Paper
Cuts Redux
The
politicians in Richmond still cite the "$6 billion
shortfall" in the last biennial budget to justify raising
taxes for the current one. But their spending "cuts"
barely went skin deep.
Note:
A version of this column ran in March 1, 2004. I have
updated it to incorporate criticism and feedback from
the Warner administration.
I’m
really ticked off. I’m steamed at the governor
for making exaggerated claims. I’m mad at pro-tax
senators and delegates for repeating the same
assertions. I’m furious with Big Business advocates of
higher taxes who have bankrolled an expensive public
relations campaign spreading the same misinformation.
And I’m contemptuous of lazy, lap-dog press and
editorial writers for allowing a one-sided
presentation of data to go unchallenged.
If
you wonder what's gotten me so fired up, see for
yourself. Check out the second slide in Gov. Warner’s
dog and pony show, “A
Budget and Tax Reform Plan,” viewable on the
governor’s website. Here's the heart of the Governor's
argument justifying a tax increase:
The
Warner administration has instituted sweeping reforms to
ensure accountability to taxpayers and restore Virginia’s
fiscal stability. We have worked with the General
Assembly to close a $6 billion shortfall:
-
Eliminated
more than 50 agencies, boards and commissions
-
Eliminated
5,000 positions from state government
-
Cut
every agency by an average of 20 percent
-
Produced
significant savings through government-wide
efficiency plans
In
an address to the Greater Richmond Technology Council in
February 2004, the governor stuck closely to these
talking points – and he made quite an impression.
Members of the audience were wowed. Golly,
the state really has done a lot to cut spending.
If downsizing government to that extent doesn’t solve
our chronic budget crisis, what will? I guess we do
have to raise taxes!
Now,
before I dissect this slide to show how it obfuscates
budgetary reality, let me say one thing. I’m not
singling out Gov. Warner for criticism. Many elected
officials, both Republican and Democratic, have been
pushing the same line, as have a legion of lobbyists,
reporters and editorial writers.
Among
other notables, Sen. John Chichester, R-Fredericksburg,
said this to the Virginia Foundation for Research and
Economic Education last year:
Having
dealt with a $6.0 billion budget problem over a
three-year period, suffice it to say that the
Commonwealth has “prioritized away” all but the core
functions. … The Commonwealth stands leaner and with
less flexibility than it has enjoyed in the past.
Got
that? After the General Assembly manfully struggled with
a $6 billion shortfall, Virginia government now stands
lean and mean! There's no recourse now but to raise
taxes.
But
Chichester, Warner and the rest are wrong, flat
out-and-out wrong. Let's take a closer look at the
numbers. According to the governor, Virginia has...
"...Eliminated
more than 50 agencies, boards and commissions."
I
asked Ellen Qualls, the governor's press secretary to
list the "50 agencies, boards and commissions"
that had been "eliminated." She provided the
list of "boards and commissions" reproduced in
the right-hand column.
I
then asked how much money the Warner administration
estimates it saved from eliminating these entities. She
responded by e-mail as follows:
"The
honest answer is very little since the reason for
eliminating most of them was that they had ceased to
function and either the past few Governors didn't bother
to appoint members to them or the members never met.
"There
may have been some incidental savings in consolidating
all the individual scenic river boards into one but none
had staffs and the members served as volunteers without
expenses reimbursed."
So,
there's less than meets the eye to
"eliminating" all those boards boards and
commissions. But everyone knows those things don't have
big budgets. How about the agencies the state
eliminated? Well, lets see... (These quotes come from a
document that Qualls supplied.)
Commission
on Local Government – The Executive Director
position, a full-time appointee of the Governor, and
the office staff were eliminated.
The staff assistance to the Commission is now a
responsibility of the Department of Housing and
Community Development.
Wow,
this looks like a real cut. An executive director plus a
staff of -- I'm guessing here -- one or two people.
Savings? Maybe $200,000?
Department
for Rights of Virginians with Disabilities
– This Executive Branch department was abolished and
the Office of Protection and Advocacy was
created as an agency independent of the Executive
Branch.
In
other words, one "department" was abolished
and an independent "office" was created in its
place. Savings? Not much.
Department
of Veterans Affairs
and Virginia Veterans Care Center were
consolidated into a new Department of Veterans
Services."
A
"center" was consolidated with a
"department" to create a new department.
