Are tax increases in Spotsylvania inevitable? No.

Last night, the Spotsylvania Board of Supervisors received a report from county staff that projected yawning budget deficits over the next five years (Dan Telvock, Free Lance-Star):

Spotsylvania County residents could see the real estate tax rate increase by as much as 15 cents in five years if the economy doesn’t improve. That would boost the average real estate tax bill by more than 24 percent.

And that’s just to balance the budget.

Budget officers said during last night’s Board of Supervisors meeting that revenue projections continue to fall short in the sluggish economy.

The actual report (Exec Summary) spells out the gloom and doom, and hints that the pain will start really early (emphasis in original):

The Budget Plus Five Model sent to the Board in early July has been updated to reflect the approximately $7.6 million revenue decrease currently estimated for FY 2009 (the earlier version sent to the Board prior to the most recent revenue update assumed a $1.9 million revenue decrease in FY 2009). Given the assumptions and methodology outlined on page 2 of the attached Budget Plus Five narrative, tax rate increases are needed in each of the next five years to balance the General Fund and Transportation Fund budgets. The tax rate increases are shown by fund on the second page of the financial analysis spreadsheets and are summarized in total below:

FY 2010 - $0.067; FY 2011 - $0.034; FY 2012 - $0.024; FY 2013 - $0.025; FY 2014 - $0.002

That’s an increase of 6.7 cents next year, or nearly 11% again.

Sure, that’s a hefty tax hike, but if it’s necessary, it’s necessary.  Only here’s the thing: it isn’t necessary.

To understand why, one has to dig into the report’s attachments, particularly how the spending and revenues were projected.  We’ll start with the glaring problems on the spending side:

• Average Municipal Cost Index (MCI) applied to Operational costs less one-time costs
• Addition of Sheriff’s replacement vehicles, replacement PCs, and redevelopment of the athletic fields not included in the FY 2009 Budget
• Estimated Personnel costs (assumes 2.5% merit and 2.0% cost-of-living adjustment each year)

• Adjustment to Debt Service (in accordance with the Approved CIP revised to include updated schedules for Campus Master Plan and Transportation projects)

For starters, the Municipal Cost Index may not be the best way to examine operational costs for next year.  This isn’t an issue with the MCI per se as much as it is a timing concern.  The MCI over the last few years has factored in soaring construction and energy cost.  Given the dramatic drop off in demand for oil and gas over the last few months, I sincerely doubt we’ll see such a dramatic up move in energy prices as we’ve seen in recent years.  As for construction, a combination of the now past housing boom and a massive building spree in Communist China led to those costs soaring in recent years.  The housing market still has a long way to go until it will start to put pressure on construction cost, and the cadres in Beijing are putting the squeeze on new construction.  For these reasons, the MCI is almost certain to be overinflating operational costs.

The construction cost factor will also likely have a downward effect on the cost for the construction-fueled new debt service, easily the biggest cost driver in (in terms of percentage increase) for next year.

Finally, there is the labor assumption of a 4.5% raise next year.  This is hardly etched in stone.  There is no reason the BOS must automatically approve such a salary.  In fact, with one more vote for the equalized tax rate last year, this would have gone by the boards.  Should one of the four Supes who voted for higher taxes have a change of heart, this could disappear next year.

While it’s difficult to get an exact grasp on what effect this will all have (the documents don’t have the granularity required to see personnel and operational cost), I would say the projected cost increase could be cut at least in half (minus school funding, more on that later) - which would close the shortfall by roughly $4.7 million.

Now, on the revenue side, the report basically follows the projections of the Virginia Employment Commission’s economists, and come up with this:

The underlying assumption on the revenue side is that economic recovery from what many currently believe is a recession in 2008 does not begin until FY 2011. This conservative approach, consistent with the Virginia Employment Commission’s conservative scenario, directly affects the estimates of meals, sales, and recordation tax revenue.

