Every two years Virginia develops a new biennial budget. For the coming biennium, funding increases for public education, public safety, Medicaid, higher education, debt service on bonds and already approved economic development projects are estimated at more than $2 billion. Based on the preliminary economic outlook, the commonwealth should have sufficient revenue to meet these obligations.

But that does not mean that the legislature should act without restraint. Once its core commitments are met, the state should use its remaining funds to invest in transportation and capital facilities and to continue its promised cleanup of the Chesapeake Bay by making good on a commitment to invest $50 million annually in the bay in the next 10 years.

While Virginia's fortunes have turned up, the economy is on a roller coaster. I have seen four recessions in the 30 years that I have been a member of the House Appropriations Committee.

As Virginia finishes fiscal 2005 with another surplus, it is easy to forget how adversely the 2001 recession affected the state's finances. Even as Virginia's economy expands -- faster than both the national economy and the economies of nearly all other states -- we must keep in sight what is fueling our expansion so that we do not repeat previous post-recessionary mistakes.

Case in point: During the 1980s, Virginia's economy soared as the defense establishment set up shop to build a 600-ship Navy and create the Strategic Defense Initiative. In Northern Virginia, real estate development was buoyed by the need for office space and housing to accommodate the defense industry.

Then the Cold War ended, with a resulting decrease in defense spending and increased unemployment. The ensuing 1991 recession brought a collapse in the real estate market in Northern Virginia.

Virginia took five years to get its fiscal house back in order. Once the budget was back in balance, the economy soared, fueled by an explosion in the information technology industry. The result was three years of double-digit revenue growth for Virginia.

While the rainy day fund consumed some of this revenue, Virginia still went on a spending spree, expanding and creating programs and cutting taxes. Then, in 2001, the bubble burst. Technology companies and dot-coms went bankrupt, and the stock market retreated.

In fiscal 2002 state revenue declined 5.5 percent from the previous fiscal year, and revenue remained flat during fiscal 2003. The General Assembly had to deal with a cumulative revenue shortfall of $6 billion, stemming from lower revenue growth and increased mandatory spending on public education and Medicaid. It was not until fiscal 2004 that revenue rose to above the 2001 level.

What has caused this latest turnaround? The federal government, once again. Virginia, or, I should say, Northern Virginia, has benefited greatly from federal spending, which accounts for about a third of the Washington area economy. Northern Virginia has accounted for about 50 percent of the state's recent job gains. So while Virginia has outpaced the nation in job growth, its fortunes -- as they were in the late '80s -- remain linked to the federal government. Should growth in federal spending be reduced, Virginia would feel the pinch.

As the General Assembly looks ahead to its 2006 session, it should commit to maintaining a structural balance. Even in prosperous times, it should make the difficult, sometimes unpopular, choices to exercise the restraint necessary to match its budget to its revenue stream. That's the only way to avoid roller-coaster budgeting.

-- Vincent F. Callahan Jr.

a Republican, represents District 34 in the Virginia House of

Delegates and chairs the House

Appropriations Committee.

dcalla5475@aol.com