At a press conference yesterday afternoon, Gov. James S. Gilmore III announced that the state could no longer afford to eliminate the car tax next year.
Given the current economic situation, "it was inevitable that the car tax would not be extended to 100 percent," said Larry J. Sabato, government and foreign affairs professor.
Although the governor promised during his 1997 campaign to eliminate the car tax by the end of his term, an ailing economy and falling state revenues have made this impossible, Gilmore Assistant Press Secretary Chris Freund said.
"The governor fully intends to fulfill his commitment in the 2003 or 2004 fiscal year," he said. Gilmore is responsible for writing the budgets for those two years. But the final numbers may have to be completed by his successor, Democrat Mark R. Warner.
Other observers, however, were less optimistic.
"The car tax issue probably won't come up again until the end of Warner's term," Sabato said.
This year's budget assumes a growth rate exceeding 7 percent, but with the current economic slump, revenue growth likely will be at a standstill, officials said. Revenue shortfalls are expected to reach $890 million in this year's budget.
"By January, [the shortfall] could easily reach a billion," Sabato said.
Even with revenues freed by freezing the car-tax phase out at 70 percent, Gilmore will be forced to make massive cuts in this year's budget.
Because most of the payments to local governments to cover the car tax already have been made, stopping the phaseout will release only $190 million of the $890 million needed in budget cuts, Freund said.
But the tax freeze will make additional funds available for other priorities in future years, freeing up to $345 million next year.
Gilmore is scheduled to present changes to this year's budget Dec. 19 at a meeting with General Assembly representatives. He also will propose a new budget to govern spending for the next two years.
Gilmore already has begun cutting spending on government agencies in anticipation of the decline in revenues.
"The governor will look at agencies to decide where they can reduce their budgets. Reductions could be up to 2 percent in select agencies," Freund said.
It is unclear at this point how the cuts could affect higher education in Virginia, he added.
Sabato, who yesterday conversed with legislators, said there was "very divided response" on a proposed "caboose bill" which would provide for faculty salary increases denied by the budget freeze.
Some representatives said the bill will not happen, and others said funds might be found in the State's $900 million "rainy day" fund, he said.
The nation's economic downturn not only is having consequences in Virginia. California officials alone expect a $12 billion shortfall in expected revenues this year.
Although the Sept. 11 terrorist attacks on the Pentagon and the World Trade Center exacerbated the Commonwealth's economic problems, Virginia's economy was slowing long before the attacks. Sales tax revenue, a major indicator of economic strength, has grown a mere 0.6 percent since February.
Consumer confidence has declined dramatically since the terrorist attacks. The deployment of large numbers of military personnel has reduced spending in the Hampton Roads region.
Gilmore has been in contact with Governor-elect Warner regarding economic issues, and Warner's transition staff will meet with Secretary of Finance John Forbes tomorrow, Freund said.
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