RICHMOND – Gov. Tim Kaine on Friday proposed to end the state’s car tax relief for counties and cities and replace the subsidy with a $2 billion-a-year income tax hike, the centerpiece of a two-year budget that also cuts deeply into health care and education.
The outgoing governor’s spending plan, aimed at closing what he said is a $4.2 billion shortfall through mid-2012, includes $2.3 billion in cuts and relies on a handful of likely doomed tax increases to bridge the remaining revenue gap. Kaine’s proposal would lay off 664 state workers and close another 1,879 vacancies.
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Republicans, who control the House of Delegates and – as of Jan. 16 — the governor’s mansion, quickly declared those tax increases dead on arrival, setting the stage for an even greater squeeze on core services.
The state pays out a hefty annual subsidy to local governments to backfill the loss of the unpopular car tax, a phase-out the General Assembly began to in 1998 but froze mid-stream in 2004. Kaine, in a speech to the legislature’s joint finance committees, dubbed the car tax subsidy a “$950 million folly” that owes its existence only to political expediency.
As an alternative, Kaine said the state should impose a 1 percent income tax surcharge, all of which would go to localities that agree to completely scrap their taxes on vehicles. He also proposed to end the “dealer discount” that allows retailers to keep a small portion of their sales tax, which would save $120 million over the two years.
“It’s a pretty significant tax increase in an economic downturn, I’m not sure that keeps Virginia in its leadership role,” said House Majority Leader Morgan Griffith, R-Salem. “It’s a good things that we have been there in the legislature to stop some of the governor’s proposals.”
The budget roll-out is perhaps Kaine’s most significant final action before he hands off the governorship to former Attorney General Bob McDonnell, who will submit his own amendments. The document sets up a clash between the outgoing and incoming administrations, as well as between the Democrat-majority Senate and the House.
Kaine’s K-12 education cuts are based around capping state funding for administrative and support staff, a proposal that will find more favor in House than the Senate. The move is heavily opposed by education advocates because it would cut thousands of secretaries, janitors and nurses, although a recent Virginia Department of Education report said the cap could save $754 million over the biennium. The assembly implemented the cap last session, but was able to temporarily reverse it with an infusion of stimulus dollars.
“As stimulus funds run out next year, even K-12 will be affected by the worst economic crisis of a generation,” Kaine said.
The governor’s budget axes $419 million in Medicaid, and freezes funding for programs that aid the mentally disabled, elderly and Alzheimer’s patients.
In public safety, Kaine proposed to postpone two new Virginia State Police trooper schools over the next two years. The budget would cut funding for local sheriff’s and police departments by 20 percent, as well as prosecutor’s and circuit court clerks offices by 16 percent.
