Budget surplus loosens purse strings a bit in Virginia

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By Rosalind S. Helderman
Washington Post Staff Writer
Thursday, July 15, 2010

RICHMOND -- For the first time in nearly four years, Virginia state employees are going to get a pay boost. And after years of cuts so deep that teachers were laid off and highways went unrepaired, schools and roads are going to get millions in unexpected state cash.

The rare bit of positive news came Wednesday, when Gov. Robert F. McDonnell announced that Virginia has an unexpectedly large budget surplus of about $220 million. The surplus makes Virginia one of at least 10 states that have reported finishing the past fiscal year in the black, and it provides hope that the recovery is real.

"Economic activity is on a slight uptick in Virginia, which we can embrace and celebrate," McDonnell said. "I think we're tracking in the right direction."

But experts said the turnaround is slow, fragile and uneven across the country. Without the significant gains in employment that have historically followed economic downturns, state surpluses are likely to be fleeting, particularly as federal stimulus money runs out and demands for Medicaid and other services continue to rise.

"We're seeing some improvements but with huge caveats," said Scott D. Pattison, executive director of the National Association of State Budget Officers. "None of the data indicates that this is like past recessions, where you see good, exciting, quick growth after" the downturn.

One major caveat in Virginia was that even though there was a surplus, revenue for the past fiscal year fell again, from what were considered dismal fiscal 2009 numbers. The good news was that revenue dropped just 0.6 percent instead of the projected 2.3 percent.

Even better, Virginia officials said, the revenue outlook was brightened largely because of improvements in individual and corporate income tax withholdings, signs of a stabilizing economy.

Maryland will not finish calculating its year-end revenue numbers until next month, said Warren G. Deschenaux, chief legislative policy analyst. But he said the state is on track to exceed a projected $153 million surplus by at least $100 million.

"We're no longer in a terrible position," Deschenaux said. "And that's what we take pleasure from, being something other than terrible."

A report released Tuesday by the Nelson A. Rockefeller Institute of Government shows state revenue nationwide grew by 2.5 percent in the first quarter of 2010, the first time that has happened since summer 2008.

Pattison said he and his staff have become so accustomed to bad news that when the report landed in his office, they turned to one another and said: "Good news, what do we do with this?"

But the study authors cautioned that the improvement might not last long. The revenue growth came in part because some states raised taxes, they said, and state revenue continues to lag considerably behind levels before the economic crash.


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