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Tea party aftertaste

Legislators expected to shun taxes, watch for challengers in an election year

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Virginia Business invited three prominent observers of state politics to comment on the November election and the 2011 legislative session. The panel includes: Ben Dendy, a former senior staff member to two Virginia governors who now is president of Richmond-based lobbying firm Vectre Corp.; Pat Gottschalk, former secretary of commerce and trade under Gov. Timothy M. Kaine and now chair of the Economic Development Team at the law firm Williams Mullen in Richmond; and Christina Nuckols, a Richmond-based editorial writer for The Virginian-Pilot. Here is an edited version of their comments. A full transcript of the discussion can be found at http://www.virginiabusiness.com

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Virginia Business:  What is your take on the Nov. 2 midterm election?  Will there be any impact on Virginia with the GOP’s solid takeover of the House and Eric Cantor’s star on the rise?

Nuckols: As Virginia’s legislators prepare for their elections [this year], they’re looking to see what is the mood of the electorate.  I think what they’re seeing nationally is a tea party that’s putting its stamp on politics, not only nationally but in Virginia.  The Republicans will be looking out for primary challenges from more conservative candidates than they are, and so they’ll be very careful about their positions they take on tax issues, on government-spending issues, on any kind of budget issue.  So they’ll be keeping their conservative credentials as well polished as possible in preparation for that.

VB: Any good things for Virginia with [U.S. Rep.] Eric Cantor becoming the new House majority leader?

Nuckols: I think that Cantor, on a national perspective, is going to be crucial to Virginia on some of the issues in terms of the economy in Hampton Roads and military assets.  [Editor’s note: After this discussion was held on Nov. 9, Cantor vowed to push efforts in Congress to repeal the federal health-care law. Ruling on a lawsuit filed by Virginia Attorney General Ken Cucinnelli, a federal judge decided in mid-December that a key part of the law, the insurance mandate, is unconstitutional.] There will be a lot of skirmishing [on health care] led by Cantor and Congress.  But I think that issue will remain unsettled for this session.  The governor is a Republican and says he supports the lawsuit. Nevertheless, he and his health secretary are trying to put in place some decisions with the potential that Virginia may have to actually still go ahead and implement some of these reforms in terms of a health insurance exchange and some changes to insurance regulations.

VB: OK, anyone else?

Dendy: I think it’s interesting that the health reform that Virginia has under way is a pretty aggressive effort headed by Secretary [of Health and Human Resources Bill] Hazel to really implement many of the things in the federal health-care reform legislation.  By the time the lawsuit is settled, if they wait to do anything, they’ll be way behind the curve.  And they also say that they really need to reform health care regardless of whether or not the federal health-care reform goes forward. 
I think there are huge issues for the business community, for instance, with the health insurance exchange, how that’s going to be structured.

VB: Does Bob McDonnell still have a chance to pass [privatization of state ABC liquor stores to raise money for transportation]?

Dendy:  I think he does.  I think that any governor, when he establishes what is a significant initiative for him, and he’s going to push, in his view, until he gets it, I think has an opportunity to get it.  And I think that we see some movement on the House side, with the House Republicans organizing new efforts to try to reach some sort of agreement.  And I think it may well also be an issue in the election in the fall, particularly in some of the Senate elections. 

VB: Considering a recent [Department of Transportation] audit found more than a billion dollars that was unspent, do you think the legislators are likely to look at any other revenue sources [for transportation] this session?

Gottschalk: My personal take on it is no.  I don’t think there’s any way the General Assembly would seriously consider any kind of a tax, especially with what just happened in the elections.  You have to get at it a different way, and that’s what the governor is doing, going at it from different angles: the privatization issue, the audit and bonding earlier in the year.  But I don’t think there’s anything there for any kind of tax revenue increase.

