Behind the Budget

Although the McDonnell administration is very cautious about predicting how well the Commonwealth is rebounding during the recession, it has also been touting the recent $545 million budget surplus.

But a left-leaning think tank suggests that state officials are giving Virginians a false sense of security and are not disclosing a “hidden deficit” that’s looming next year.

The Commonwealth Institute’s Michael Cassidy finds fault with using the term “budget surplus.” He says it does not mean the state is flush with cash. Instead, it means that that the Governor and lawmakers used creative accounting and cut education funding, textbooks, school buses, and guidance counselors. Furthermore, while some news accounts suggest that they were “stacking the deck,” he doesn’t think that’s the real story here.

“Well the real issue that’s facing the Governor and the General Assembly is when they go to write next year’s budget.”

That’s because the Institute’s recent study examines how the fiscal picture will look next year, and it is not good.

“By our estimates, we’re facing an $800 million shortfall in the next state budget, based on where revenues are coming in, and based on needs for public services. That’s just assuming we just continue all the cuts we made in the recession we still are going to be $800 million short.”

Cassidy says the cause is the state’s “cuts only” approach and reliance on the Federal Recovery Act, which helped offset cuts to services. But he adds that Congress has no appetite to renew that funding without raising revenues, and more programs and jobs will need to be cut.

“I mean, just look at the numbers, since 2008. Virginia has lost over six-thousand state and local employees. That’s made this recession a lot worse, cause that, that’s a drag on whatever job creation numbers are being produced in other sectors of the economy.”

But Secretary of Finance Ric Brown counters that there’s no “hidden deficit,” and the focus should not be on terminology.  He says he’s worked for eleven governors and when revenues exceeded estimates, it was called a “surplus,” If it did not, it was called a “shortfall.”  Brown also says the numbers speak for themselves.

“Our forecast is growth at this stage of the game for both 12, 13, 14, not negative, it’s a different ball game than what we’ve had before. That doesn’t mean that we’re going to be able to fund everything that everybody wants and there won’t be tight spots, but that is the budget process.”

Brown does agree with Cassidy that Virginia relied on federal funds, but state officials account for that in future budget planning.

“And all those policy issues are going to be weighed against how much resources do you have to spend, so it’s matter of prioritizing items. At the end of the day, it’s going to be balanced, but it’s not unusual at this stage of the game when you look at agency requests and you look at everything on the table to say, ‘Add up all those pieces,’ and then say ‘Boy that exceeds revenue!’ ”

Brown says no administration wants cuts and job losses, but when asked if the state could survive without higher taxes, he said “Yes”.

“We still have opportunities out there in the way we deliver services to streamline them. I don’t know that big businesses run programs with continuous improvement and cost cutting. They learn how to do that on a routine basis and a recurring basis in order to stay in business. Governments are no different.”

Brown was also asked if the state found another half-billion dollars if some should be used to restore previous cuts.  He said the funds should be invested in “one-time spending,” such as construction projects but not for operational spending because that only buys time for items that may still need to be reduced.

-by Tommie McNeil

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