 First of all, while “many currently believe” we’re in a recession, that’s still up in the air.  At present, the economic figures actually show growth - slow growth, to be sure, but still growth nonetheless.  The “conservative scenario,” by contrast, already has us in recession (VEC, italic emphasis added):

In the pessimistic scenario, the U.S. economy initially responds to the stimulus package of tax rebates and low interest rates by the second half of 2008, but housing starts continue to fall, dropping below 800,000 per year; home prices drop another 10 percent; and oil goes to over $115 per barrel and stays there. Consumer confidence erodes still more, and the U.S. economy falls into a deeper recession in 2009. GDP growth averages neutral for all of 2008, but averages -0.2 percent for 2009. Recovery does not come until 2010.

The VEC report was printed four months ago, and does not take into account the fact that GDP growth in the second quarter of this year stood at 2%.  The odds of GDP growth being “neutral” (I.e., zero) for the entire year is very slim indeed.

This is important because the county staff used the pessimistic scenario to assume revenue will remain flat on its back until FY2011.  If revenue growth actually recovers in FY2010, it would mean an additional $8.7 million in revenue.  Even a recovery halfway through FY10 would add more the $4.2 million to local coffers.  Thus, the supposed $10.6 million deficit in FY10 could be as low as $1.9 million, or not even exist at all.  I don’t write this to beat up the county staff, but rather to make clear that the situation need not be as dire as they project.

Finally, the staff assumes no cuts in local spending - which is probably the most questionable assumption of the bunch (even Emmitt Marshall, one of the tax-hiking four, talked about the need for county staff reductions - although he may have been focused on, say, Animal Control).

Last spring, as the BOS was pondering the budget, School Superintendent Jerry Hill sent out a flyer detailing the impacts of certain budget cuts.  It was easily the most detailed and traceable numbers I’ve seen out of Dr. Hill in the six years I’ve lived here (and I’ve heard from at least one resident that it’s the most detailed stuff they’ve seen in twenty years).  Sadly, the Supervisors did not take the opportunity to dig deeper into the school budget for more granularity.  However, there is no reason they can’t do that next spring.

Nor need it be limited to the school system either.  I managed to find over $10.5 million in savings (just about the entire projected FY10 deficit) during the last budget cycle without touching the school system (note to Emmitt - FLS: I also spared the Planning Department, but there’s no need to follow that precedent).

To conclude, while the county staff projections should give us cause for concern, I think the projected spending is too high, and projected revenues are too low.  More importantly, what these numbers tell us is that we should look add reducing government spending to make up whatever shortfall may occur, not hitting property owners with tax increases or reducing already sinking property values.

Cross-posted to Rappahannock Red

The McCain people use jujitsu (and Paris Hilton, again) on the Audacity of Hype

So Paris Hilton has put out an ad of her own because she’s not happy with John McCain using her image in the Celeb ads (Hot Air and Jim Geragthy).  One can imagine how a conventional campaign would try to respond to this - actually, they’d probably just hope no one noticed (fat chance); then again, a conventional campaign wouldn’t have launched the Celeb ad in the first place.  Instead, the McCain people noticed something about Paris’ energy policy, and the next thing you know (TMZ, emphasis added) . . .

In the unkindest cut of all, McCain’s spokesperson Tucker Bounds tells TMZ that on the subject of energy, Paris is deeper than Barack. He says, “Sounds like Paris is taking the ‘All of the Above’ energy approach that John McCain has advocated — both alternatives and drilling. Perhaps the reality is that Paris has a more substantive energy plan than Barack Obama.”

Ouch!

RTD and Marty Williams: There they go again (Part II)

Now that the audit question is out of the way, I have to take issue with something else Marty Williams and the Richmond Times-Dispatch editors said about the transportation debate.  Both implied that the Republicans in Richmond stuck their heads in the sand and simply said “No” to everything.

