The Volcker Alliance Appraises Virginia’s Budget

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Source: “Truth and Integrity in State Government”

by James A. Bacon

Critics of Virginia’s state constitution often point to the one-term limit for governors as a source of dysfunctional governance. The state’s chief executives have little time to put their imprint on policy and the budget before they’re gone. But it is precisely that term limit — and the resulting shifting of budgeting power to professional budget and finance officials — that the Volcker Alliance points to as a strength of Virginia’s budgeting process.

“Professional budget and finance officials in Virginia tend to last through multiple administrations, while governors are barred by the state constitution from serving a second consecutive four-year term and thus have relatively limited influence over the biennial budget cycle,” states the Volcker Alliance report, “Truth and Integrity in State Budgeting.” As a consequence, the report summarizes, Virginia has a budgetary policy “that is more administrative than political.”

The Volcker Alliance, launched in 2013 by former Federal Reserve Board Chairman Paul Volcker, praises Virginia’s budget process overall, although it does note some areas where it could stand improvement. The study provides an in-depth look at the budgets of California, New Jersey and Virginia as part of an ongoing effort to shine a light on opaque and confusing budget practices and encourage best budgeting practices. Among the study’s main observations of the Virginia budget:

Revenue forecasting. Revenue forecasting is a strength of the Virginia budget. Forecasts are based upon input from the Joint Advisory Board of Economists and from the Governor’s Advisory Council on Revenue Estimates, two statutorily established panels. “While the practice does not guarantee more-accurate forecasts,” the study states, “its wide range of inputs allows political leaders to focus more on the debate about expenditures than on a debate about the level of revenue.”

In actual practice, the  forecasts missed the downturn in state income tax revenues stemming from a downturn in capital gains income when president George W. Bush’s tax cuts expired in 2012. But the system recovered fairly quickly.

Either because it was late in the budget process or because the governor was unwilling to re-estimate revenue by year-end, the fiscal 2015-2016 biennial budget was not adjusted downward for $1.55 billion in diminished revenue expectations ($950 million in 2015 and $600 million in 2016). Still, the so-called money committees — House Appropriations and Senate Finance — subsequently adjusted appropriations to address the expected shortfall. Their actions included zeroing out most discretionary spending increases and preparing to tap the Revenue Stabilization Fund, the state’s rainy day fund, if needed.

Borrowing. Maintaining Virginia’s AAA credit rating imposes a “powerful discipline” on policy makers. “Total borrowing is limited by how much the state has received in the last three years from income and sales taxes. Virginia avoids using bond premiums for its general fund; leaders instead use the proceeds to reduce borrowing.”

Transferring revenues and costs. Not so admirable was Virginia’s use of an accelerated sales tax program in 2009 that obligated many businesses to prepay a year of expected levies — an initiative the state has yet to fully reverse. The state also allows for transferring costs from one fiscal year to the next within the biennium.

Pension funding. While Virginia fell way behind it its pension funding, it has been aggressive in recent years to restore the Virginia Retirement System to fiscal health.

The pension is underfunded compared with other states, with actuarial assets only 65% of liabilities in fiscal 2013 — the legacy of years of underfunding. Wilshire Consulting estimates that the funding ratio for state funding plans nationwide was 75 percent in 2013, up from 72% in 2012. (By 2014, the estimate of the funding ratio had risen to 80 percent.)

While Virginia has historically not paid the full amount that actuaries recommend for the annual contribution, it is moving toward full annual funding. The General Assembly has put itself on a schedule to increase funding each year until it hits 100 percent of the recommended contribution in fiscal 2019.

On the positive side, Virginia’s unfunded liability for other post-employment benefits is modest — $649 per capita compared to a 50-state median of $1,023.

Rainy day fund. Virginia has a well-defined policy for deposits into and withdrawals from the Revenue Stabilization Fund.

Deferred maintenance. Virginia has been falling behind in its building maintenance. In 2009 the Auditor of Public Accounts identified $3.3 billion in deferred maintenance of state buildings, more than twice the amount recorded four years earlier. Plans to regularly update that number were shelved after the recession! And according to a 2013 American Society of Civil Engineers report, 6 percent of Virginia’s roads are in poor condition, while 26% of its bridges are either structurally deficient or functionally obsolete. But the study notes that Virginia broke with its “low-tax, project-underfunding practices” with the passage of tax increases that are expected to raise $6 billion for transportation over five years.

(Hat tip: Les Schreiber)

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9 responses to “The Volcker Alliance Appraises Virginia’s Budget

  1. Yes.. I agree with Bacon (once again). I shudder to think what the Gov office in Va would look like with an entrenched bribe-taking Gov and some guy in VDOT doing US 460!

    But we do also, as DonR reminds us – have a corrupt Clown Show in Richmond that perverts the intent of the Tobacco fund , rolls over on it’s back for Dominion, and craps on it’s own citizens when it comes to health care just so the can say na na na to the POTUS… If you offered the same amount of money to these nimrods in the GA – for DOD – they’d fall all over themselves to get it but use it to provide better health care for the working poor – forget it.

