Although a long recession and unemployment are exacerbating Virginia’s financial problems, the economic downturn has revealed serious weaknesses in the state’s revenue system, according to Sara C. Okos, policy director of the Commonwealth Institute for Fiscal Analysis, a Richmond-based think tank. By adopting a number of key reforms in individual and corporate income taxes, updating sales taxes to reflect an increasingly service-driven economy, and better managing its tax credits and other preferential treatment, Virginia can address not only the massive revenue shortfall in the 2012-14 biennium, but can position the state for a better future, she writes. Many of the tools used to balance the state budget in recent years are no longer available, she notes. Funding from the federal American Recovery and Reinvestment Act is over. Virginia’s Revenue Stabilization Fund, often referred to as the rainy day fund, is mostly depleted. And the state is reaching its legal borrowing limit. Furthermore, many of the financial tactics and accounting tricks used during the recession (such as borrowing from the Virginia Retirement System and shifting Medicaid payments around) will require re-funding before money can be spent on other needs. The prospect of significant cuts in federal spending over the next few years spells even more trouble. This well-documented article contains many proposals for strengthening the state’s revenue system and for monitoring so-called tax expenditures (any tax exemption, exclusion, deferral, credit, or reduced rate that results in preferential tax treatment of certain types of income or behavior).
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The Virginia News Letter