Here’s the RTD:

Gov. Tim Kaine has an unlikely ally in his running feud with state Republicans: the Reason Foundation . . . Republicans in the legislature sought to deflect Kaine’s call for more highway investment by demanding yet another audit of VDOT, thereby implying the agency might be a cesspool of waste and inefficiency. The Reason Foundation study suggests to the contrary that VDOT has been getting more efficient, not less — and that those who sincerely want to find solutions probably need to look elsewhere.

Marty was more blunt (as usual):

Legislators who want audits and want to use VDOT mismanagement as an excuse to do nothing, I’m sorry. You’ll need a better excuse.

I don’t know how many times I’ll have to say this (I’m sure this won’t be the last), but the Virginia Republicans did not come to the General Assembly with nothing to offer.  In fact, the House Republican plan had the potential to send more money to Northern Virginia and Hampton Roads than the plan which the Democrats proposed.  What the plan did not do was raise taxes.

Now, people can criticize the plan all they like (as the Washington Post did at session’s end), but they cannot deny the plan’s existence - something the RTD has now done twice in less than a month.

What the House floor fun is not (and what it is)

There’s been quite a bit of fun over on the House floor today (Riley at VV), what with talk of the Democrats trying to shut down the House and shut up Republicans.  In reality, this is mostly GOP theater - but highly necessary GOP theater (and it’s about time the House Republicans remember theater’s value).

See, Thursday afternoon, the Democrats chose to adjourn the House rather than stay and try to help solve America’s energy issues.  They could have reconsidered the onerous regulations on nuclear power (not the least of which being the nonsensical ban on nuclear fuel recycling).  They could have lifted the ban on offshore oil drilling.  They could have allowed drilling in ANWR up in Alaska.

The Democrats, however, wanted to do none of those things; they wanted to go on vacation instead.  So they voted to adjourn the House, but every single Republican on the floor voted to keep working (Roll Call Vote).  Now, that vote in and of itself should earn the GOP the gratitude of the voters, but many voters have neither the time, nor the inclination to dig up Congressional votes to see how parties and representative voted.

This is where necessity met inspiration - the Republican Congressmen refused to leave.

Now, there’s just about nothing the GOP can do.  As a minority, they can’t establish a quorum; so mo actually work could get done.  However, they could (and did) make it clear in no uncertain terms who is willing to stay and get the job done and who would rather take five weeks off for traveling that most Americans can’t afford right now.

Naturally, the Democrats tried to shut this little show down - and thoroughly embarassed themselves in the process.  All in all, it was a great day for the House Republicans, the first in a long time.

Patrick Mara for D.C. City Council At-Large

While I am obviously a Virginia blogger, I do pay at least some attention to politics in the nation’s capital (or, to differentiate it from federal politics, The District).  Six City Council seats are up for election in the District, including the only Republican on the Council: At-Large member Carol Schwartz.

There was a time when Schwartz was the embodiment of the beleaguered Republican Party in the District.  She is the only Republican candidate for Mayor to ever win more than a third of the vote (she did it each of the four times she ran).  She won 42% in her second try (1994 against Marion Barry).

However, Ms. Schwartz has lost her way.  She sponsored an egregious bill that mandated paid sick leave for nearly all workers in DC, including part-time workers (Washington Post).  It was one of the reasons the Service Employees International Union (just about my least favorite union in the country) is endorsing her in the DC Republican primary on September 9.  Under DC election rules, one of the two At-Large seats is reserved for someone outside the Democratic party.  Even in DC, that makes the Republican nominee the favorite for the “other seat” (it’s the seat Schwartz has held since 1997).

This year, however, Schwartz has a challenger in the GOP Primary: Patrick Mara.  Mara is young, energetic, and determined to bring economic sanity to the District.  He is backed by both Americans for Tax Reform and the Greater Washington Board of Trade.

Mara would be the voice for change that Carol Schwartz once was.  He can also bring the values and ideas of limited government to a place that has never heard it before.  Lest anyone think cities are not fertile ground for this sort of thing, remember that they said the same thing in New York until Rudy Giuliani came to town.

