Does Governor Bob McDonnell deserve his reputation as a fiscal conservative? The libertarian-leaning Cato Institute is dubious. McDonnell “hasn’t taken any major actions to shrink the Virginia government,” writes Chris Edwards, author of “Fiscal Report Card on America’s Governors 2012.”
Indeed McDonnell and Virginia rated a “C” for fiscal policy, as measured by seven indicators of state spending, revenues and tax rates. Cato’s system favors states that cut spending and taxes. However, as the report concedes, it does not account for “longer-term or structural changes” that governors make, such as reforms to state pension plans. One of McDonnell’s signature accomplishments in 2012 was a restructuring of the Virginia Retirement System to significantly reduce (though not eliminate) unfunded pension liabilities. On the other hand, Cato made no deductions for McDonnell’s aggressive use of debt to fund his transportation initiatives.
On those criteria that Cato did measure, Edwards was not much impressed:
McDonnell has signed into law a smattering of small tax increases and tax cuts, but he hasn’t proposed any major tax reforms. McDonnell hasn’t been very conservative on spending either. The Virginia general fund budget increased from $14.8 billion in the governor’s first year of fiscal 2010 to an estimated $17.2 billion in fiscal 2013, which is a 16 percent expansion. To his credit, McDonnell pushed to privatize the government’s liquor stores, but he couldn’t get his own party in the legislature to go along with the plan.
Four states — Kansas, Florida, Maine and Pennsylvania — scored “A” under Cato’s methodology, while five — Washington, Hawaii, Minnesota, Connecticut and Illinois — earned an “F.”
I asked McDonnell’s press secretary Jeff Caldwell for a response to the Cato study. Here it is:
When Governor McDonnell took office in January 2010, he inherited a combined budget shortfall of $6 billion. He immediately rejected a proposed $2 billion tax hike left by the previous administration, and instead closed that shortfall by reducing state spending to 2007 levels and making state government more efficient and effective. In his three years in office he has overseen three consecutive budget surpluses totaling $1.4 billion, all without raising taxes.
At the same time, Virginia has approved legislation and budget actions that potentially lower the tax burden on Virginians and Virginia businesses by a combined total of $529.4 million through the end of FY2017.
The governor also advocated for the largest-ever state employer contribution to the underfunded Virginia Retirement System, injecting $596.9 million for state employees and $1.61 billion (state and local) for teachers during this upcoming biennium. This effort, combined with other pension reforms, will reduce state and local unfunded pension liabilities by nearly $9 billion over the next 20 years.
In addition, Governor McDonnell has doubled the size of Virginia’s “Rainy Day Fund”, while also overseeing major reforms to make Virginia government smaller, including enacting a hiring freeze, streamlining regulations, creating incentive programs to improve government efficiency, merging or eliminating redundant agencies and reforming government operations to save taxpayers money. He has also worked to shrink the overall size of the non-college and university state employees. Despite revenues exceeding forecasted amounts since the governor took office, the executive branch has reduced the number of classified employees by more than 1,000.
Governor McDonnell has enacted conservative fiscal policies that have helped retain the Commonwealth’s AAA bond ratings. He has rejected efforts to raise taxes, and overseen three straight budget surpluses.