Story by Chris Graham
This time last year, Gov. Mark Warner was working with state-agency heads to figure out how to chop hundreds of millions of dollars from the biennial state budget to account for an expected revenue shortfall.
This year, the governor and state leaders are busy trying to make sure that Hurricane Isabel doesn’t throw the Commonwealth into yet another fiscal tailspin.
“We don’t have a dollar figure on what the final costs associated with Isabel will be, and it wouldn’t be wise to speculate on that at this point. But what we’re expecting right now is that the impact on residents, businesses and local governments is going to be far greater than the impact on the state,” said Ellen Qualls, Warner’s press secretary, in an interview with The Augusta Free Press on Friday.
With the continuing Isabel cleanup serving as the backdrop, Qualls said Warner and his budget team are working out the final details of a presentation that will be made to Virginia lawmakers later this year regarding the state’s short-term fiscal outlook.
The view of the near term is … good and bad. The latest economic forecasts have state revenues growing in the range of 4.5 percent to 5 percent, Qualls told the AFP.
But because of anticipated growth in spending in the areas of K-12 and higher education and Medicaid, “we could very well end up in another budget crunch by the beginning of the 2005-2006 fiscal year,” Qualls said.
Factor in the damage done last year to the state’s so-called rainy-day fund – which prompted the Moody’s bond-rating agency to put Virginia on its credit watch list – and …
It’s not for nothing that Warner joined Senate Finance Chairman John H. Chichester and House Appropriations Committee Chairman Vincent F. Callahan Jr. in a meeting with Moody’s representatives last week to talk about the bond-rating issue.
On Friday, the three issued a joint statement affirming their commitment to restoring $128.5 million to the state’s rainy-day fund in the current fiscal year.
The move came after Moody’s put Virginia on its watch list two weeks ago – leading to the possibility that the bond-rating agency might downgrade the state’s bond rating from AAA to AA.
The loss of an A on the bond rating would be just another money setback for the state, which has been fighting through a series of fiscal crises as a result of the state and national economic downturn that dates to 2001.
A run of one-time fixes has kept the state from falling into a fiscal calamity a la California’s current budget strife – but the fear is that Virginia could be just a budget crunch away from facing such a situation.
(Can you say … Isabel?)
“This action will require both discipline and sacrifice given the competing budgetary demands on the horizon and slow revenue growth brought on by the recession,” Warner, Chichester and Callahan said in their joint statement on Friday.
“However, this goal is plainly achievable. It will be accomplished using a portion of the one-time federal funds appropriated to the states earlier this year as part of the President’s stimulus package. We believe taking this action is critically necessary to protect the Commonwealth’s financial integrity and current bond rating.
“We expect the overwhelming majority of members from the General Assembly to share our commitment to this goal, which will double the Revenue Stabilization Fund to $257 million by the end of the current budget period. With additional deposits already projected for the next two fiscal years and accumulated interest, the balance in the fund will increase to approximately $300 million by June 30, 2006, or almost 2.5 percent of the state’s current general fund operation expenditures.
“During the meeting, we impressed upon Moody’s our mutual resolve to take the steps necessary to retain our AAA bond rating. We also stressed that we are committed to addressing their fundamental concerns about restoring financial reserves and budgetary stability. Our actions include our normal forecasting process, and will culminate with the Governor’s proposed budget in December and legislative action in the beginning of next year.”
Cleaning up – in more ways than one
In that context, then, it would seem that the bottom-line cost to the state associated with the post-Isabel cleanup could play a key role in determining how Virginia makes it out of the disaster.
Qualls said Friday that the focus of the governor at this point is on making sure people who are still suffering the effects of the storm – the loss of power, lack of access to food, water and shelter – are taken care of.
“As far as the state’s finances are concerned, this is going to be much less of a burden on the state as opposed to its impact on private individuals, insurance companies and (the Federal Emergency Management Agency),” Qualls said.