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Sunday, November 21, 2004
Fiscal integrity: Political dead letter - or not?
Neal Peirce
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Does fiscal integrity still matter in America?
Not in politics, it seems: We just finished a presidential election in which neither candidate could even say how he'd return us to balanced federal budgets. And now the winner is claiming a mandate to make massive, unfunded tax cuts permanent, and preparing a likely drive to privatize portions of Social Security at peril of up to another trillion dollars in red ink.
Think state and local, though, and a fiscal free lunch isn't so easy. State constitutions require balanced budgets. Bond houses such as Moody's and Standard & Poor's routinely downgrade ratings of fiscally profligate states -- thus raising their borrowing costs. A state that doesn't educate its citizens and provide quality infrastructure is a state headed for the economic ditch.
So it came as a breath of fresh air when Governing magazine this month gave top billing in its prestigious ``Public Officials of the Year'' awards to a bipartisan pair of Virginia officials willing to stake their careers and reputations on a tax increase.
The political and personal backgrounds of the awardees could hardly be more different. Democratic Gov. Mark Warner, 49, a persuasive charmer, moved straight into politics from a career as a multimillionaire entrepreneur in the high- technology sector, winning Virginia's governorship in 2001 on a no-new-taxes platform.
By contrast, Republican John Chichester, 67, veteran of 26 years in the Virginia Legislature and now of its Senate Finance Committee, embodies Old Dominion stability, conservatism and character. Public service runs deep in Chichester's family; his grandfather served on Virginia's Supreme Court.
The convergence of their careers began when Warner, taking the governorship, confronted an unexpectedly high deficit of $3 billion, compounded by the recession and rash tax cuts made under his Republican predecessor. Warner tackled cost-cutting with fervor, reducing spending by billions through eliminating 50 boards and commissions, 3,000 layoffs, cuts in almost all programs except K-12 education, and streamlining the state's information technology services.
Still, Virginia faced a bleak decade because of mounting costs for schools, transportation and health care, plus ongoing impact of excessive 1990s tax breaks. So Warner reluctantly backed a $1 billion tax hike to mend the state's battered finances, coupled with some tax reform measures.
Early prospects seemed grim as doctrinaire anti-tax Republicans in the Virginia House promised to kill Warner's plan. But then a remarkable event occurred. Chichester was worried the state would default on vital responsibilities through the decade, and perhaps lose the treasured best-in-the-nation AAA bond rating it had enjoyed since 1938. It was time, he decided, for the state's first significant tax hike in more than 40 years. So Chichester proposed a stunning $4 billion tax rise over two years. ``We had to raise revenue,'' he said, ``and recapitalize this corporation that we call Virginia.''
Suddenly Warner's proposed $1 billion hike seemed modest. And the public responded to the straight fiscal talk. ``Most pundits and conventional wisdom,'' notes Warner, ``say you can't talk straight, that people think they can have it all for nothing, and above all don't speak the `T' word.'' But Virginians surprised tax opponents by turning out heavily in town meetings statewide to say quality schools, health care and the AAA bond rating mattered to them. And Virginia's Chamber of Commerce endorsed a tax hike.
As the mood shifted, Chichester and his band of moderate Republican allies, playing a traditional legislative give-and-take game, won approval of a tax package much smaller than Chichester wanted, but well above the figure Warner had set. Within three weeks Wall Street reacted, Moody's lifted a cautionary watch, reaffirming the AAA rating. Virginia's action, said Moody's, "will restore the state's structural balance and illustrate the strength of the Commonwealth's long tradition of conservative fiscal management.''
Virginia's action is anathema to Republican idealogues opposed to virtually any tax increase, anywhere, anytime. Chichester and the 33 other Republican legislators he persuaded to support the higher Virginia levies are now specifically and publicly targeted for defeat in next year's primaries by anti-tax activist Grover Norquist, head of Americans for Tax Reform and a close ally of senior Bush adviser Karl Rove.
Just as the Coke brand would be devastated if someone found a rat's head in a drink, Norquist told The Wall Street Journal, tax-raising state Republicans "are the rats' heads in the Coke bottle.''
Chichester told me he doesn't take the threat too seriously. But the raw absolutism, campaign cash and zealotry of Norquist-like operations are likely to be heeded by many Republican legislators. The contrast couldn't be more vivid with Chichester's preference: "legislators who play the game, hit the ball, but above all stay in the game'' - respecting each other's differences, ultimately serving state and citizenry, not a single ideology.
And having played that game with balance and savvy in Virginia, Mark Warner may have positioned himself interestingly for a possible run at the 2008 Democratic presidential nomination.
Neal Peirce's e-mail address is nrp@citistates.com.
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