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Is It a Crisis of Funding or a Crisis of Courage? – The State Budget for the Commonwealth of Virginia

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It will take courage and leadership from our state leaders to make the necessary changes that place us on the right track of limiting the government’s size.

There are at least three areas that can be addressed to improve the state’s financial situation and narrow the current budget gap. First, the state should remove itself from functions that are best left to private enterprise. For example, without losing control and still maintaining system integrity, the state could leave selling liquor to the private sector. We do not sell cigarettes or lottery tickets solely from state stores. In fact both bring in revenue that is handled by the private sector. The ABC operation is no different. State-owned ABC stores are exempt from paying for business licenses, real estate and property taxes; items that otherwise would be generating revenue for localities. Also, while the state made over $100 million in fiscal year 2008 from liquor sales, the hidden costs of retirement health benefits for the over 1,000 employees working in state stores are not taken into account.

This one area could bring substantial revenues to the state. We could sell the stores either as franchises or auction them; though I believe the best value will be gained through selling them as viable businesses. Under any of those scenarios, based on state figures we should expect to receive $1 to $1.2 billion from such a sale. The commonwealth will suffer no loss in revenue as it will still continue receiving the tax revenue from the sale of the liquor, wine and beer, will continue to collect licensing fees and will receive revenue from the sale of stores through franchising. More importantly, we would remove ourselves from a business we don’t need to be in, allowing us to put our resources to better use. Ensuring stores are complying with laws, being able to check on existing restaurant businesses and rededicating our efforts to drunk driving/underage drinking will prove to be far more advantageous.

Secondly, a report completed by the Commonwealth Competition Council indicates we have in the range of 35,000 jobs attributed to the state that otherwise would have been found in the private sector. As noted above, here again the point is that by performing these jobs the state is crowding out the private sector. Further, the state is not allowing the localities to receive revenue by way of business licenses, taxes and other licensing fees that they would if these services were provided by the private, rather than the public sector. In addition, the state will incur long term debt and obligation for retirement as well as short term commitments for other health insurance and other benefits. Simply moving this workforce off of our state budget would result in hundreds of millions of dollars in savings.

On the same line of thought we need to get a handle on administrative bloat. If we cut 10 percent of all administrative overhead for every department down to the smallest agencies, the savings again would be tremendous. In the school system we have slowly moved a larger percentage of our payroll into the high-dollar administration area, rather than into the classrooms where it is really needed. The argument is that we need the extra staff due to the numerous programs to administer; however, our school personnel can handle more than one job and more than one program. We have become too specialized, therefore increasing our administrative overhead far beyond what it should be. Tightening in these areas is needed if we are to find more dollars to put in the classrooms where they belong.

Lastly, there is our method of collecting taxes and accounts receivable. According to a January 2009 Washington Post article, the state is going to raise $36 million from the thousands of Virginians who owe the state $1.4 billion in past due taxes through the Tax Amnesty Program. This is not a viable return when we have $1.4 billion in outstanding tax obligations but yet are only expecting to collect $36 million. The state did this before in 1990, $32 million was collected; in 2003, $98 million was collected. This type of effort only encourages people to continue to be delinquent in their tax obligation. The assumption from the tax payers will be if they wait long enough there will be another amnesty. We have got to change this whole method of collection. A more logical way is to use our existing system of commissioners and treasurers already set up in the localities of the state which have the capabilities to collect the taxes.

If the state were to share the complete list of past due taxes and account receivables with the local commissioners and treasurers they could proceed to collect delinquent taxes owed in their respective area. The $1.4 billion in delinquent taxes is only one part of the equation; the other is the huge amount of account receivables that is also owed through public state hospitals and other areas. This can also be collected by local commissioners and treasurers. The state is currently using private contractors who are given 30 to 40 percent commissions to collect these funds. If the state would give 10 or 15 percent to our treasurers for collecting the delinquent funds, this would be a strong incentive for them to help us locate the dollars and put the money back in our treasury. This does not have to be a major obligation since the state only pays when the delinquent taxes are collected.

The government has decided the means to collect these taxes is to add more agents in Richmond.  In 2003, the state added 117 employees including 34 collectors at the cost of approximately $3.5 million; in 2007, another 55 were hired at a cost of $1.2 million. An agent traveling across the state looking for delinquent taxpayers is not a very efficient way to operate considering vehicle use, travel and other expenses. By streamlining the operation in Richmond and putting more effort in the localities the results will be far more successful. If the state is able to collect only 10 percent of delinquent taxes and account receivables by utilizing our localities, the Treasury would receive $350 million instead of $38 million from tax amnesty.

Now is the time for courage and creative thinking.

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