Savings? Maybe a little administrative overhead. But
probably not much.
Department
of Information Technology, Department of Technology
Planning and
the Virginia Information Providers Network
Authority were eliminated as Executive Branch
entities and the functions were consolidated into the Virginia
Information Technology Agency.
Here, three different agencies were consolidated into
one. However, the secretary of technology assured
state tech workers that none would lose his or her job
in the transition! Savings? Back when Cheryl Clark was
interim director of VITA, she said that the agency
expected to save $10 million in Fiscal 2004. The big
savings won't kick in until the next biennium.
At
last we're talking real money. But let me remind you,
this is the centerpiece of the Warner
administration's government reform. I'm sorry folks, but
out of an alleged $6 billion budget shortfall, we're
talking chump change! Eliminating all those
"agencies, boards and commissions" translated
into one half of one percent of the budget fix!
"...Eliminated
5,000 positions from state government."
According
to Pamela Currey, the total number of state employees
dropped from 115,361 at the start of the Warner
administration to 110,471 in December 2003, two years
later – a net reduction of 4,890.
That
sounds like a lot until you realize two things. First,
about 3,000 of those jobs came out of the Virginia
Department of Transportation. Kudos to Commission Philip
Shucet for a job well done. Too bad other agencies
couldn't achieve the same level of savings. Secondly,
4,890 jobs in a 110,470-person workforce translates into
only a 4.2 percent reduction in head count over two
years -- hardly what you'd call a blood letting. I
daresay that hundreds of private businesses in Virginia
have endured much larger cuts. Just just wouldn't know
if because private-sector executives don't scream as
loudly.
One
final point:
Despite the reduction in head count, payroll savings have been marginal. The whole purpose of
cutting positions is to control payroll expenses,
always an uphill battle when cost-of-living increases
are factored into the pay scale.
Drawing
upon Virginia Employment Commission numbers, I reproduce
here the payroll numbers for calendar 2001, the last
year of the Gilmore administration; calendar 2002, the
first year of the Warner administration; and the first
two quarters of calendar 2003, the most recent data
available (as of March 2004 -- editor.)
State
Government Gross Wages
(in
millions)
|
1Q
2001
|
2Q
2001
|
3Q
2001
|
4Q
2001
|
Total
|
$1,177
|
$1,125
|
$1,253
|
$1,217
|
$4,772
|
1Q
2002
|
2Q
2002
|
3Q
2002
|
4Q
2002
|
Total
|
$1,209
|
$1,148
|
$1,310
|
$1,215
|
4,882
|
1Q
2003
|
2Q
2003
|
|
|
|
$1,200
|
$1,128
|
|
|
|
Source:
Virginia
Employment Commission, Quarterly
ES-202 data
Because
of seasonal fluctuations in state employment --
particularly adjunct faculty at state universities -- it
is not a valid exercise to compare total wages paid in a
particular quarter with the quarter immediately
preceding it. However, it is valid to compare a quarter
to the same quarter the previous year. Despite eight
percent across-the-board "agency" cuts enacted
soon after Warner soon after coming into office, year-to-year comparisons show that
total wages continued increasing for the first three
quarters of the new administration. Part of the problem
was that cost-of-living increases offset some of the
Warner administration's cuts in head counts.
Total
wages did turn south by the 4th quarter of 2002, and
continued to do so for the next two quarters.
Bottom
line: Although Warner eliminated nearly 5,000 positions
in state government, about 4.2 percent of the head
count, total payroll for the first half of 2003 was only
1.1 percent lower than the same period in the last year
of the Gilmore administration. As additional data comes
in, the comparisons may improve but not enough to change
the picture of only marginal reductions in government
spending.
"...Cut
every agency by an average of 20 percent."
The
operative word here is "agency". As Warner
conceded in his remarks to the technology council, the
number doesn't count spending on education. Nor,
elaborates Deputy Secretary of Finance Pamela Currey,
does the definition of "agency" spending
include any state aid to localities or entitlements to
individuals. Basically, the governor is referring to
cuts in administrative overhead and other spending
accounting for about 20 percent to 25 percent of the
total budget.
In
other words, the Warner team made administrative cuts
that added up to four to five percent of the entire
state budget.
