Vivian’s Views: The Economy
Fiscal integrity. Maintain Virginia’s AAA bond rating. Don’t raid education, Medicaid funding, environmental clean-up, funds for transportation. Create jobs. Tax equity.
HOW NATIONAL NEWS PLAYS OUT IN VIRGINIA
30% of Virginia’s economy is driven by federal contracts and jobs. Because of this, in the Great Recession, job losses weren’t as severe as elsewhere and we continued our long-standing enviable position of out-performing other states. That’s the good news. The bad news hit in 2013, 2014, and 2015 with federal sequestration and continued federal budget uncertainty. Businesses in Northern Virginia and around the military presence in Hampton Roads became very cautious about expanding.
By August 2019, aggressive efforts to diversify our economy by attracting employers to re-locate in Virginia produced 14 consecutive months of job growth. Virginia’s unemployment rate fell to just 2.8%, well below the 3.7% national average. However, looming uncertainty about whether this will hold plays out in a number of ways, specifically:
- AAA bond rating: The three bond rating houses insisted we increase our budget reserves. This is prudent but it’s been frustrating to divert funds to reserves when essential programs – like public education – were still below pre-Recession levels.
- Economic projections: Every time we pass a budget, we must project what state tax revenues will be more than 2 years out. Typically, we underestimate income rather than over-commit spending. I concerned about possible major impacts on Virginia’s economy from changes in U.S. trade, by the size of the national debt, and by the fact that household debt is now higher than the previous peak in 2008.
Virginia’s challenges are very different from the federal government’s. Our budget must be balanced. We can’t run up a deficit …we can’t print money. I pledge to continue to support the prudent decisions that will keep Virginia consistently ranked at the top of all states for the quality of our economic management.
CREATING NEW JOBS
Continuing to diversify our economy is critical. Virginia has great potential to expand high-paying jobs: strong universities, community college workforce development, low taxes (44th per $1000 of personal income and the 2nd lowest employer unemployment tax in the nation), and access to world markets. Congestion is the greatest impediment to expanding Northern Virginia high-paying jobs, while broad-band internet access is the greatest infrastructure need for areas of the state with the highest unemployment. Areas where Virginia is well-situated for job growth include
- Green energy related employment has high potential from off-shore wind energy to alternative biofuel research centered in Blacksburg. New jobs created in Virginia’s solar industry from 2013-17 were twice the number of persons still mining coal.
- Over half the 1.5 million job vacancies in Virginia in the next decade will require less than a 4-year college degree but more than high school. The top needs are in
- the building trades where unions, employers, and trade associations are all stepping up to provide apprenticeships;
- health care and technology where community college certificate programs are reaching out to veterans; and
- cyber security where NoVa educational programs have a flagship role in meeting the need.
- If we can avoid extremely restrictive stem cell restraints, bio-tech research potential is extremely strong and large pay-offs can come from start-up grants, wet lab construction, and business/academic partnerships.
- Finally, small businesses need targeted support through increased access to business loans, reducing government paperwork, increasing state and local outreach to bid on government contracts, and dealing with health insurance.
In attracting new major employers, concerns are raised about transferring senior personnel from states where there has been less controversy about racial diversity and individual life styles. Such concerns are real. My commitment to ensure Virginia laws and policies do not discriminate included a bill I introduced in 2018 to apply the same harassment prohibitions to legislators that apply to all state employees. I was deeply troubled that what passed dealt solely with sexual harassment. Rather than extend protections to gender identity and sexual orientation, the majority of members voted to not include race, disability, age, ethnicity, or even religion.
Equally disturbing, what passed dealt only with sexual harassment in a capitol office during the work hours of a state employee. My bill had covered contacts whenever and wherever the legislator is engaged in an official activity with all persons – the public, interns, volunteers, lobbyists, the press, etc. Even though this was only 6 months after charges against Harvey Weinstein launched #MeToo, there was little understanding of the power wheeled by people in a position of authority. The professional glass ceiling for women will never be broken until we deal with workplace sexual harassment and predatory acts and intimidation by people in authority. Where laws are required, we need legislators who understand.
Discussions about how to conform to federal tax reform brought into sharp focus that Virginia has one of the greatest spreads between wealth and poverty of any state. Simply applying federal changes to the Virginia income tax would have raised taxes the most on households under $50,000. Instead, after much debate, we raised the Virginia’s standard deduction (Std D) to send half the tax windfall back to households under $60,000. By not adopting the federal provisions to let the very high income take un-limited deductions, we captured $78 million a year that allowed us to give more relief through increasing Virginia’s Std D. We removed the $10,000 federal cap on deducting state and local taxes to give some relief to middle income homeowners.
Since we couldn’t make the Std D increase retro-active, everyone who had to pay 2018 Virginia taxes will get a check for up to $220 Jt / $110 Sgl of what they paid. The estimated cost of the rebate is $431 million, which more than equals the tax savings for tax year 2019 when the $3000 Jt /$1500 Sgl increase in Virginia’s Std D will be in effect. In summary, for 2019 through 2024, the Virginia tax reform bill Raised Virginia’s standard deduction by 50% to $9,000 Jt / $4,500 Sgl;
– Estimated Annual Tax Relief: $225 million
– Half goes to those under $60,000.
Removed the $10,000 cap on the deduction for Property taxes;
– Estimated Annual Tax Relief: $58 million
– Almost all goes to those over $50,000.
Kept the $313,800 Jt / $156,900 Sgl cap on total deductions
that federal tax changes eliminated
– Virginia regained $78 million from those over $1 million
Modified two business changes (will allow 20% of business interest and GILTI)
– Estimated Annual Tax Relief: $23 million
45% goes to residents under $50,000 — 52% goes to residents over $50,000 — 3% goes to business
There may be more reforms. Given historic income disparities and how regressive the sales tax and local property taxes are, we should do more to make the Virginia’s income tax more progressive. I favor further increases in the Std D and/or tracking inflation for tax rates, personal exemption, and the Std D.
CHALLENGES IN STATE SPENDING
When we began cutting state spending in 2007, well-before most states faced reality, Virginia was 37th in state spending per person. Therefore, ultimately, we had to cut basic programs. A decade later in 2017, the balance of cuts and restorations across all states put Virginia at 31st in state spending per person.
- Local public schools still received less per pupil in 2018 than in 2009. We finally restored per pupil state support by a 5% increase in state support of teacher salaries in 2019.
- Even though Virginia spends less than almost every other state on Medicaid, 20% of state taxes go to match the federal Medicaid dollars we receive.
- Public safety is the only area of state spending where Virginia exceeds national averages.
- 45% of state taxes go to local governments through allocation formulas for schools (29%), mental health (5%), car tax relief (4%), jails (2%), and other (5%) Cutting such state support to localities puts severe pressure on local real estate taxes.
Fiscal integrity must be maintained. Open processes with full discussion of alternative economic viewpoints and actuarial projections are essential – no blue smoke and mirrors.
I believe it is important to balance the budget but still be able to wisely spend to keep class sizes low in our schools, provide the resources that our law enforcement officials need to keep our communities safe, protect our natural resources, make sure everyone has access to higher education and to the health care they need, and keep taxes equitable for its citizens. Adequate transportation funding is essential. However, all users should bear a share of the cost proportional to their benefit.
Cuts in state funding for local governments must be equitably applied and not single-out Northern Virginia. I’m a “numbers person” and know the devil is in the details. I will use my tenacity and knowledge of funding formulas to make sure that Fairfax County is not unfairly impacted by population caps or cost-of-living manipulation in proposals to change state funding for K-12 education, court functions, mental health, or social service delivery.