Dendy:  I think one thing that you’re going to see happen is the state infrastructure bank, and it really gives an opportunity for the state to leverage limited dollars. It will be similar to the Federal program called TIFIA [Transportation Infrastructure and Innovation Act]. With this program, they’re able to take $1 and get $10 in credit and then $30 in infrastructure [improvements].  And I think they’re going to look at ways to leverage money to more transportation projects.

Nuckols: One of the options for some of the audit funding, which would be merely moving it from inactive funds into active, would be to put some of that money into the infrastructure banking, so that’s a potential avenue. 
I think that all of this also puts more pressure [on McDonnell] as the governor is looking for a way to pass some sort of an ABC privatization.  He has promised the $500 million for transportation, and that sort of boxes him in because he is in a posture now of having to look at alternatives that could greatly reduce the upfront money [from selling the liquor stores].  If he’s going to now have to revise his plan to try and preserve the annual revenues from the existing system, then he may have to give up some of the upfront money if he went to strictly reprivatizing only the retail side, then that’s going to reduce what money he would be able to generate for transportation.  And since that was a big part of what he said was his motivation for doing that, then he’s going to have to justify why he’s now changing the strategy.


VB: What are the biggest business issues facing this year’s General Assembly?

Dendy: This is not just about business, but the budget will consume a lot of the session this year.  And a big aspect of that is going to be health care. And I think the business community is becoming engaged in the Medicaid funding issue because Virginia is so low on its Medicaid reimbursements. Hospitals will be reimbursed next year something like 60 percent of their costs. Doctors are reimbursed at 90 percent of their costs before their salaries, so they are paying 10 percent for the privilege of covering Medicaid patients.
Who pays for this?  Private businesses [because of cost shifting to privately insured patients].  So businesses are beginning to look at this, and it’s a huge issue for the General Assembly because next year Medicaid will take up 21 percent of the state budget.  But this is one of the most conservative, limited-benefits states in the country.  We’re like 48th.  So this will be a big issue.

Gottschalk:  I look forward to the discussion the governor will have with the legislature about his jobs creation commission.  I see a lot of this through the commerce and trade, economic development lens.  And that will be a healthy discussion. 
Resources will be scarce, budgets will be tight.  But there may be some things that they can do; for instance, fully funding the enterprise zones, [which offer job creation and real estate investment incentives].  As you know, that’s funded by general funds to the Department of Housing and Community Development. Right now it’s prorated….That has a chilling effect on attracting prospects to Virginia because you’re not really giving them the full amount of what they think they’re going to get.  Now this is always explained pretty clearly to them, so it’s not a bait and switch or anything, but still, if you’re going to give an incentive, give the incentive.
There’s an emerging technology fund that’s being discussed to help commercialize technology out of the universities; that’s an expensive proposition.  I think some numbers are being thrown around in the $25 million range.  Texas has a $300 million emerging technology fund.  But you’ve got to start somewhere.  And the problem is, of course, where do those funds come from?

So I hope that he looks very carefully at the jobs creation commission report, [and] he adopts those things that he thinks he can get done.  And I hope he actually has some success getting some of it done, especially the enterprise zone.

VB: Virginia has been knocked off its No. 1 perch on the Forbes.com ranking [by Utah].  Do you think the state should offer more tax incentives for things like business development, or alternative energy, or any other areas?  What can we do to attract more business?

Gottschalk:  Well, let’s look at it in context.  Forbes started the ranking in 2006.  That was the very first year.  We were fortunate to win it, be No. 1, the top state for business, in 2006, 2007, 2008 and 2009.  In all candor, we appreciated that, but that is a very, very hard record to hold onto. And I wouldn’t read anything into Utah, which is a great state. I respect Utah, but it’s about [2.8] million people.  And I think the story was they nudged us a little bit just because our business costs went up.  And I think barely.  So we had a very close second.

