside to this process—the average tax bill has grown by over 50% over the past five years. However, when one looks deeper they realize that this growth happened when the average home value increased nearly 200% in the county and surrounding counties have had their average tax bill grow at two to four times the rate of Prince William.

This vision has also allowed the Board to implement its own Tax and Expenditure Limitation of 5.9%. Last year the Board went even lower and stopped tax/revenue growth at 4.5%. While we at AFP-VA would like to see the cap closer to the population plus inflation growth model of a Taxpayers Bill of Rights it should be noted that Prince William is far beyond the state and any other locality on TELs. Right now nothing stops Richmond from spending every possible dime they can extract from your pockets.

The Commonwealth should look to developing a similar model when addressing its budgetary needs. The economy, and therefore the state treasury, will go up and down like the tide of the ocean. The major flaw in the current system is we set the states spending commitments based on the high tide dollar growth and we’re left shaking the piggy bank when the low tide growth happens.

If our leaders in Richmond simply spent on a consistent, long term and planned basis we would not have to discuss tax increases every two years while fulfilling the priorities of the state.

-Rob

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