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Opening Remarks
Virginia Leading the Way
Virginia's FY2006 Revenue
Areas of Economic Concern
An Historic “Rainy Day” Fund
Working Together, Getting Results
The Opportunity of a Special Transportation Session
An Urgent Problem
Components of a Solution
VDOT Reform and Privatization
Land Use Reform
Regional Solutions
The Wise Use of Surplus Funds
Reliable Long-term Funding

Opening Remarks  

Chairman Callahan, Chairman Chichester, Chairman Purkey, members of the committees, ladies and gentlemen:  good morning.

I would like to begin with a few words about Harry Parrish.  Delegate Parrish served on the House Finance Committee for decades, becoming its co-Chairman in 1998 and Chairman four years later.  Delegate Parrish was a true Virginia gentleman who rightfully earned trust, respect and friendship from everyone.  Through his work, he showed us that a difference of opinion need not be a clash of personalities as we strive to make Virginia a better place for the people we serve.

It is a credit to the stability of our legislative branch that when we lose such an able leader, his role is filled by another able leader.  Delegate Purkey, I look forward to our continued working relationship and congratulations on your new chairmanship.

Virginia Leading the Way  

It has been a year of remarkable achievements in Virginia:

• In its first ever ranking of the best states for business, Forbes ranked Virginia first.
• For the first time ever, Virginia’s “Rainy Day” fund is full.
• Our public schools and system of higher education – once again – have been ranked among the nation’s best.
• The nonpartisan Tax Foundation ranked Virginia 41st among the 50 states in state and local individual tax burden.  Virginia’s business tax burden was cited as the nation’s lowest by the Council on State Taxation.  And the U.S. Chamber of Commerce designated Virginia as one of the five top states for overall legal fairness.
• Working together, we have ensured that Virginia remained one of only a handful of states that still carries the best-possible Triple-A bond rating.
• Strong education, an attractive business climate, award-winning management, rock solid fiscal reliability—these traits combined have continued to produce strong job growth. 
• In fiscal year 2006, our state added 78,000 new jobs, 14,000 more than forecast.  
• Our unemployment level remains low – 3.3%, a full point-and-a-half below the national jobless rate.

We contribute to this by working together – Democrats and Republicans, executive and legislative branch – and I thank you for your service to our Commonwealth.  

Virginia’s FY 2006 Revenue  

Virginia’s economic strength contributed to general fund revenue growth of 8.4% in fiscal year 2006—a full point higher than expected.  This revenue growth came in two primary areas; individual and corporate income tax collections.

The most dramatic individual income tax growth occurred in the volatile area of nonwithholding payments.  These payments grew 22% in fiscal year 2006 after growing almost 33% the year before.   The historic average for such growth in the last decade only has been 12.1%.  We cannot yet presume that the remarkable numbers in the last two years are a lasting trend.

The second source, corporate income tax collections, grew 41% in FY ‘06 – following the record-setting 45% growth posted the year before.  Over the last decade, these collections have averaged a 10.6% rate of growth.  Again, it would be unwise to forecast based on such aggressive numbers going forward.

Areas of Economic Concern  

There are some weakening sectors of the economy that warrant our close attention.  In the quarter ending this past June, Virginia home sales dropped 24% from the same period last year. Fortunately, we anticipated this and made the appropriate mid-session adjustment to our recordation forecast and are monitoring the slowdown’s impact on Virginia’s economy and other tax revenues.

We are also working with company, labor and local officials to do all we can to soften the impact of the Ford Motor Company’s decision to cut production at its Norfolk facility, before they close it in 2008.  This obviously carries significant consequences for the plant’s 2,400 workers and their families.  The closing – along with other domestic auto industry challenges – sends tremors through the network of auto supply firms that employs another 25,000 people across our Commonwealth. 

An Historic “Rainy Day” Fund  

Virginia’s economic performance, however, is something of which we can all be proud.  The strength of our fiscal well being is best demonstrated by one fact:  For the first time ever, Virginia’s “Rainy Day” Reserve is fully funded.

The fund was key to offsetting much of the pain of the economic downturn of 2002 and 2003. Our collective effort to now re-build the fund to nearly $1.1 billion is good news for all Virginians.  It means that essential government services won’t suffer a sudden disruption in a challenged economy.  And I thank you for you focus on reaching this goal.

