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With budget surplus, Virginia lawmakers seek to restore retirement, sales tax policy

By Anita Kumar
Washington Post Staff Writer
Friday, August 20, 2010; B01

RICHMOND -- Even before Gov. Robert F. McDonnell officially announced Virginia's $403 million budget surplus Thursday, members of both parties had begun to urge him to use the money to reverse two accounting maneuvers used to close this year's state budget that many describe as gimmicks.

The state delayed paying $620 million to its retirement system and required retailers to pay sales tax a month early, allowing the state to receive the money in an earlier fiscal year.

"Before we rush to spend any surplus, we should first put our fiscal house in order," Del. Ben L. Cline (R-Rockbridge) said. "These creative accounting maneuvers may have helped to technically balance the budget, but they have frustrated taxpayers and slowed business growth in the commonwealth."

In Richmond, where the General Assembly is often divided, it was a rare moment of bipartisan agreement.

"A balanced budget and responsible stewardship of taxpayer dollars requires money in to equal money out, without gimmicks that cook the books and risk our future finances," Del. David L. Englin (D-Alexandria) said.

As expected, McDonnell told legislators that Virginia ended the fiscal year June 30 with a surplus of about $403.2 million -- almost twice the previous estimate.

Much of the money is committed: $82.2 million for a 3 percent bonus for state employees; $60.4 million for roads; $36.4 million for the Water Quality Improvement Fund, which is used for the Chesapeake Bay cleanup; $18.7 million for education; and $9.3 million for snow removal.

An additional $100 million or more came from state agencies, including colleges and universities that did not spend all of their money and are allowed to keep their balances.

McDonnell (R) has until Nov. 1 to recommend to the General Assembly how the state should spend the remaining $87.5 million.

The governor, in his annual speech to the House Appropriations and Senate and House finance committees, said he does not favor borrowing money from the retirement system or forcing retailers to pay sales tax early. But, he said, he does not credit either of them with the small surplus the state had last year. Instead, he said, about $228 million was generated through tax collections, and the rest through state agencies' unspent balances.

McDonnell told reporters later that he is thinking about spending the money on transportation, the retirement system or something else.

"I think most people would say education, public safety and transportation are core functions of government," he said, "and to the degree there are discretionary funds available, that should be a priority.''

But McDonnell said he remains "very concerned" about the policy of taking money from the Virginia Retirement System.

"Pension solvency and security is a top concern and priority for me and most governors, and such actions are bad long-term policy for our state employees,'' he told legislators. "While our deferral is far less than those in other states, it is still significant money that must be paid back."

The General Assembly passed a $78 billion budget for fiscal 2011 and 2012 with no general-tax increase, but which did include several fees and hundreds of millions of dollars in cuts, including to health care, schools and public safety, as it tried to close a $4 billion shortfall.

The state, which is required to make payments each year to the Virginia Retirement System for public employees, reduced its payments by $620 million to balance the budget. It promised to return the money with interest starting in 2013. Annual payments are estimated to be about $74 million for 10 years, Finance Secretary Richard D. Brown said.

Senate Majority Leader Richard L. Saslaw (D-Fairfax), who helped write the budget, said he would encourage McDonnell to consider using the surplus to make an early payment to the retirement system.

"I voted for the budget but, believe you me, I was not happy with the prospect of borrowing from the retirement system, and that's essentially exactly what we did,'' he said. "We technically said, 'We're not making the payment. No, we're borrowing it.' "

Legislators also revised another budget maneuver that had been used during previous tight times.

Retailers are required to pay sales tax to the state early for one month -- allowing the state to collect the tax in June during the previous fiscal year instead of July during the next fiscal year. Businesses opposed the policy, and legislators have passed an amendment proposed by McDonnell to phase it out by the time he leaves office in 2014.

Del. R. Steven Landes (R-Augusta) said he would recommend paying existing obligations early before looking at paying for any new programs.

"That's obviously a priority,'' he said.

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