Mark Warner - U.S. Senate

Fiscal Crisis

When Mark Warner was elected governor, Virginia faced its most serious fiscal crisis in over two decades. Five years of unusually strong revenue growth, coupled with decisions by his predecessor and prior legislatures to cut taxes while also increasing spending commitments, placed the Commonwealth on a path to financial meltdown. That meltdown was made more serious by the post-9/11 recession, and the stock market and technology industry declines that followed. A state budget shortfall estimated at $700 million by the previous administration was discovered to be over $3.8 billion shortly after the inauguration, and ultimately totaled more than $6 billion.

The magnitude of the budget shortfall threatened Virginia’s ability to meet fundamental commitments to public and higher education, health care, public safety, and other services essential to millions of Virginians. It made the Commonwealth an unreliable partner for cities, counties, and towns that depend on predictable state financial support. And, it threatened Virginia’s highest-possible AAA bond rating – a sterling credit ranking held longer than any other state – and viewed by Wall Street and Main Street as a validation of the Commonwealth’s long-standing tradition of fiscal responsibility.

Governor Warner took office in 2002 determined to take direct, aggressive action to reverse that course, and restore fiscal stability and integrity. His first actions were to re-write the budget prepared and submitted to the General Assembly by his predecessor. Governor Warner substantially lowered its faulty revenue estimates, eliminated many budgetary gimmicks, slashed agency spending, and identified user fees which did not cover the cost of services provided.

Budget and Tax Reform

The Commonwealth of Opportunity Tax Reform package Governor Warner presented in November 2003 was carefully and responsibly constructed to make Virginia’s tax code fairer. It met Virginia’s commitments in education and other core services, and was designed to preserve the Commonwealth’s fiscal integrity over the long term.

The proposal raised some taxes, including Virginia’s lowest-in-the-nation cigarette tax and income taxes on the very highest wage earners. It included a modest increase in the state sales tax, even as it cut the sales tax on food by 1.5 cents and removed 140,000 lower-income Virginians from the tax rolls altogether. It provided incentives to small businesses to invest. Governor Warner’s tax reform proposal eased the tax burden on military, reservists, and National Guard families. The tax reform plan also proposed to accomplish what Governor Warner’s predecessor was unable to do: it included a sensible proposal to fully fund a complete end to the personal property tax on vehicles over a four-year timeframe.

It also proposed elimination of the Virginia estate tax for working farms and family-owned businesses, ended the unfair accelerated sales tax collection from retailers at the end of each fiscal year. It also had an important central feature: While it would increase total revenue to address the long-term structural imbalance in the state budget, 65 percent of Virginia taxpayers would actually have paid less if the proposal had been enacted as introduced. The method used to calculate the impact on the typical Virginia family was endorsed by the state’s leading economists.