Working Together, Getting Results  

Working together, we used the commonwealth’s strong economic performance to move Virginia forward on a number of key priorities in this year’s budget.

In the area of K-12 education, we provided nearly $1.5 billion in additional general fund support over the base budget – including a 4% salary increase for school teachers – and greater funding for the at-risk four-year-old preschool program.  Along with a new mandate for comprehensive and regular teacher evaluations, we responsibly coupled educational investment with greater accountability.

In higher education, we provided new funding to assist high priority research and development efforts, and to begin a new college in Southside Virginia.

For Virginia’s outdoors, we added a record investment of $217 million to help meet our commitments to clean up the Chesapeake Bay and improve the water quality in our southern rivers watershed.

In health care, we made progress in transforming the state’s system of mental health, mental retardation and substance abuse services toward a modern, person-centered, community-based alternative.

And finally, in public safety, we enhanced measures to protect Virginia families from sexually violent predators.

In concert with these spending initiatives, we also took sensible steps to provide tax relief and necessary reform.  Earlier this month, our first sales tax holiday for school supplies and clothing was a hit with both parents and merchants. 

We eliminated the last vestige of the accelerated sales tax collection provision; reformed the “true object test” to reduce sales tax collections from technology contracting firms; and passed important legislation to give home owners more information about the setting of real estate tax rates. 

We have worked together to repeal the estate tax and reform the land preservation tax credit program.  The legislation, with my amendments, awaits your final approval later today.

And finally, I believe a hallmark of responsible leadership is the candid acknowledgment and correction of errors. 

Last month, I informed your leadership that the budget contained a significant bookkeeping error in allocating sales tax revenues for education. As the head of the executive branch, I accept responsibility for this.  We have brought in outside experts to review our process to minimize the chances of this happening again. Honorable, valued, and veteran state employees from the previous administration -- and my own -- have stepped-up and assumed responsibility as well. 

Now, every public school division and local government in Virginia is waiting for us to fix this problem.  I have submitted legislation to do just that.  The school year begins in eight days.  I urge you to pass this legislation today. 

The Opportunity of a Special Transportation Session  

I am also seeking your partnership to complete the unfinished business of the regular legislative session:  enacting a comprehensive transportation solution.  The House preferred that such a solution wait until after the passage of the budget.  It is now time to return to this subject in earnest, and provide the leadership that Virginians demand.

An Urgent Problem  

We all know the urgency and magnitude of Virginia’s transportation challenge.  Across the commonwealth, the accumulated needs of our transportation system pose some stark questions. The answers depend upon our creativity, cooperation and courage.

Will we act or simply talk about the expansion of the Metro System and Virginia Railway Express, and accommodating greater capacity on I-64 and I-66?  Will we make progress or just more promises on the Coalfields Expressway, I-81, the completion of Route 58, and a Third Crossing in Hampton Roads? 

This year, we are diverting more than $450 million out of road construction for ongoing maintenance. Will we stand by while the cost of maintaining a bigger, older system – with materials that become more expensive every day – pulls more and more dollars out of our road construction program?

Will we allow our share of federal money promised for roads and transit to be handed to other states because of our unwillingness to invest in our own system?  Will we leave a sizable sum of federal matching dollars for Metro expansion and operation, promoted by Congressman Tom Davis, unused because of our failure to put our own dollars to the goal of better transit in Northern Virginia?

Will we sit by as congestion steals more time from families and drains productivity from businesses in Northern Virginia and Hampton Roads?  And, will we let that congestion choke off prompt emergency response by police, EMT’s and firefighters who now can never reliably predict the time to get to emergencies?

Will we protect the growth of our two great international assets, Dulles International Airport and the Port of Virginia, by making sure that road and rail networks can bring people and freight to and from these great points of connection between Virginia and the global economy?

Let me be very specific about one of our most significant challenges and opportunities—the Port of Virginia.

This year the Port of Virginia outstripped its competition to become the second busiest port on the U.S. east coast.  The port is responsible for over 164,000 jobs throughout the Commonwealth.  It has attracted 111 distribution centers and is responsible for $584 million in annual wages and salaries, $763 million in business revenue and $60 million in state and local tax receipts.  