It’s time for a change in the DC Republican Party.  It’s time for Patrick Mara.

Kaine cancels event

Why does this matter?  Well, when would-be Vice Presidential nominees suddenly cancel appearances out of the blue . . . (Jim Geraghty).

Let them fail

The transportation special session had barely ended when the troubles of Fannie Mae and Freddie Mac began to dominate MSM reporting (oddly enough, bloggers have been largely quiet about it).  I mention that juxtaposition because it enabled a few things to come into focus and stark clarity, leading to one ominous, painful, yet inevitable conclusion: we must let these mortgage giants fail. That’s right: fail - as in declare bankruptcy, fall into receivership, have the assets unloaded, etc.

If one looks at several issues we face here in Virginia and elsewhere (traffic, environment, land-use, the ”popped” real estate bubble, inflation, etc.), one finds that much of it is driven by settlement patterns that Jim Bacon has been skewering for years (inflation is the obvious exception, I’ll get to that one later).  Oddly enough, Bacon et al seem to miss the biggest factor in leading to spread-too-thin settlements and all the problems they cause - government-driven, artificial inflation in the demand for property, and the two biggest culprits are Fannie Mae and Freddie Mac.

Fannie Mae began in 1938 as the Federal National Mortgage Association a New Deal government agency set up to provide loans to banks that they themselves could loan out to homeowners (David Fum, National Post).  Since these were government loans created from a policy deliberately designed to make homes “affordable,” the banks treated it like the free money it really was, and loaned it out like they were supposed to do.  Thus did the government begin artificially inflating property demand (to hear FDR fans tell it, the FNMA was just part of the great New Deal vision that rescued America from the Depression; more and more economists now understand that the rescue can be best attributed to World War II).

For thirty years, FNMA kept property demand artificially high (which likely had a lot to do with the first suburban wave of the post-World War II era), but by the 1960s, the program was doing its job so well that it was becoming a budgetary eyesore.  So the Johnson Administration decided to “privatize” it.

Why do I put it in quotes?  Because Johnson’s motives were hardly pure (Frum):

In 1968, the Johnson administration decided to privatize Fannie — not for any free-market reason, but because the federal government’s debt was rising fast, and the administration realized it could make the government’s accounts look better by moving Fannie Mae’s obligations off the books.

In other words, LBJ had no problem with the government continuing to underwrite the mortgage industry; he just didn’t want the accountants to notice.  So instead, he and the Congress of the time (Democrat-dominated, although I doubt the pre-Reagan GOP would have done much better) came up with a half-hearted scheme that moved FNMA cost off the government books but still gave it all the perks of a government agency (no real regulatory oversight, White House appointments to the the board of directors, and - here’s the kicker - Fannie Mae never had to pay taxes).  Making matters worse, the Congress and LBJ created a second such monster (the Federal Home Loan and Mortgage Loan Corporation, a.k.a. Freddie Mac) as “competition” for the new “private” Fannie Mae.

So now, there were two companies, both ostensibly private but with obvious government favors, government ties, and the implied government backing that came with them, artificially driving up property demand for forty years.

Until about ten years ago, that meant suburban stretched farther and farther out.  Then the campaign against “sprawl” went national.  Spurred largely by liberals at the national level and a politicalhodgepodge at the local level, the movement focused not on the demand for developed property, but the supply.  The result was a slew of zoning regulations, purchase of development rights programs, proffer demands - and, inevitably, a steep upward climb in home prices as demand lapped supply.

The final nail in the coffin came in the mortgage rush of the early 21st century.  We’ve all heard about folks signing up for mortgages they couldn’t afford, and lenders who ignored economic reality and let them sign.  How much attention, however, has been given to the government-sponsored corporations who continued to make it far easier and more profitable for lenders than any free-market would allow?  Even when Fannie Mae was caught inflating its own profits by $6 billion (roughly four times the size of Enron’s transgression), not a thought went to what this meant for the housing market.

