The 2019 legislative session is just around the corner, which is hard to believe since it feels like the 2018 Session just ended. In fact, the General Assembly has yet to adjourn the special session. A couple of issues remain unresolved.
The Governor initially called for a special session because the General Assembly did not reach a budget agreement. After months of wrangling, the legislature adopted a budget on May 30 that included Medicaid expansion. It was a huge bipartisan accomplishment. Nevertheless, the Senate and House of Delegates did not adjourn sine die because the party in the majority has not agreed on the selection of certain judges. Periodically I’ve heard rumors that the General Assembly will be called back to Richmond for a vote, but those rumors have thus far proven to be untrue. In the meantime, another critical issue has arisen.
At the end of June, a federal court ordered the legislature to redraw certain House of Delegate districts. It ruled that African-American voters were unfairly packed into those districts in an effort to lessen minority influence in surrounding districts. The Republican majority said that it was going to appeal the ruling. Mark Herring, the attorney general, refused to represent them in the court proceedings. The General Assembly has until October 30 to redraw the districts. If we do not meet the deadline, presumably the court will draw the lines. The Governor issued a proclamation earlier this week calling the legislature into another special session on August 30 to redraw the districts.
Amid the uncertainty of redistricting and vacant judgeships, we have to prepare for the 2019 Session of the General Assembly, which convenes on January 9. Every session held in an odd year, including 2019, is a short 46-day session. My experience is that legislators try to cram as much work into a short session as they do into a 60-day long session. The big battle that is shaping up for this session is not that unfamiliar.
Two months ago the United States Supreme Court ruled that internet businesses do not have to have a physical nexus with a state in order for the state sales tax to be collected. Prior to this ruling, states could not require online companies to collect the sales tax unless they had a store or warehouse in Virginia. Applying the sales tax to all internet purchases is estimated to bring about $300 million in additional sales tax revenue to Virginia each year. In addition, the federal tax reforms adopted in December of last year are expected to increase revenues to the state unless modifications are made to state tax policy. The projected impact for 2019 is almost $600 million. Needless to say, there are lots of ideas about what to do with that money.
The Governor proposed using at least a portion of that money to fully fund the earned income tax credit. The credit provides refunds to earners who make less than $45,207 (for a family of four). In my view, if we really are interested in lifting families up out of poverty, this is an idea worth considering. However, some policy makers are concerned about basically subsidizing families by giving them refunds above and beyond what they paid in withholding taxes. The Governor’s proposal has generated some controversy and is only but one idea of how to spend the additional revenues.
Senator Bill Stanley of Franklin County and Paul Goldman, a former chairman of the Democratic Party of Virginia, proposed that the money be used to modernize schools. They have termed this as a way to improve schools without raising taxes. Again, this is not a new idea.
The lottery passed by referendum in 1987 to fund education without raising taxes. Controversy has surrounded the use of the funds since the beginning. In truth lots of arguments were made in favor of the lottery back in the campaign of 1987, but most believe the lottery was intended to provide a new revenue stream for education. In 1995, as part of a broader education bill, we codified the requirement that 100 percent of lottery profits go towards public education. While lottery dollars were going to education, the revenues were replacing rather than supplementing general fund dollars.
In 1998, during the special session on the repeal of the car tax, a number of us backed a legislative proposal by former Delegate Tommy Jackson of Carroll County to use lottery funds for school construction or other capital needs. Using lottery revenues for these one-time expenses would ensure the money did not supplant existing K-12 education funds. That approach was not adopted. In 2000, before he was Speaker of the House, Delegate Bill Howell of Stafford County introduced a constitutional amendment to require that the money be used for education. The constitutional amendment was approved by the voters. As a result, lottery money continues to replace general fund dollars, just like it did in 1994. Sen. Stanley’s proposal to use the additional sales tax revenues from online sales for school construction reminds me of the early policy debates about the lottery. If we are targeting new funding for a specific purpose, we need to put in protections to make certain it doesn’t just shift money from other priorities.
Others have argued that at least a portion of the sales tax windfall should be used for highway improvements. Under the 2013 transportation funding reform bill, highway improvements were guaranteed initially for Hampton Roads and Northern Virginia while the rest of the state only saw improvement for maintenance dollars. Interstate 81 is a corridor that is overused, unsafe, and in desperate need of improvement. The windfall could be a revenue source to upgrade the road. Many who do not live in the I-81 corridor may scoff at using general fund dollars for transportation projects. In general, I agree with that criticism and believe highway dollars should generate from the users of the road. However, the safety of those who travel on the highway and the economy of the western part of the state hang in the balance.
Still others argue that the sales tax revenue should be used to lower taxes. Virginia has essentially a flat tax from an income standpoint. Taxpayers who have incomes of at least $14,000 pay somewhere between 3.75% and 5.75% of their income in taxes. The rate has not increased since 1973. The sales tax was initially created in 1966 to pay for the community college system. It has been increased a couple of times since then to pay for public safety, education and other core government services. I am not certain what tax reform looks like in Virginia, but I am open to the idea that some of the money generated from online sales be returned to the taxpayers.
Still others advocate for using the influx of revenues to bolster support for K-12 education. Funding for public schools is still about 9 percent below 2009 levels. We used to strive to pay our educators at or above the national average, yet we fall further and further behind. So in my view there is a pretty good argument to be made for using at least part of this money to fund education.
The perennial top battle every session is the budget. In recent years, we have been faced more often with concerns about shortfalls and the need to tighten our belts. We never know what the next few months might bring, and we need to be prepared to live through the next recession. But these changes in tax policy, brought by the Supreme Court and Congress, will continue to generate much discussion in the coming year.
If you have comments about these issues or ideas for legislation for the 2019 Session, please let me hear from you. My legislative office in Charlottesville can be reached at 434-296-5491 or you can email my office at [email protected].
I look forward to your input.