The Port of Virginia ships more coal than any port in this country, benefiting Southwest Virginia.  The port’s advantages recently helped induce one of its major users, MeadWestvaco, to relocate its corporate headquarters to Richmond.  Essel-Propak recently decided to expand and create manufacturing jobs in Danville, citing the Port as a reason for their success.  And the Port of Virginia plays a critical role in the performance of our inland port at Front Royal.

By expanding Craney Island, we can double the port’s capacity and overtake New York City as the most active port on the east coast. But that opportunity comes with challenges.  By 2009 the new Maersk terminal – the largest privately owned container terminal in North America – will be fully operational in Hampton Roads, single-handedly bringing another one million containers a year.

How do we integrate that increasing freight traffic into an already congested road and rail grid?  Without infrastructure improvements, the port’s potential will be lost.

And, that need for improved transportation is heightened further by the reality of hurricanes and flooding that require evacuation routes and planning.  Should a Category Four or Five hurricane threaten Hampton Roads, it would take at least 27 hours to evacuate the region’s most geographically endangered residents. We have a duty to move forward on projects like a new Route 460 – which would increase the highway’s evacuation capacity by one-third.

The coming special session gives us the opportunity to face our transportation challenges head-on for the first time in 20 years.  We can all be sure of one thing—the problems we face will only get harder and more expensive to solve if we fail to come together and act.

Components of a Solution  

There are, I believe, five basic components to a transportation solution.   These components are on the table already—either contained in the Senate bills still pending in the House Finance Committee, or in the plans being discussed by members of both houses. 

• We must continue VDOT reform and privatization efforts.
• We must better integrate transportation and land use planning. 
• We must allow regions a degree of flexibility to solve their particular transportation needs.
• We must find a strategic use of the $339 million in surplus general fund dollars set aside for transportation in the recently completed budget.
• And we must find new and sustainable transportation revenues, without invading the General Fund budget that funds our schools, our health system, and public safety.

VDOT Reform and Privatization  

In the area of VDOT reform and privatization efforts, I am proud of the path we are on.  In 2001, VDOT completed just 51% of its construction projects on-budget, and 20% of projects on-time.  Last year, 84% were on time and 86% were on budget.   

Massive projects like the Pinners Point interchange in Hampton Roads and the Woodrow Wilson Bridge in Northern Virginia are on-time and on-budget. We’re continuing to outsource work, and we’re making VDOT leaner.  Today, the agency has 1,000 fewer employees than just three years ago

In the past three years, we’ve transferred 27% of Virginia’s urban construction funding to localities.  And earlier this year I was pleased to sign legislation that will increase the funding percentage of interstate maintenance performed by the private sector from 85% today to 100% in 2009. 

Virginia is also a national leader in attracting private innovation and capital to improve our transportation network.  Since 2001, our Public-Private Transportation Act has resulted in more than $1 billion in new highway construction.  If our private partners had a healthy public partner that could help finance even more projects, we could quickly double the amount of PPTA work under construction.

We completed Virginia’s first concession agreement on the Pocahontas Parkway and will soon receive private proposals for building a new Route 460. In Northern Virginia, the PPTA will be critical for building HOT lanes on the Beltway and I-95.  And we are using the Transportation Opportunity Fund to advance the completion of Route 28.

Like you, I am committed to a VDOT culture that never stops asking, “How can we do better?”  I am proud of the reforms we made this year together and look forward to continuing that progress. 

Land Use Reform  

Together, we have charted a course to improve the link between land use and transportation planning.  The innovative traffic impact statement legislation approved by the General Assembly this spring is already having a significant impact. Your bill allowing local governments to enact transfer of development rights programs was another strong move toward necessary land use reforms.

Our ongoing land use reform must include toughening the standards and conditions under which roads are accepted into the public system.  Every year, 200 miles of new secondary roads are approved by local governments, constructed by developers and then transferred to the Commonwealth to be maintained in perpetuity by state taxpayers.

Further, we must expand choice and reliability through enhanced transit service.  Virginia must provide reliable resources, year-in and year-out, so that local transit operators can plan for the future with the confidence that the state will be a meaningful partner.

There is more to be done in the coordination of land use and transportation planning.   But this session has already worked a sea change in state transportation policy, as Virginia has finally accepted the notion that there is no real transportation solution without careful focus on better land use decisions.

