Gov. Bob McDonnell’s recent announcement that the Commonwealth finished the fiscal year with a $311 million budget surplus left most with a knowledge of state finances scratching their heads in amazement at the continuation of the “budget surplus” myth.
How could a state that had just earlier in the calendar year made painful billion dollar reductions in order to balance the budget have a surplus a few months later? How could a state that has a responsibility to fund 55 percent public education costs get by with saying it has a surplus when it is funding just 41 percent? When the state has long waiting lists for programs for the disabled, how can it be said that the state has a surplus of money? Why would the major credit rating agencies be threatening to reduce the state’s AAA bond rating as part of the federal debt situation if that state has a true surplus? How can you have a surplus if there are more than a billion dollars in unmet highway and transportation needs each year?
The independent Commonwealth Institute for Fiscal Analysis issued a report last week, “In the Red: Early Warnings About Virginia’s Fiscal Outlook,” with a very different conclusion (www.thecommonwealthinstitute.org). It found that “Virginia faces an estimated budget shortfall of more than $800 million in the upcoming 2012-1014 biennium, even with years of core service cuts and slowly rebounding state revenue.” Its analysis concluded that state tax collections are well below pre-recession levels despite recent modest improvements and that revenues lag behind the cost of maintaining existing services. Coupled with the certain loss of federal monies that had softened the blow of the recession, the outlook for the state is bleak.
As the report indicates, Virginia has used various one-time tactics to stay afloat the last several years. Deep budget cuts were made; the Rainy Day Fund was drained; capital projects were shifted to bonding; underfunding and borrowing from the state’s pension fund were done; and federal relief monies were utilized. Localities have been required to pick up a greater percentage of the cost of programs that the state previously funded.
Certainly there may be some short-term relief in rubbing together the couple of nickels that we have in our pockets today as a result of tax collections that were slightly improved beyond projections, but the long-term prospect is for more budget shortfalls. Virginia has a small amount of revenue beyond what it expected from last fiscal year, but the needs for that money are many-fold. To call it a surplus is misleading.
Ken Plum is a member of the Virginia House of Delegates.