Money Differences Divide Virginia

Money Differences Divide Virginia

Like many of his constituents in Virginia’s 34th legislative district, Vincent F. Callahan, chairman of the Appropriations Committee in the Republican-controlled House of Delegates, says he could not afford to buy his own house in today’s real estate market.

Callahan bought his two-story house in Potomac Hills in 1962, six years before he was first elected to the General Assembly in 1968.

Like most homeowners in Dranesville District, Callahan’s real estate assessment, and consequently his real estate taxes, have climbed steadily for five years. Last year, his house was assessed at $464,815.

That figure would sound astronomical to some of Callahan’s colleagues in the House of Delegates. But in Fairfax County, the tax assessor grades Callahan’s house as simply “fair,” one of many that fall between rural Virginia’s perception of Northern Virginia as a land where dollar marks could be the ZIP code. That divide between perception and reality explains why Callahan says he won’t support proposals that people with more than $100,000 in income pay a half percent more in income tax.

“I can’t support legislation when my constituents would wind up paying the bulk of the tax increase,” Even though the 34th is “the wealthiest legislative district in the state, and maybe the whole country,” Callahan says, “Incomes are higher in Northern Virginia.

So are expenses. I couldn’t afford to buy my own house.”

Callahan also qualifies as a senior citizen. He knows firsthand about the rising cost of health care, one of the impacts that is “growing” spending in Virginia.

When Callahan’s wife, Dot suffered a serious illness last year, that required a lengthy hospitalization and cost hundreds of thousands of dollars.

As he ordered breakfast at the McLean Family Restaurant last Saturday, Callahan was besieged with comments from constituents who are worried about rising taxes.

He reminds them of “unfunded mandates” like Medicaid . “Now it’s 12 to 13 percent of the budget,” Callahan said.

Since 1998, reductions in the car tax have cost another $1 billion in lost revenue that the state must reimburse to localities. “Between the car tax and Medicaid, that’s 20 percent of the budget, right there,” Callahan said.

Another is the federally mandated “No Child Left Behind” initiative, which Callahan describes as “a disaster. We are already doing what they are doing” with state programs for standards of quality, said Callahan.

When one of his constituents at McLean Family Restaurant tells Callahan to “hang around,” it’s pretty clear that he wants a pragmatist who understands Northern Virginia to vet two pending proposals for revamping the state tax code.

TWO LEADERS from different parties, Va. Gov. Mark Warner, a Democrat, and Senate Finance Committee Chairman, John Chichester, a Republican from Stafford County, both propose raising income taxes on the state’s wealthiest residents as partof restructuring Virginia’s outdated tax code. Chichester proposes more of an increase than Warner.

Callahan says he won’t support either one.

On Jan. 22, Warner invited Callahan to the Governor’s mansion on the evening before he came to McLean to pitch his tax plan to a friendly crowd composed mostly of Democrats, but peppered with a few tax conservatives from the McLean Citizens Association’s budget and taxation committee.

Callahan says he asked Warner to “say nice things about me,” which translated into Warner’s comment in McLean that Callahan “is aware of the problem” with the state’s tax structure, and “working in good faith with his colleagues to resolve it.”

But the significance of the governor’s choice of McLean as the first stop on a tour to pitch his plan to citizens did not escape Callahan. Incomes in McLean over $100,000 are the most likely to get hit by the half-percent increase in the rate of income tax they pay.

ON SOME BASICS, Callahan and Warner agree.

“We are in for a real train wreck that we have never seen in this state if things keep going on like they are,” says Callahan. To explain the state’s dilemma, he borrows a quotation from British statesman Winston Churchill, circa 1935: “I cannot forecast to you the action of Russia. It is riddle wrapped in a mystery inside an enigma,” Churchill said.

Callahan noted 61,000 new high school graduates are expecting to attend Virginia colleges by 2010.

“We have room for them now, because we passed a bond issue [which Callahan sponsored] in 2002,” Callahan said. “But the money to operate is not there.”

Warner says even the most conservative projections show that revenue in Virginia won’t meet spending in those six years, under the present tax structure.

“The figures are accurate,” Callahan says, “but that is based on spending obligations that can be changed.”

Callahan says Warner’s tax restructuring proposal, House Bill 30, has an inherent flaw.

“The real problem is you have a budget contingent on higher taxes. You can’t put higher taxes in a budget bill,” he said. That amounts to “contingency spending based on revenue that’s not there.”

“I think it’s unconstitutional, but we’ve decided not to contest that for now,” Callahan said. “You have to do budgets on existing revenue, not on something that might happen.”

As an example, he cites a hypothetical married couple who base their next-year budget on higher salaries from jobs they expect to get soon, but that aren’t nailed down.

If the jobs don’t materialize, their spending is out of control.

AS CHAIRMAN OF THE HOUSE Appropriations Committee, Callahan says, “I’ve got the responsibility of getting a balanced budget that meets the needs of Virginia.”

But “I’m not going to support an income tax that will adversely affect my constituents,” he says.

“I’ve endorsed nothing. That doesn’t mean I won’t vote for something,” he said.

What he’ll vote on probably doesn’t yet exist, Callahan said.

Warner’s proposal includes increased sales, cigarette, and income taxes with reductions in the car tax and estate taxes.

Chichester’s also includes a gas tax, higher income tax increases for the wealthy, and eradication of the estate tax.

The chances of a cigarette tax are not good, either,” Callahan said.

“It’s complicated by the fact that Philip Morris [cigarette manufacturer] is moving from North Carolina to Richmond.”

Virginia has the lowest cigarette tax in the nation, 2.5 cents per pack, and, as Callahan frequently points out, the wooden desks in the House of Delegates “have tobacco leaves carved on the sides.”

“Legislators from Richmond and southern Virginia will oppose anything adverse to tobacco,” Callahan said. “There are enough of them to stop” a significant increase in the tax.

CALLAHAN SAID THE IDEA of taxing cigarettes and gasoline is less objectionable than a sales tax increase. “Between the two of them, we can get halfway through that alleged deficit,” he said.

He predicts the House finance committee “will report something out. It won’t have much new taxes, and we will base our budget on that.”

The Senate has a different committee structure, which allows it to propose new taxes without considering the budget.

“Ultimately, I am going to end up in a room with John Chichester. The two of us.”

“Before we can do the budget bill, we have to resolve the differences in the tax bills.”

That could lead to a time crunch with only five days, including one weekend, to get the budget into shape.

“We have until June 30 to do it,” Callahan said.