  2. Virginia needs two things to put things right and force the GA to be more responsive to the needs of citizens over special interests.

    1. – the right of citizens to initiate referenda – both at the State and local level.

    2. – the right to recall and make the incumbent run for election again.

    right now – citizens in Va are considered a joke by the elected. It’s a cynical little game that gets played with legislation summarily dumped in committee without a roll call vote… just sent to a black hole.

    Just look at how they deal with ethics, the tobacco fund and redistricting… they could care less what voters think.

  3. I doubt that the governor’s term limit has much to do with Virginia’s wise budgeting. It’s more likely the state’s tradition of fiscal probity — and of course, as the Volcker folks observed, the fact that we retain budget professionals for the long run.

  4. Nobody wants to be the Governor or the legislative budgeter who gets blamed for blowing the AAA rating. That is the best brake on bad behavior. That was a major argument for the 2004 tax package. I share the view that our tradition of hiring and retaining professionals within the Secretariat of Finance, and avoiding patronage appointments in that arena, has worked well. There must be a chain on the leg of Secretary Brown keeping him in the Patrick Henry Building, but I for one am glad it’s there.

    Virginians should be allowed to grant a governor a second term, if earned, but don’t hold your breath waiting for I&R in Virginia. How could you possibly think that would maintain fiscal sanity — the voters would happily vote for spending beyond their means, or for tax cuts without corresponding spending cuts, and the Assembly would be off the hook.

  5. I&R rules. – same rules for balanced budget or just not allow I&R that creates entitlements.

    require a high bar on signatures – which means they have to get support from enough folks – which will discourage wacko ideas – left or right.

    half the states have it – the vast majority if not all seem to not have encountered fiscal disaster as a result of I&R.

    Alaska
    Arizona
    Arkansas
    California
    Colorado
    Florida
    Idaho
    Illinois
    Maine
    Maryland (Veto referendum only)
    Massachusetts
    Michigan
    Mississippi
    Missouri
    Montana
    Nebraska
    Nevada
    New Mexico (Veto referendum only)
    North Dakota
    Ohio
    Oklahoma
    Oregon
    South Dakota
    Utah
    Washington
    Wyoming
    District of Columbia and the city of Washington

    I’d like to see Virginians standing in the wings when ethics is not dealt with, influence money funneled through PACS, legislation flushed with no recorded votes, the tobacco fund subverted, and vaginal ultrasounds required.

    I do not want to see the Old Dominion turned over to the torch and pitchfork crowd.. though

  6. The one term governor needs to be considered in the context of the clowns for life approach used by the General Assembly. If it is reasonable to restrict the governor to a single consecutive term (effectively, the strictest gubernatorial term limit in the United States) then why aren’t there term limits for the Imperial Clown Show in Richmond?

    The simple logic is that the combination of a neutered governor, a judiciary elected by the Imperial Clown Show and a strict Dillon’s Rule interpretation on local governance creates an over-powered legislature. The faux respect paid to the founding fathers by the General Assembly seems ironic given their disregard for the checks and balances that were a hallmark of the framers’ thinking.

    Some will say that elections provide the opportunity for change. Of course, that should be true for the governor too. However, our clowns are artful dodgers. They have used a combination of relentless gerrymandering, closed primaries and ballot restrictions to create an era of incumbency for life. However, even clever clowns sometimes apply too much grease paint. It seems the federal judiciary has determined that Virginia’s redistricting was unconstitutional. Another suit, pending in state court, alleges the same. It seems the long shadows of Mr. Jefferson and Gen. Washington still serve to cast something of a chill on the anti-democratic antics of our modern day clowns.

    Yet we are left with an election this fall where half the senate seats are unopposed and, as I recall, a majority of delegate seats as well.

    One this seems clear – the members of the Imperial Clown Show in Richmond are as eternal as cockroaches.

  7. From the annals of the always entertaining Imperial Clown Show in Richmond …

    Have you ever wondered why political donors spend so much money on General Assembly candidates who are running unopposed? The answer is easy – these are not campaign contributions, they are bribes. Bribes that let the prima donna, gerrymandered politician for life stroke his or her own ego as kingmaker.

    “Much of the big money in Virginia politics flows through the war chests of men and women who don’t have challengers. They’re the ones who’ve risen up the seniority ladder to lead their party caucuses or the key committees that have the power to kill legislation that special interests don’t like.”

    http://www.dailypress.com/news/politics/dp-nws-virigniaway-campaign-20141118-51-story.html#page=1

    • I think I have an even bigger problem with PACs that take money from donors then dole it out to General Assembly members.

      they’re essentially legalized money laundering…

  8. Here’s what the Virginia Constitution says about electoral districts …

    “Every electoral district shall be composed of contiguous and compact territory and shall be so constituted as to give, as nearly as is practicable, representation in proportion to the population of the district.”

    Now, look at a map of Virginia’s state legislative districts and tell me whether the lawless asshats in the Imperial Clown Show in Richmond have any respect for the Virginia Constitution.

    The level of illegal behavior and corruption on the part of elected officials in the Commonwealth of Virginia is mind boggling.

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