In
analyzing Gov. Warner's rhetorical strategy, it's worth
noting that he engaged in some double counting in his
PowerPoint presentation. First he claimed credit for
slashing 5,000 positions, and then he told audiences
he'd slashed agency spending by an average of 20
percent. What he glossed over, however, is that those
two savings were largely one in the same: The way he
achieved those agency savings was largely by eliminating
the 5,000 jobs!
Some
of these "agency" savings represented real
reductions in spending, especially the eight-percent
agency cuts imposed during Warner's first six months in
office, when the governor discovered he had to close a
revenue shortfall in the budget he inherited from the
Gilmore administration. However deep these cuts may have
seemed at the time, they were of an ephemeral nature.
Despite all the wailing, gnashing of teeth and cries of
irreparable harm to state programs, state spending
continued to increase in Fiscal 2003 and 2004.
Here's
the trick: Some of the "cuts" represented
reductions of the budget submitted by the Gilmore
administration but never adopted -- not real cuts
in comparison to actual spending in Fiscal 2002.
Let's
take a closer look. For your viewing pleasure, we have
presented the numbers showing: (a) total state spending
for Fiscal 2001/2002, of which the first 18 months took
place in the Gilmore administration and the last six
months in the Warner administration, (b) Gilmore's proposed
budget for Fiscal 2003/2004, and (c) actual expenditures
after numerous modifications by Gov. Warner and the
General Assembly:
State
Spending
Rhetoric
vs. Reality
(in
$ millions)
|
|
Fiscal
2001-2002
|
Gilmore
Proposed
Fiscal
2003-2004
|
Warner
Amended
Fiscal
2003-2004
|
Total |
$45,424 |
$49,386 |
$49,227 |
Sources:
Fiscal
2001-2002:
Secretariat
of Finance
Gilmore
2003-2004,
as proposed Dec. 19, 2001: Secretary
of Finance budget documents
Warner
2003-2004,
Secretariat
of Finance; fiscal 2004 expenditures are Warner
administration estimates.
By
the time it was all said and done, the politicians in
Richmond managed to "slash" Gilmore's
dotcom-era proposals by about one half percent! Call
the ambulance! I've got a paper
cut, my finger's bleeding, I'm hemorrhaging!
Despite
a recession, an unprecedented "$6 billion
shortfall" and the "worst revenue crisis in
the state's history," spending leaped ahead by
8.4 percent over two years!
"...Produced
significant savings through government-wide efficiency
plans"
Here,
I'll give Warner some credit. His administration has
made a promising start in bringing information-
technology
expenses under control, advancing procurement reform,
reining in cost overruns in road-building projects and
doing a better job at managing state facilities. One
day, these reforms will generate real savings for
Virginia.
Trouble
is, other than the cuts at the Virginia Department of
Transportation, these initiatives had virtually no
impact on Fiscal 2003/2004 finances! As noted above,
Warner's signature issue, the consolidation of IT
functions, saved only $10 million in Fiscal 2004. Other
programs haven't been in place long enough to have had
much impact yet.
Bottom
line: The Governor's claim that government-wide
efficiency plans produced "significant
savings" is not supported by the evidence.
Smoke
and Mirrors
All
told, the Warner administration claims to have closed a
"$6 billion shortfall" -- a combination of
revenue shortfalls of approximately $3 billion and
unbudgeted but legislatively required expenditures of
about $3.1 billion -- over three years. Gov. Warner and
the General Assembly offset those numbers with about
$3.3 billion in cuts from projected spending.
How
did they offset the rest? They beg, borrowed and stole
from a variety of sources, including:
-
$841
million from the Rainy Day fund
-
$420
million in increased "fees"
-
About
$1.5 billion in one-time revenues and accounting
gimmicks such as making major retailers accelerate
payments of July sales taxes in June, which allowed
the state to book 13 months of sales tax revenue.
In
other words, the fiscal wizards who balanced Virginia's
budget employed accounting tricks that, if they'd been
tried in the private sector would have landed them in
court next to Tyco's Dennis Koslowski and Enron's Jeff
Skilling.
Yes,
Virginia did endure a real recession and a real drop in
budgeted revenue. Yes, the Warner administration did
make real budget cuts. But the implication that
Virginia's political leadership has done everything
humanly possible to reduce spending is a fairy tale.
1.
Because December 2003 numbers are
"preliminary", BLS has not yet published an
"average" figure for 2003 average. The number,
which I calculated, assumes that the December figures
are accurate.
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