The legislature’s reliance on projections that personal income taxes will grow by more than $600 million next year to balance its budget has begun to draw fire, with critics calling the assumption overly rosy in the middle of a sharp economic downturn.
The two-year, $77 billion budget approved by the General Assembly Thursday night assumes the tax revenue will grow 6 percent in fiscal 2009 over the current fiscal year’s projections, according to lawmakers and staff. The figure was vetted by both the governor’s top economist and his economic advisers.
But Senate Republicans warned on the floor Thursday that the overall economic slowdown would hit income tax and force the legislature to slash yet more from the already austere spending plan.
The 6 percent figure must be met to maintain a growth rate of about 2 percent, according to Sen. Walter Stosch, R-Henrico, part of the small team of conferees that crafted last week’s budget compromise.
“That is of great concern to us,” Stosch said.
The budget was built to close a $2 billion shortfall through 2010, but the projected deficit worsened throughout the legislative session as it became clear numerous revenue sources would not produce as much as expected. Still, a few modest program expansions are included, including $22 million for Gov. Tim Kaine’s pre-kindergarten initiative and 600 new Medicaid slots for the mentally retarded.
Income tax next year is expected to make up $10.78 billion in revenue, $608 million more than in 2008, said Joel Davison, spokesman for the Virginia Department of Taxation.
“Six percent [growth], given everything that’s going on with the economy, probably can be considered an upper bound,” said Bill Shobe, director of business and economics research at the University of Virginia’s Weldon Cooper Center.
That revenue projection is actually lower than what the budget negotiators wanted to use, said Gordon Hickey, spokesman for Kaine. He said the governor “convinced the conferees that their position and their projections were a little bit high.”
Sen. Edward Houck, D-Spotsylvania, who is also a budget conferee, defended the projection and said he agreed with the conclusion of the governor’s economist and advisers. But Stosch “may be correct,” he said, and income tax projections may prove overly optimistic.
“I think the uncertainty of the economy is on everyone’s mind, we need to monitor and watch it very closely,” Houck said.