CNBC ranked us No. 1 last year, No. 2 this year.  Polina [Corporate Real Estate] ranked us No. 1 last year and No. 1 again this year.  I think the real message from the context of history is Virginia is definitely doing something right.  Our business climate is exceptional.  It’s clearly at the top of the top. And so do we need to do any special tinkering with any particular program incentive, tax? I leave that to the governor and General Assembly to consider, but my reaction to that is to not have a knee-jerk reaction just because you slipped to No. 2. 

Now if you slipped from No. 1 to No. 20, then you kind of have to examine why.  But we’re going to bounce around in the one to two range, back and forth in all of these polls just because of what we’ve done over the last 30 to 50 years.  The entire package of Virginia is a very attractive business climate across the board.

Dendy:  If 10 years from now Virginia is going to be one of the leading states for new businesses to come to, it has to address transportation.  You’ve got to address higher education and K through 12 education.  I don’t think we can be 36th in the nation in what we spend per vehicle miles traveled.  We can’t be way behind North Carolina in what we spend on higher education and issues with K through 12 as well and continue to be the best state to do business.
We’ve got a wonderful port; the only problem is how do you get out of Hampton Roads?  Unless the other states have a whole lot more serious transportation problems than we have, I don’t see how long we can stay No. 1 if we don’t address that. 
If you really look at how a company decides where they want to go to, it’s whether the CEO likes that state, likes that city.  And if they come and they sit in a traffic jam, I don’t think they and their family are going to want to move to Virginia.

VB: We mentioned the jobs commission, and there have been a slew of blue-ribbon panels of various sorts that the governor has appointed.  What do you see coming out of those various groups in terms of legislation in this session?  Do you see any major initiatives being brought by these study groups?

Nuckols: We’ve already talked about the jobs commission.  And some things can be done administratively on that, and some things that Pat talked about are budgetary and may have to be put off a year.  The higher-ed commission, the marquee issue is how to get 100,000 new degrees, two- and four-years, over 15 years.  The governor has promised [at least $50 million] in the next budget. I’m not sure where he’s going to come up with that kind of money, but he is the man who has to make the first budget proposal here, so I’ll give him the benefit of the doubt that he’s going to find it somewhere.  But he needs to at least make some sort of a step toward that if he wants to really say he’s the one who started that initiative during his term.  And that is crucial for economic development as well as just quality of life in Virginia.

And then there’s the reform commission.  A much larger percentage of the reform commission’s work can be done administratively, so there will be a few select things that have to go through the legislature, but we’re starting just the crush of everything that has to be done in a short session is already overwhelming because we’ve had all of these commissions.  The governor has created enormous expectations from all of these different constituency groups, [and] he can’t possibly make everyone happy in 46 days.  So he’s going to have to start picking and choosing.

VB: This is going to be our final question.  Is [Attorney General Ken] Cuccinelli likely to challenge [Lt. Gov. Bill] Bolling for the gubernatorial nomination in 2013? 

Dendy: I think that’s very difficult to say at this point.  I do think there’s a long history of individuals [in Virginia] who have remained in statewide office other than governor for more than one term.  They tend to not go further than that ...  I don’t know why that is, but there seems to be a pattern there.  So I think it’s probably an important decision that the attorney general will want to make.

Nuckols:  I’m not sure that anyone can speak with authority other than Ken Cuccinelli about what he wants to do.  He’s very ambitious, and he’s very smart.  And the energy of the party is with him right now.  So even if he were reluctant to seek out the top spot, there’s going to be a lot of pressure on him from his supporters to do that.

VB:  But he doesn’t seem to be reluctant because he said in September at the Greater Richmond Chamber of Commerce meeting that he may not stand back and do the PC thing, which is to hand Bolling the nomination.  I think he made that very clear.

Nuckols: That’s right.  And he has postured himself so far during this administration as not being a team player. He’s doing his own thing, and he may or may not consult with [McDonnell and Bolling] when he’s doing his own thing.  So he has made his position very clear that he’s his own man.

Gottschalk: I would simply say that it’s just way too soon to tell. 


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