Regional Solutions  

While I believe transportation challenges are felt in every part of Virginia, we all understand that some of those challenges are unique and defy a “one size fits all” solution. 

In working together with you this year, I have come to see the benefits of plans allowing local elected officials to find revenue—taxes, tolls or fees, depending upon the proposal—to solve local needs that will not be addressed quickly enough by the Commonwealth.  Such regional authorities should be part of a comprehensive solution.

However, I do not believe that the state should push all the tough choices of transportation planning and financing onto the shoulders of local officials.  And while regional plans may work for new projects, they do not address the massive and growing maintenance deficit that is hurting our system statewide.

The Wise Use of Surplus Funds  

The budget you passed in June contains $339 million set aside in this biennium to be used as part of a comprehensive transportation solution, as long as one is reached by November 1st.   These funds were set aside recognizing that, in times of surplus, it is appropriate to use surplus dollars for important capital obligations like transportation infrastructure.  

We cannot, by lack of resolve to find a compromise, let the opportunity to use those dollars pass.  The $339 million could be used in any number of ways to advance necessary projects, and we owe it to our citizens to make that happen.

We should also have a significant discussion about how and when future surplus dollars should be used for transportation.  Most of us went through the difficult years of 2001, 2002, and 2003 together, and we know that an ongoing reliance on dramatically increasing revenues is foolish. 

But because we all have confidence in Virginia, we know that we will have surplus years.  It would be wise as part of our upcoming discussions to talk about the responsible way to use general fund surplus dollars to fund transportation improvements in a way that will not cut into General Fund priorities down the road.

Reliable Long-Term Funding  

The final element of a transportation solution is the area where there is most disagreement.  How do we pay for the improvements we all know we need? 

The difficulty of this issue isn’t a surprise. A recent poll revealed the public is as conflicted about it as the General Assembly. 

Virginians want a transportation solution.  They want us to have a special session, and they want action.  They are aware that solutions will cost money.   But, they don’t want to pay more taxes.  They are even more opposed to debt.  And, they are most opposed to paying for transportation improvements by cutting into our shared priorities in public education, public health, and public safety.

So, how do we lead the way to a meaningful fix? Let’s start by acknowledging that there are a number of areas upon which we already agree.

First, with successful Senate action this year on the Transportation Trust Fund constitutional amendment, we are now in a place—for the first time—where the legislature and governor have all sworn to protect dedicated transportation funds from any raid for other purposes.  On my first day in office I carried through on a campaign promise by pledging to veto any such raid.  With an overwhelming consensus now on this issue, we can put the legal mechanism in place to carry this protection forward into future administrations.

Second, there is an acknowledgement that the needs of the state going forward require more money to be spent on transportation than the current revenue sources will produce.  There is no magic number, and our success cannot be measured just by a budget number.  But the House and Senate leadership, as well as studies by the Commonwealth Transportation Board and outside groups, persistently return to the figure of $1 billion per year as the magnitude of new dollars needed to match our system with the needs of our people.

Third, there is a consensus that system improvements should be funded – as much as possible – by users of the network, rather than through general tax increases. 

Fourth, both Houses agree on abuser fees.  The dangerous behavior of unsafe drivers threatens the safety of other drivers and causes accidents that create congestion.  Those drivers should be financially accountable for their actions.

And fifth, both Houses agree that automobile insurance premiums should be permanently dedicated to transportation purposes, rather than used for transportation only in a sporadic or year-by-year way.

These points of agreement demonstrate a significant common ground from which we can craft a comprehensive solution.  The success of our shared efforts will be measured in the improvement of the quality of life for Virginians and the productivity of our businesses.  If we do not act, it will be our people and our future that suffer.

In closing, let me just say:  I know we can do this together.  Let’s confound the cynics inside and outside Capitol Square who doubt us.  Let’s surprise those who believe that the conflict of House vs. Senate or executive vs. legislature will block meaningful progress.  Let’s replace the days of gridlock, maintenance deficits and shrinking project lists with a new day of optimism, moving forward for the good of the entire Commonwealth.   We are all proud to be Virginians.  Let’s work together in the next weeks to make Virginians proud of us.

            Thank you.

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