Bill sets ‘sunset’ terms on taxes; B1
By Garren Shipley
(Daily Staff Writer)
A bill that cleared the House of Delegates on Monday and is on its way through the Senate could have serious ramifications for the state’s “AAA” bond rating, according to one of the state’s financial advisers.
But the measure’s supporters say such concerns are unwarranted and the bill is good fiscal policy.
House Bill 1052 requires that any new taxes or tax in-creases ap-proved by the General As-sembly in-clude “sunset” provisions, meaning they would expire at a certain date to be set by legislators unless they’re renewed.
Patroned by Del. Jack Reid, R-Henrico, and nine others, the bill passed the House of Delegates on Monday on a 64-33 vote and was sent to the Senate.
But writing such provisions into law could have some dire consequences for the commonwealth’s credit rating, according to Steven Kantor, senior vice president with First Southwest Company.
The financial firm advises the state’s Treasury Board, and investors are likely to take notice if Virginia “sunsets” new taxes, he said in a letter to Virginia Treasurer Braxton Powell.
“The provisions of HB 1052 raise questions regarding the stability of the source of the Commonwealth’s and its political subdivision’s general fund revenues,” Kantor says.
“The automatic sunset of future taxes creates uncertainty as to the commitment of the Commonwealth to maintain a reliable and predictable source of income,” he wrote. “The Commonwealth’s commitment to implement taxes was questioned by Moody’s Investor Service during the period that Moody’s placed the Commonwealth on its Credit Watch for possible downgrades.”
Loss of the state’s bond rating — “AAA” for most state bonds, the highest given by Moody’s — was one of the reasons given for the 2004 budget deal that raised taxes by $1.5 billion per year.
The state ended that fiscal year with a surplus and is projected to end fiscal 2006 with $860 million left in the bank.
“We believe that implementing the sunset provision on new taxes as described in HB 1052 will cause concern from all three rating agencies and will send a negative message to the investor community,” Kantor wrote.
“They read that on the floor of the House during the floor of the debate,” Reid said.
“I can understand how someone who’s not familiar with the terms ‘sunset’ or ‘re-enactment’ might come to that conclusion,” he said.
The bill seeks to keep Virginia from repeating its experience with the Business, Professional and Occupational License tax. That levy was raised to pay for the War of 1812.
“We still have it with us,” he said.
But the law won’t have state taxes disappearing left and right, said Del. Todd Gilbert, R-Woodstock.
“It puts into the system an automatic review of tax policy,” he said. “It’s sound public policy when you institute a tax to review it every so often.
And there will likely be some long sunsets if it passes.
If the state needs to float a 25-year bond, it could raise taxes and sunset the taxes to pay for it in 25 years, said Reid.
“There’s nothing that says it has to be three years or five years,” he said. “It can be tailored by the legislative body to meet the revenue stream.”
The bill has been referred to the Senate Rules Committee.