Jim Bacon chats with former Finance Secretary Cummings about former Governor Glenn Youngkin’s budgetary achievements, Virginia’s economic development track record, and how well positioned the commonwealth is to survive a federal financial meltdown.

Lightly edited transcript

Jim Bacon: Hello, everyone. I’m Jim Bacon, and this is the Oinkonomics podcast.

Whatever your feelings about Glenn Youngkin’s performance as governor, it’s hard to deny that he left Virginia in sound financial condition. Many states are struggling with current-year budget deficits, and even more with year-ahead and long-term deficits. Virginia consistently ran budget surpluses during Youngkin’s term and built up its financial reserves, even while giving back $9 billion to taxpayers and tax cuts and rebates while funding a 7% inflation-adjusted growth in general fund spending. Here with us today to talk about Governor Youngkin’s fiscal legacy, we have his former Secretary of Finance, Steve Cummings. Greetings, Steve.

Steve Cummings: Hi, Jim. Thanks for having me.

Bacon: Why don’t we start off with you describing how Governor Youngkin chose you to be Secretary of Finance and how he thought of your job as a chief financial officer?

Cummings: I will be honest, when I got the first call on this, I was mystified — I asked first, did you have the right number? — because my professional life has been in the private sector in all different forms of banking over the course of 40 some years. After we got through that, I talked about my background and how it I felt like I wasn’t sure how it fit. The Governor basically said, Steve, those are exactly the reasons I want you. I want to bring private sector orientation, how we provide transparency around what we’re doing, how we provide real truth in numbers, and through that create more accountability and ownership throughout our team, and just make sure we’re running this the best possible way we can on behalf of the citizens of Virginia.

So, with that, I accepted and dug into what I thought he wanted. I quickly realized the unique structure of the Virginia Secretary of Finance position. Many states have elected officials within what in Virginia is the Secretary of Finance: typically, a controller, a treasurer. In Virginia, you have the full financial machinery that you’re responsible for. You have a treasury, you have the management of funds while they are in the coffers of Virginia, and you also access debt markets through treasury. And then in Department of Accounts, you have the disbursement of funds, paying our bills and making sure we’re doing things properly with respect to accounting and financial controls. Very importantly also is Department of Planning and Budget, which is the heart and soul of how we actually deliver the annual budgets and make decisions on the proper disbursements and adherence to policy and appropriations. So, basically, the Governor says the governor of Virginia is the CEO and you are my real CFO. Do you think you can step back and take on that kind of a role on my behalf?

Bacon: So how is that different from what the how it was previously administered in Virginia?

Cummings: Because of my background I had CFOs who really had a full range of responsibilities well beyond the budgeting process and accounting to make sure that we were reporting properly. This was much more expansive. I do think that it is making sure that we are protecting those resources. We dove into cyber in a deep way and really have changed the structure and how it’s managed. We looked at financial controls to make sure that we have policies and procedures, and we hold our people accountable to follow those policies and procedures so we don’t have things happen like we’re seeing in Minnesota right now — there were some basic breakdowns that allowed taxpayer funds to go out the door and were lost through fraud and abuse. And then providing great transparency to everybody so we can make the proper decisions.

I will emphasize, I think, in the past that the finance office has really been 80% about planning and budget, and that is the heart and soul of what we do. But all these other things that function in the background are really responsible to make sure that we are optimizing resources and we are protecting the resources consistently. I’m a private sector person. What I really took to heart is that every dollar we are looking is not our money. We need to think of it as my neighbor’s money, and I need to make sure I do the right thing with it and protect it.

Bacon: Let’s look at the big picture of the four years that you were the “CFO” of Virginia. And maybe we can get an overview of what you see as the highlights of Governor Youngkin’s fiscal stewardship.

Cummings: Sure. You hit the big picture on a number of important things, but one thing that I realized is four years is a really short time in a world that doesn’t move that quickly to set out objectives and to actually get them implemented through the budgeting process and the political process. To actually go and execute, driving your team to do that within four years, that’s a much bigger challenge than I expected. So, I will say I am just stunned at how much that the Governor was able to get done in four short years. In the first two years House Finance and Republican-led Barry Knight did an amazing job in helping get things done. But then in the last two years, we did not have that element of control or leadership. I’ve known the Governor for a long time through business. We were friends but didn’t spend social time together and I was very, always very impressed with him. But he is a remarkable leader, very clear on his goals and could do a PhD course on execution. I mean, it just really is amazing what this team, the full cabinet, was able to get done throughout this time frame.

So, the highlight is, as you said, through prudent forecasting, a good economy that was better than expected, we set this up because our mantra is always, plan for things to be okay, be aware of some of the risks, and hope for something better. And we had a consistently better environment than everybody expected, and that still continues to be the case. So, we were able to generate $10 billion in cumulative surpluses. Some of that was last year, where a conservative position was taken at the end of the year to hold some money back in addition to our reserve fund. The extra dollars that were held back in the budget added another $900 million. So, $10 billion of cumulative surplus, the ability to return $9 billion to taxpayers within the four-year term of the Governor. Much of that is recurring. That will continue forever. So, it’s not one and done.