Well, supposedly, we all know better now - except that no one is considering the one option that will ensure these mistakes are never repeated: letting these two behemoths fail.

For starters, the collapse of Fannie Mae and Freddie Mac will put a swift end to the nonsense of ”government-sponsored enterprises” (yes, that’s their name).  An organization can be a private firm or a government agency, but not both.

More importantly, all of the housing-based issues that we are facing today (everything I listed above except inflation), wold be consigned to history, because the demand for property will finally be restored to its natural level.  On the financial front, that removes the danger of future massive housingcorrections like the one we’ve seen recently - a correction that has placed so much pressure on the Federal Reserve to keep interest rates low that the American economy is almost entirely disarmed from fighting inflation (unless Congress is willing to reduce overall demand pressure by cutting spending - yeah, I know, they’ll start with the Flying Pork Squad).  On the “quality of life” front, it means the inflated property demand that led to “sprawl” in the first place would vanish.

Now, I don’t expect our political leadership to have the courage to let Fannie Mae and Freddie Mac fall, especially not in an election year.  If these companies must survive, then they must become companies, forced to act like any other private firm with the same risks, obligations, costs, etc.  If the free market has a genuine place for Fannie Mae and Freddie Mac (and it probably does, but not to the tune of $5.3 trillion in mortgage debt holdings), then let them find and operate in that place.

The important thing is - get the government out of the real estate business, once and for all.

Those funds are needed for what?

In my previous post, I excerpted a Washington Post editorial ripping the Virginia Republicans for daring to reroute existing revenue to transportation instead of increasing taxes.  The Post editors said in part:

Republicans like to pretend that state transportation funding . . . can be addressed by diverting existing general fund money to build and maintain highways, bridges, tunnels and rails. They like to pretend that those funds are not needed for public schools, the salaries of sheriff’s deputies, the operation of prisons, or payments to Medicaid providers.

Well, Tim Watson (I’m Surrounded by Idiots) had this note in the comments:

To The WaPo:

http://datapoint.apa.virginia.gov/exp_fcn_fy.cfm

The biggest percentage increase from FY03 to FY07 has been in Capital Outlay Projects, Education, and General Government.

In FY07 the amount of the state budget going to the Compensation Board for Administration of Justice services (assistance for sheriff’s deputies and jails) was 1.30%.

http://datapoint.apa.virginia.gov/exp_agy_fcn_fy.cfm?AGY=133

Whoops!  Nice job, WaPo.

Here’s the REAL Warner record (Where did the $9 billion go?)

You’ve heard the story, dear reader: Mark Warner inherits a massive budget deficit, waves a magic wand, turns the mean Republicans into good RINOs with some pixie dust, delivers the glass slipper of tax “reform,” and everyone lives happily ever after.

Why did I end it like that? Because it’s a fairy tale - or, if you prefer 30 Seconds to Mars (good band, BTW), it’s a beautiful liiiiiiiiiiiiiiiiiiiie.

The real Warner record, i.e., the one he actually compiled while here on Earth, is a little different.

Let’s start with his first budget (2002-04), the one in which Warner supposedly reduced spending drastically. In fact, overall state spending rose more than 10% from the previous biennium (almost $5 billion). It is true that General Fund spending stayed roughly even, which is where Warner derived his reputation as a budget cutter. However, even here, there was more than met the eye.

One has to remember the context of the FY2002-04 budget; it did not happen in a vacuum. While Warner was wringing his hands over his supposed budget discipline he was also pushing for two referenda (one in Northern Virginia, the other in Hampton Roads) in which the voters of those regions would impose a sales tax increase on themselves that would generate roughly $625 million a year (Free Lance Star). With that money plowed into the budget, the General Fund would have risen 5% (and overall spending nearly 13%). As for the regular transportation budget, it was whacked by nearly $3 billion (FLS) - just as the referenda worked their way through the legislature (what a coincidence!). Warner put nearly all of his political capital into the referenda (in fact, he made them the centerpiece of his campaign for Governor in 2001), and most of the Richmond elite joined him. The voters, however were unimpressed, and the tax increases went down to landslide defeats.

