Reality Check

Steve Haner


 

Your Budget's So Big... 

 

How big was Virginia's 2005 budget surplus? It was so big that 2006 revenues could shrink and the state still would run a surplus.


 

Only Bacon’s Rebellion gives you the real scoop on the budget numbers missed (or misunderstood) by reporters, pundits and politicians alike. If we’re going to fight about this, let’s at least stipulate some facts: It was a record surplus. Revenue could actually shrink in 2006 and we’d still make budget.

 

The Virginia state budget finished with a general fund surplus of $1,126,576,000 – one and one eighth billion dollars. It was a record, at least in terms of nominal dollars. To say it another way, Virginia collected a record one and one-eighth billion dollars more than it spent in fiscal year 2005. And that’s just the General Fund.

 

With respect, the $544 million figure in the Governor’s official announcement last week and all the media accounts is not the real figure, although he was careful to label it the “revenue” surplus. But the folks in the House of Delegates who love to challenge him seemed to buy it.

 

The figure that accountants look at – the unreserved fund balance – was included in the handouts at the legislative meeting but nobody mentioned it. And the same number can be found in the comptroller’s preliminary report, which, for its part, makes no mention of any “surplus” of $544 million. The comptroller can’t play politics with his report – he reports cash on hand at close of business June 30 and whether or it is reserved (can’t be spent) or unreserved, designated (already earmarked) or not.

 

I didn’t realize the unreserved balance was a record until I got a chance to compare it with the chart, updated for this column, that I had included in a September 7, 2004 column, "Reality Check."

 

General Fund Tax Revenue

Actual Dollars (In $000's)

Year

Total 

Revenues

Unreserved 

Balance

% of Total

1996 $7,281,744 $321,198 4.4
1997             8,130,917  644,840 7.9
1998 8,782,431 970,516 11.1
1999 9,716,193 983,041 10.1
2000 10,813,644 1,109,843 10.3
2001 11,149,890 200,953 1.8
2002 10,737,472 70,004 0.7
2003 10,987,756 243,997 2.2
2004 11,947,222 677,089 5.7
2005 14,128,013 1,126,576 8.0
Source: Comptroller's GF Preliminary (Unaudited) Annual Reports

 

The surplus certainly was not a record in actual dollars adjusted for inflation, nor was it the record as a percentage of gross revenue. Those honors were earned in the Gilmore years. Gov. Jim Gilmore had three years in a row where the balance exceeded ten percent of the gross, and I don’t remember his finance staff having its competence challenged. When it happens on a Republican watch it is called fiscal conservatism. (Yes, it is also easier to claim that title when it happens without tax increases.)

 

The comptroller also reports the undesignated, unreserved fund balance, which this year is zero dollars.  That means that right after counting all the money in the bank at the close of business June 30, it got designated to be spent on something in this fiscal year. Easy come, easy go.

 

Most of the fund balance went to the “Rainy Day” revenue reserve fund. That account is almost full now – they won’t be stashing that much there next year.

 

Other large beneficiaries are individual state agencies: Some are allowed to keep their left-over cash automatically (such as the universities), and others were granted permission to do so by Governor. Another $300 million was assumed to be coming by the 2005 General Assembly when it wrote the 2006 budget, so that was already appropriated. The remainders went here and there – water projects, BRAC, etc.

 

Three other important (and ignored) items from perusing the reports:

 

1. General fund spending, as reported by the comptroller, is up 34 percent so far in Governor Warner’s term (see page 3). Growth is not uniform. Education spending is up 49 percent, and certainly by the end of the term he will be able to tell interested audiences (Manchester? Sioux City? The NEA PAC?) that he raised education spending more than 50 percent in one term.

 

“General Government” is up 38 percent but that is mainly the car tax reimbursements to localities. Total social services spending is up 35 percent (surely Medicaid growth exceeds 35 percent).

 

But General Fund spending on transportation, natural resources and economic development, and capital outlay are actually down from four years ago. And public safety has risen only five percent in four years. Governors do get to set priorities.

 

2.  Nobody is losing sleep about 2006 revenue. Actual revenue in 2005 was so good it passed the forecast for 2006 like a Porsche on the autobahn. The rate of growth necessary to meet the 2006 forecasts is negative 2.7 percent. Think about that for a while. If we just equal last year’s revenue we’ll be in surplus again. We can shrink 3 percent and make budget (but we won’t shrink, at least not the general fund.)

 

3. Well, somebody should lose some sleep – transportation planners. While general fund revenue grew at 14.8 percent, the transportation revenues (outside the general fund) grew only 3.3 percent, barely exceeding their forecast of 2.8 percent. The mainstay, motor fuel taxes, grew only four tenths of one percent on the year and missed its forecast.

 

Think about that, too. The really big jump in gas prices came at the very end of the fiscal year. For fiscal 2006, now two months over, the impact will be felt over the entire 12 months – and what an impact. The 2006 revenue forecast requires 3.5 percent growth in motor fuel taxes to make the budget. Won’t happen. In fact, I predict we won’t even match 2005 collections.

 

Good sales tax collections (a portion of which is dedicated to transportation) saved the fund this year and might next year. But even with the higher gas prices, traffic is unlikely to decline in this great economy and if it does, that may only increase demand on mass transit – equally stressed for funding. Keep in mind the same thing has to be happening with federal gas tax collections.

 

This disturbing trend was a major focus of the governor’s address and the detailed briefing by Secretary of Finance Bennett, right? Sorry. They didn’t mention it at all. Doing that would beg the question, what are you going to recommend in your final budget?

 

-- September 5, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steve Haner is the former chief lobbyist for the Virginia Chamber of Commerce and is now a government affairs and public affairs consultant doing business as North Chase Communications.  You may reach him at northchase

    (at)earthlink.net.