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AAA!
XXX!
Harry
Potter might ask Mad Eye Moody for a look at the
Budget Shortfall That Must Not Be Calculated, but
the investor service now says “Watchlist” for Virginia’s
bond rating right out loud.
It
may seem impossible in a campaign season to get
straight answers to questions about government
finance. The pressures to remain vague are great,
and voters accustomed to feel-good politics
don’t necessarily reward candor. Why discuss
700,000 fewer Americans working this September
than last, for example, when one might talk
instead about “putting people back to work”?
But
there has been some straight talk in the beginning
of the Labor Day-to-Election Day sprint, including
Moody’s Investors Service placing the
Commonwealth of Virginia’s general obligation
bond rating, currently rated Aaa with a negative
outlook, on its watch list for possible downgrade.
Meanwhile, Gov. Mark R. Warner and senior
legislator Del. James Dillard, R-Fairfax, have
sounded storm warnings.
Start
with the news about that bellwether of
Commonwealth fiscal conservatism, the triple A
bond rating. “The Watchlist action is prompted
by fiscal pressures brought on by a weak economy
and a significant revenue shortfall experienced
since the recession began,” Moody’s explained
September 4, “exacerbated by the initial
phase-out of a tax on automobiles that was
introduced prior to the recession. Consequently,
the Commonwealth has experienced a significant
deterioration of its balance sheet over the last
two years, and ended fiscal 2002 with a negative
general fund GAAP balance of $217 million.”
Moody’s
did acknowledge the “aggressive actions” Virginia
has taken to balance current operations, but also
signaled that with the rainy day fund reservoir
low, more responsible action immediately will be
required to keep those three As. Lower ratings
translate into the state having to pay higher
interest rates for the bonds it issues.
“Slow
economic and fiscal recovery coupled with
increasing spending requirements for Medicaid and
other programs will likely compete with the need
to replenish reserves and restore structural
balance in the near term,” Moody’s concluded.
“In evaluating the potential for downgrade,
Moody’s will review the state’s current and
projected financial position with a particular
focus on the state’s plans to restore structural
budget balance in the next biennium.”
That
is a lot of candor right there -- significant
revenue shortfall, negative general fund balance
– and a clear warning -- restore structural
budget balance, do it in the next biennium (the
budget for which will be submitted by the governor
to the General Assembly for action in January
2004). As a mirror, however, Moody’s reflects
the same concerns spelled out in more detailed
fashion by Del. Dillard, the Chairman of the House
Education Committee and a senior member of the
House Appropriations Committee, a week earlier.
“We
have no choice other than to close our deficit and
fund statutory obligations before we can even
think of the additional needs that will surely be
on the 2004 legislative agenda,” Dillard wrote
his colleagues August 25. “This will cost $2.16
billion above projected revenues.”
Dillard
started his calculations with the almost $1
billion state budget estimate suggested by
Governor Mark R. Warner in remarks to the money
committees of the Virginia House of Delegates and
Senate, but Dillard added another $1.26 billion of
services the state already has promised, but
failed to deliver for public education, higher
education, health, parks and other services. Even
if the economy improves at a rate of five percent
per year, Dillard said, state revenues will not
keep up with rising costs.
“None
of the $2.16 billion includes re-benchmarking
non-Standards of Quality education programs, such
as K-3 class size reduction, Standards of Learning
remediation, English as a Second Language
instruction and programs for at-risk four-year-olds,”
Dillard wrote, “or the $324 million the State
Board of Education has recommended to update the
Standards of Quality over the next two budget
cycles.”
An
honest accounting of unfulfilled responsibilities
in the next two years, Dillard concluded, has to
include $360 million more mandated for operations,
faculty salaries and facilities maintenance at
state colleges and universities, $230 million more
in mandated parks and conservation programs, $132
million more in Medicaid and other health programs
and $100 million more in transportation
maintenance payments to localities.
Del.
Dillard called the state’s neglect of core
services “appalling” and called on others to
give up the myth that needed services can be
delivered merely by reshuffling priorities. His
assessment of the full shortfall facing Virginia
is $8.4 billion -- to update the SOQs, raise
teacher salaries to national average, fund
Virginia Student Financial Assistance, clean up
the Chesapeake watershed and parks, fund
identified transportation needs and give state and
state-supported employees a one percent raise.
$8.4 billion is what the popular Harry Potter
novels might term the Budget-Shortfall-That-
Must-Not-Be-Calculated.
Gov.
Warner, for his part, signaled his agreement that
the Commonwealth again should focus on goals and
accountability, not just wait to see how much
money might show up each year, then ration
services accordingly. In a multi-day race across
Virginia’s regions, Warner outlined new
“Education for Lifetime” initiatives that
would fund the SOQs, improve teacher recruitment
and retention, streamline workforce development
and increase research and graduation numbers at
state colleges and universities. “Educational
achievement is probably the single best predictor
of prosperity, a more stable family life, and good
citizenship,” the Governor told educators,
students, business and community leaders in eight
different venues in three days.
He
is calculating that revenue-side adjustments,
including a comprehensive tax reform package, make
sense to economic conservatives as a part of a
comprehensive new commitment to correcting the
structural imbalance now spotlighted by a national
rating agency. “I always have worked to be a low-tax
legislator,” another Republican legislator
responded when asked about the suddenly straight
talk of the early campaign season, “but I did
not seek election to preside over the demise of
Virginia.” No one in Virginia politics wants to
be responsible for turning AAA into XXX.
The
challenge is straight forward. New students,
automobiles, prisoners, patients and pollution
keep showing up for Commonwealth government faster
than new tax dollars. Moody’s has signaled that
a passive strategy of “wait and see how much
revenue we have” won’t be satisfactory. More
candor and lifelong learning are Virginia’s best
options.
September
8, 2003
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