Be sure to put an asterisk on Virginia's budget surplus

Friday, July 30, 2010

VIRGINIA GOV. Robert F. McDonnell's announcement that the state registered a modest surplus in the fiscal year that ended last month is good news, but it's the sort of good news that comes with a large asterisk. It reflects, among other things, the fact that while revenue collected by the state continued to shrink, it didn't shrink quite as alarmingly as had been forecast. Like we said: a large asterisk.

The asterisk looms even larger when you examine the fine print. The state points out that better-than-expected individual and corporate tax collections were the immediate causes of the $220 million surplus in the state's $14.2 billion general fund. But that unexpected tonic was dwarfed by the deluge of revenue from the federal stimulus package, which alone added about $700 million to the state's Medicaid program last year. With the stimulus money running out fast, more austerity is probably on the horizon.

On his way to declaring a surplus, Mr. McDonnell, a Republican, also benefited from some budgetary legerdemain, and not just his own. For instance, thanks to a measure approved by his Democratic predecessor, Timothy M. Kaine, Virginia speeded up its sales tax collections from the state's 1,000 largest retailers, shifting $227 million in revenue from the current fiscal year into the one just ended. In a similar vein, Mr. McDonnell postponed $135 million in payments to the Virginia Retirement System for public employees, which were due in the last quarter of the fiscal year.

Both those maneuvers will cost the state when it returns to a regular sales tax collection schedule and repays its retirement system. Nonetheless, they allowed the governor to sidestep some extremely unpleasant budgetary choices for the time being. Without them, Mr. McDonnell would have had to raise across-the-board taxes, which he has vowed not to do, or made further draconian cuts to a budget already pulverized by the economic downturn.

In the past three years, more than $7 billion in cumulative spending has been lopped from Virginia budgets, dealing severe blows to the state's colleges and universities; its ability to build and maintain roads and bridges; its support for localities and schools; and social services of every description. Despite inflation, aging infrastructure, a growing population and the widespread social needs caused by the recession, Virginia is spending no more than it did four years ago. The small surplus that Mr. McDonnell declared will not even begin to make a dent in any of that. What it will do is produce a one-time, 3 percent bonus for more than 100,000 state employees -- their first raise in three years -- and free a little more money for schools and cleaning the Chesapeake Bay.

It would be nice to believe, as Rep. Eric Cantor (R-Va.) said, that Mr. McDonnell's "bold actions" in generating a small surplus could serve as a lesson for the federal government. In fact, budgeting at all levels and in nearly every state is these days mostly about temporizing -- and hoping the worst is over.

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