Warner’s bait-and-switch scheme had failed miserably, but on the plus side, there was still the bare-bones (and no roads) budget, that Warner could claim was part of a deliberate fiscal prudence all along (Bush the Younger made a similar move when the state legislature separated his 1997 tax shift plan and killed the tax hikes in it - Bush used the resulting tax cut to build his tax-cutting credentials). Moreover, since the tax increase would have only been limited to NoVa and HR, the rest of the state didn’t notice Warner’s little scheme, and took the lean budget at face value.

In other words, Mark Warner owes his reputation as a “fiscal conservative” to angry urban and suburban voters who rejected his signature - and in fact his only - campaign proposal.

Undaunted, Warner plowed on, this time with the nonsense of “tax reform” - which of course meant a tax increase. Warner wasn’t a fool, he knew that a real Republican legislature would never have let him get away with it. However, he also knew that the GOP Senate majority had more than enough RINOs to get through whatever he wanted. Still, it was politically risky, until John Chichester gave him a gift.

Chichester shot for the moon and demanded a $3 billion tax increase, a mammoth amount that obliterated the GOP reputation as the low-tax party (already damaged by the party’s support for the 2002 referenda). Warner then offered the coup de grace by calling for a tax increase roughly half that. As a result, he placed himself between the Republicans in the House and the RINOs in the Senate, and made himself look like the referee in a GOP civil war.

Of course, Warner insisted the tax hike was necessary to put the state on sound fiscal footing. What he didn’t tell anyone was that his budget for 2004-06 was more than $10 billion higher than the previous one, an increase of almost 17%. More than $4 billion of that was in General Fund spending - meaning Warner could have balanced the budget and increased General Fund Spending by roughly than two-and-a-half billion dollars without any tax increase.

Bet you haven’t heard that piece of info from the Warner people, have you?

The fact is, Mark Warner could have kept spending growth at the oh-so-miserly level of roughly $9 billion if he hadn’t raised taxes, but he wanted $10.5 billion, so Virginians be damned.

Ever since Gilmore announced his Senate candidacy, the Democrats have been screaming about his “$6 billion” shortfall. My blogmates here have already turned that into swiss cheese (STD, JAB).

I, however, would like to as Mark Warner my own question.

Where did the $9 billion go?

Cross-posted to Bloggers 4 JImGilmore

Tom Tancredo Endorses Bob Marshall

From the Washington Post blog this morning:

Rep. Tom Tancredo (R-Colo.), an outspoken conservative and fierce advocate for additional controls on illegal immigration, announced today he is supporting Del. Robert G. Marshall’s candidacy for U.S. Senate.

Tancredo’s endorsement could boost Marshall (R-Prince William) among conservatives as he battles former governor James S. Gilmore III for the GOP nomination. About 10,000 Republican activists will elect the nominee at the state party convention next weekend.

“We can trust Bob Marshall to oppose amnesty for illegal aliens. In the House of Delegates, Bob has a strong record of doing what he could on the state level to stop illegal immigration,” Tancredo said in a statement.

 . . .

Tancredo and Gilmore were both briefly candidates for the GOP nomination for president. In endorsing Marshall, Tancredo took a shot at his former rival from the presidential race, accusing Gilmore of supporting “amnesty” for illegal immigrants.

“Jim Gilmore says he’s against amnesty, but he has a long record that suggests otherwise,” Tancredo said. “Less than a year ago, while campaigning for the presidency in Iowa, I witnessed Gilmore give a speech supporting a policy that sounded like amnesty to me.”

Now, even I’ll admit that Tancredo has eaten his foot on occasion, but he is a principled man, and of the most experienced politicians on the illegal alien issue.  His words mean something.  Amnesty opponents should heed them.

Cross-posted to Bloggers 4 Bob Marshall