RICHMOND — At a time when struggling states are cutting budgets and sending pink slips to workers, Virginia has something else in store: bonuses for state employees.
Virginia finished its fiscal year June 30 with a $448.5 million surplus through a combination of higher-than-projected revenues and agency cost-cutting, putting the state far enough into the black to give a 3 percent bonus to state workers who have not had a pay raise in five years.
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“Simply put: Over the past three years, we have brought in more revenue than forecasted, and spent less than budgeted,” said Gov. Robert F. McDonnell (R) said Wednesday. “That is responsible fiscal management. It is the Virginia way.”
McDonnell’s report to the General Assembly’s money committees set off a debate over whether taxes are too high or services too skimpy, prompting calls from the right to to cut taxes and from the left to raise them so the government could do more for its citizens.
“It’s only fair to taxpayers whom we have over-taxed. . . to make sure they are refunded the overcharge,” said Del. Ben L. Cline (R-Rockbridge), co-chairman of the Conservative Caucus, who has pushed for the elimination of corporate income taxes.
Sen. Richard L. Saslaw (D-Fairfax) , who said the surplus was partly due to budget gimmicks, called that idea “just absurd.”
“We could give it all back to them and not bother to fund public schools or higher ed,’’ he said. “Our problem is we don’t have enough revenue.”
McDonnell hailed the surplus as the fruit of prudent fiscal management, drawing a contrast with the debt-ridden federal government. But some attributed the surplus to federal defense spending, which kept the most populous parts of Virginia humming throughout the recession; deep cuts to schools and social services; and deferring $224 million in Virginia Retirement System contributions.
Virginia’s results put it ahead of many states. Revenue grew 5.4 percent in fiscal 2012 without the benefit of any tax increase, compared with an average of 2.9 percent nationally, said Arturo Perez, a fiscal analyst with the National Conference of State Legislatures in Denver.
Across the Potomac, a snapshot of state finances shows similarly good news for Maryland — revenues are up and expenses are in line with estimates, for an expected year-end surplus of about $520 million, or $200 million more than expected.
But the state’s economic model is different. Maryland Gov. Martin O’Malley (D) and the state legislature have during the downturn approved record spending increases for education, let entitlement costs soar, and, in turn, ratcheted up taxes on the wealthy as federal stimulus money has receded to help pay for the growing costs.
This year, O’Malley proposed and the legislature approved about $1.2 billion in higher spending, including hundreds of millions more for colleges and grade schools; a 2 percent pay raise for state employees; and more borrowing for infrastructure projects such as accelerated school construction. The state also cut 100 positions and was forced to set aside most of an $87 million general-fund increase to cover rising health and retirement costs for state employees.
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