As I write this column, budget conferees from the Senate and House of Delegates are meeting to reconcile their differences and adopt a new state budget for the 2010-2012 biennium. While it may be a gross over simplification, their ultimate task really comes down to two things
First, they must agree on how much tax revenue the state will receive in the upcoming biennium. In other words, how much money do they have to spend? Then, they must agree on how they want to spend that money.
In recent days, much has been written about how many fee increases, or tax increases, are buried within the budgets adopted by the Senate and House of Delegates. So, I thought I would use this week’s column to try and shed some light on that question.
In the budget he introduced before leaving office in January, former Governor Tim Kaine recommended a number of tax and fee increases that totaled more than $145M. (This does not include Governor Kaine’s recommendation to de-fund the car tax reduction program, which would have raised taxes by an additional $1.9B.)
The budget adopted by the Senate included all of the tax and fee increases recommended by the Governor. These tax and fee increases included the following:
· Increase property and casualty insurance taxes by .5% of premium, for a total of $66M.
· Increase the E911 fee by .18 per phone line, for a total of $38.9M
· Increase the deed recordation fee by $10, for a total of $19.2M
In addition, Governor Kaine recommended a number of other fee increases totaling $21.3M. A complete list of these fee increases can be found below. *
In addition to the tax and fee increases recommended by Governor Kaine, the Senate budget also includes several other tax and fee increases that total an additional $195M. These include:
· $101.8M by increasing filing fees for civil litigation
· $10M by expanding Internet sales tax collections
· $18M by increasing the fee to reinstate a suspended driver’s license
· $25.2M by increasing the $4 For Life Fee from $4 to $6.25
· $18.2M by increasing the Higher Education Capital Fee by $2.50 per credit hour
· $10M by increasing various hazardous/solid waste fees and pollution fees
I should note that the budget adopted by the Senate also affirms Governor Kaine’s recommendation to capture $29.6M in additional revenue by repealing the so called dealer discount that has been provided to retailers for years. This discount is intended to reimburse retailers for some of the costs they incur in collecting and remitting the state sales tax. By repealing the discount, retailers argue that we are, in effect, increasing taxes on retailers by $29.6M.
When all of these tax and fee increases are added up, the Senate budget proposes increasing various taxes and fees by about $400M.
For the most part, the budget adopted by the House of Delegates does not include any of the tax and fee increases discussed above. (The only exception is $800,000 in new revenue derived by increasing park reservation fees)
However, there is one significant tax increase that is included in the House budget that is not included in the Senate budget.
In his Executive Budget, Governor Kaine recommended making various changes to Virginia’s tax code to conform our state tax code to the federal tax code. As a result of these changes, certain taxes on manufacturers based in Virginia would increase by $60M.
Interestingly, the Senate removed this “manufacturer’s tax” increase from their budget, but the House accepted the Governor’s recommendation, which would, in effect, increase taxes on manufacturers by $60M.
I realize this is all very difficult to follow, but it does give you some idea of the various differences taken by the Senate and House of Delegates when it comes to producing new revenue for the Commonwealth, and it begs the question, when is a tax increase a tax increase?
Some of the proposals discussed above are clearly tax increases that should be rejected by the General Assembly.
For example, I would encourage the budget conferees to reject proposals to increase property and casualty insurance premium taxes, E911 fees and an expansion of Internet sales taxes. These are broad based taxes and fees and I believe that increasing them would violate our promise to balance the budget without general tax increases.
I would also encourage the conferees to reject Governor Kaine’s proposals that would result in higher taxes for retailers and manufacturers. I believe that these proposals would also violate our promise to avoid general tax increases.
However, there may be a valid basis for including additional revenue from some of the other proposed fee increases in the budget. For example, perhaps it makes sense to increase reservation fees to help fund our state parks, and perhaps some increase in various other administrative fees is in order to help pay for the programs those fees are intended to fund.
In the final days of the legislative session the budget conferees will have to work through each of these proposals to determine which make sense and which do not. Governor McDonnell will then have the last chance to review the legislature’s recommendations and make certain they do not violate his admonition against raising taxes.
* Includes increases in the following fees: weights and measure fee, boiler inspection fee, gas and oil well permit fee, mineral mine safety license fee, coal mine safety program fee, apprenticeship registration fee, vital records fee, license/certification of hospitals/health care facilities, environmental health services permit fee, shellfish sanitation fee, marina program fee, central child registry fee and park reservation fee.
