Mark R. Warner was back before the legislative money
committees on August 23, discussing the financial
reports from the fiscal year that ended June
This is always an important meeting, but it
took on added interest because the Governor, who
only recently signed several tax increases, was
about to announce a surplus.
usual, the man who held the microphone and brought a
printed text controlled the spin. The Governor
announced a “revenue surplus” of $324 million. By that definition, the surplus is the amount
of revenue collected in excess of the official
revenue forecasts. The
fact that the official forecast was conservative is
not news to my readers, of course (see "Our
Cup Runneth Over," September
Such a forecast should be
media blindly accepted and reported the Governor's
surplus figure, and even Republicans upset by the
taxes increases did not dispute it. But
there was another number buried in the reports
distributed to the committee, and arguably it
reflects the real surplus: $677 million.
is what accountants call the “unreserved
balance” at the end of the fiscal year.
It includes both the excess revenue and the
unspent cash from around the state ledger.
The money already locked in the rainy day
fund, and any money needed to cover outstanding
bills, is then backed out.
The remainder is arguably the real surplus.
It is the amount of General Fund money the
state started the year with or collected during the
year and didn't spend.
can and should examine the numbers for yourself by
looking at the
comptroller’s preliminary report for 2004.
This report is a great financial snapshot of Virginia.
Another thing you can read is how state
spending has changed over the past four years. You
can see the dramatic increases in education (up 41
percent) and human services (up 25 percent) that
took place even before this year’s tax increases,
which fund even more dramatic increases in both.
Those two categories and the car tax refunds used up
95 percent of the revenue growth. But that is another column.
surplus of $677 million is bit more headline-
than a surplus of $324 million.
It is a better number to use if you want to
argue that the tax increases were unnecessary. If
the state hadn’t made an unscheduled transfer of
$87 million to the rainy day fund late in the fiscal
year, it would have been $764 million – three
quarters of a billion dollars. So far no one seems
to have picked up on it.
Fund Tax Revenue
Dollars (In $000's)
Comptroller's GF Preliminary (Unaudited)
When you look at the same measure over recent years (see
chart), it is clear that we have returned to a
normal annual outcome.
In fact, in the recent fat years we ended
with far larger unreserved balances, both in dollars
and as a percentage of tax collections. And in the
recent thin years the unreserved balance got
dangerously low and was clearly one of the reasons
Wall Street was worried about our credit.
But we’re not done: There
is a third, even more political definition of
surplus, and by that definition, the surplus was
refers to the money left over after the unreserved
balance is earmarked in various ways.
The comptroller calls it the undesignated
In some cases, the legislature itself has passed bills to
gobble up the reserves (such as the Water Quality
Improvement Fund and the “rainy day” Revenue
Reserve Fund.) In
other cases, the legislature has given the Governor
authority to spend the money before it comes back to
One way or another, $677 million became zero dollars
between July 1 and August 23.
About 20 percent of it was anticipated
earlier this year and was built into this year’s
revenue assumptions. More than a third of it, $252
million, will further swell the rainy day fund.
Another $40 million covers the revenue lost because
the tax increases begin September 1 instead of
August 1. Another
$136 million is returned to the agencies or rolled
over to finish ongoing capital programs.
You can see the whole list in the
comptroller’s preliminary statement.
So, from one point of view, all that money is already gone.
Two observations: The
Governor felt comfortable designating all the money
for some purpose because he is totally comfortable
the revenue estimates for FY 2005 will hold. They
are, after all, based on growth estimates applied to
the pre-surplus base. So, he could leave the next
General Assembly session with no unspent balances on
the table without risk of a shortfall.
It is also clear that the General Assembly, despite the
rhetoric of some members, doesn’t want glaring
surpluses either. That
is why it has passed bills that are in effect blank
check appropriations to quickly spend future
unreserved balances. For
its own institutional reasons, the Assembly enjoys
the cloak of poverty, as well.
September 7, 2004