No Light Ahead for a Bleak State Budget

The two largest sources of state tax revenues are taxes on sales and on personal income. But, as jobs and paychecks have been slashed, both of those sources have plummeted.

How bad is it? The numbers are startling, as The Associated Press reported last week. Virginia tax collections in October showed that the state is 7.6 percent below what it collected at the same point a year ago and way short of the revenue target on which the current state budget is based.

It was the 15th month in a row that general-fund receipts have finished lower than overall collections for the same month a year earlier.

In terms of dollars, that translates to a collection of about $4.5 billion in the first four months of the fiscal year, meaning the state needs to collect more than $9 billion in the next eight months to meet the recently revised revenue target of $14 billion under the current budget.

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Recall that Gov. Timothy M. Kaine has cut state spending by about $6 billion since April 2007. And a shortfall of at least $1 billion already faces the new two-year budget that Kaine will present to the General Assembly next month.

These are revenues for core services such as public safety, schools and public health programs.

The effect of the spiraling unemployment rate is reflected in precipitous drops in individual income tax collections, which were down nearly 10.5 percent in October — the seventh monthly decrease. With a 45 percent increase in tax refunds paid out by the state last month compared to October a year ago, net income tax receipts show an overall decline of 13.6 percent.

The figures all add up to bad news for the localities, for individuals who depend to a degree on core services — and for incoming Gov. Bob McDonnell, who has said he will close the budget deficits through spending cuts and government efficiencies.

State Sen. Ed Houck, D-Spotsylvania, told elected officials in his district last week that the budget situation is bad and there’s no quick cure on the horizon. “You cannot find any time in the past 50 years that our general fund revenues have suffered more and fallen more drastically than what we are dealing with now,” he told the Fredericksburg City Council.

With new spending cuts likely, especially in education, he said at this point that his goal is “to control permanent damage to our core services.”

Houck conceded that state budget cuts often pass shortfalls down to the local level and suggested that local officials offer the legislature some guidance on “where cuts would cause the least amount of damage.”

With a state budget in such dire straits, maybe it is time to take a closer look at tax breaks the Assembly has passed out in recent years. The Commonwealth Institute said recently the state gives up $2.5 billion a year as tax cuts and credits, some of which may be no longer justified.

Michael Cassidy, director of the institute, said Virginia should determine whether tax relief is accomplishing what it was intended to promote, including job creation, the farm economy or the coal industry.

Among the annual pricey tax breaks are $791 million in corporate and individual tax relief, $377 million in lower sales and use taxes and $140 million through repeal of the estate tax.

The institute’s proposal makes good sense, but don’t count on the McDonnell administration to buy into it. A spokesman has already said no to eliminating tax relief and tax credits.

And where will the continued budget cuts lead Virginia? Kaine and McDonnell will provide a clearer picture in the next month or so. It won’t be a pretty one.