
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, July 30, 1990                   TAG: 9007310342
SECTION: EDITORIAL                    PAGE: A/6   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

VIRGINIA'S STRANGE REVENUE CRUNCH

LEGISLATIVE elections in Virginia are nearly a year and a half away; the next gubernatorial election is two years after that. But already it's easy to see that, barring an unexpected uptick in revenues, the state's financial picture will be a central issue both times.

And already it's easy to envision sly campaign ads recalling for voters the words in July 1990 of Paul Timmreck, finance secretary in the Wilder administration. Trying the other day to explain the latest round of revenue-forecast reductions, Timmreck told two legislative committees that "taxpayer behavior" apparently is responsible.

Just like the General Assembly/incumbents/Wilder administration/my opponent, the ads might say, to blame the victim for the crime.

But while Timmreck's choice of phrasing may have been impolitic, it's important to understand what he really was trying to say - which wasn't that taxpayers are misbehaving. Rather, his point was that the slowdown in state-revenue growth has passed the point where it can be attributed solely to a slowdown in Virginia's overall economic growth. Somehow, in ways as yet little known, taxpayers are ordering their financial affairs differently from in past years, enough to reduce state revenues by tens of millions of dollars per year.

Understanding the point is important not because it excuses every error in the projections on which Virginia budgets were built and now must be cut to accommodate the "shortfalls." At the time, for example, the annual economic-growth rate of 9 percent being predicted as recently as early 1988 seemed unsustainable to many.

Virginia's budget-makers can be criticized also for assuming too readily that people, in their "taxpayer behavior," will act the same in the future as they have in the past. Such an assumption undergirds the revenue-forecast profession - but with the shakeout of the federal Tax Reform Act of 1986 perhaps not yet over even today, greater caution would have been in order.

Still, the people who've been making Virginia's tax-revenue projections for the past couple of years are essentially the same who were turning in admirable records for accuracy in the decade previous. As many as 30 other states face similar shortfall problems. If nothing else, Timmreck's point was important because it is another indication, among several, that traditional instruments for measuring the health of economies may not work so well anymore.

For Virginia specifically, understanding the point is important because it bears on future taxing and spending policy. Traditionally, Virginia government spends more in good times, and cuts back in lean. While that may not be in accord with Keynesian theory for national economies, it does wonders for a state's credit rating.

If Timmreck is correct, however, a significant part of the revenue shortfall from projections since mid-'88 is not due to a slowdown in the state's economic growth - which means it's due, when all is said and done, to a reduction in the state tax burden.

Virginia's budget-makers work for a governor who has seemed adamant in opposition to new taxes. But new taxes would be better than further cuts in higher-education appropriations, say, or slashes in aid to localities. And to some extent, these would be replacement taxes, not new at all.

by CNB