We did have rebates [based on] one-time events. We took a rainy-day reserve fund from about $2.5 billion at the end of the Northam administration. It’s now $4.7 billion. It is at the required level. As compared to the other 13 or 14 AAA-rated states, we are the number two funded rainy-day reserve fund. At the beginning, we were third from the bottom. So, taxpayer money, rainy day reserve fund, and then you just go through the list of major policy areas that were able to get accomplished. Economic development I’d put first, and that ties into what we have been able to do with respect to the general fund revenue side, has really been stunning.

I think, while many things are notable, the achievements on economic development are just mind-boggling, honestly. One hundred and forty billion dollars of capital commitments to projects across the Commonwealth. That compares to $82 billion in the Northam administration — that included HQ2 –McAuliffe $20 billion, McDonald $14 billion, Kane $12 billion, Warner $14 billion. So just it’s not a little bit upbeat. It’s just mind blowing.

I would attribute that to the Governor’s background. He understood what growth meant to the economy of Virginia. And he was back in deal mode. I mean, his energy, his connections with CEOs, his ability to get the machine moving quickly started by getting over $500 million into business-ready sites programs and other infrastructure over the course of the four years. Because the name of the game is you need to present a shovel-ready site that can be well under construction in 12 to 18 months from the time you want the project. At the beginning of the administration, we had almost nothing for ready sites. They deployed a lot of that resource in about in 88 different sites, $270 million from the Virginia Business Ready Sites program, to get them moved along so that when you take a company there, you can say, this can be done, we can have you up and running in very short time frame.

Economic development was bolstered by reg reform. I think that’s gotten some notice, but not as much as it probably is due. Thirty-one percent fewer requirements; 100,000 regulatory requirements were streamlined in addition. Shorter guidance documents reduced by 48%, 11 1/2 million words eliminated from all of our regulatory documents, which supported through efficiencies, speed to market, is $1.3 billion in savings per year. Permitting, which was really huge, is probably the most tangible. For eight agencies permitting is a big part of what they do. Reductions of anywhere from 25% to 90%. The biggest reductions are in Department of Conservation and Recreation, which is always a big one, and DEQ, Environmental Quality. Those are down 80 plus percent in terms of requirements.

Dual licensing was done to bring in people from other states: universal license recognition, where basically if you do this trade in Maryland or in Delaware, you can immediately come and become eligible to just set up shop right away in Virginia. The first year we had 88, second year 600, third year 1400. It was a huge attraction to get trade folks back into Virginia and be up and running very quickly.

Life Sciences probably is the greatest achievement. Really huge momentum at the end: $10 billion invested from Eli Lilly and AstraZeneca. Their two projects create a next up-and-coming state who’s going to really have one of the biggest tailwind industries. Those typically start as one thing and they end up as much, much bigger things.

Education was clearly lagging. We were the 45th state to open schools back up in the country. There was loss of learning skills, and other impediments to taking care of our teachers. So, teacher pay now is up 20%. It’s been growing at two times the growth rate of the prior administration. Wallet Hub just ranked Virginia as the number one state for teachers, which is a long way from where we were at the beginning of this. Teaching vacancies down from 4% to 2 1/2%. Huge investment in school construction. Chronic absenteeism cut in half. And the COVID recovery has just been really phenomenal, supplemented by the tutoring program that has made Virginia the number one recovery in terms of testing in the country. And of course, the lab schools, 15 schools. serving thousands of students right now, and they’re about halfway through the construction of those. Hopefully that will continue.

HHR, behavioral health. I think everybody knows what a crisis that is, and hard to find anybody who hasn’t had direct or indirect experience with it. Huge investment in behavioral health. The base capacity that they had was about 250. These are literally beds and seats to be able to treat people who are in need. They’ve added 460 already with another 300-plus in the pipeline. Increase in responses: this is amazing. They had the 988 number for behavioral health problems, people in need. At the beginning of the administration, they were getting 5,500 calls a month. They’re now getting 24,000 calls a month. They’re getting 2,000 chats a month, 2,700 texts in August, and they are responding more quickly. They can get a response team to a person in need within 42 minutes, given the investment that’s been made in that, which is a best in class.

Maternal mortality, that’s down 60% since 2022. That’s a big issue for both sides here politically. And it basically is investments being made and a very data-driven intermediations to take care of women who are pregnant as well as the few months after they deliver their baby.

Veterans were the biggest state for veterans, 700,000 veterans in Virginia. It’s a huge asset that hasn’t been really taken care of as well as it should to keep them here. Taking taxes away at $40,000 of their retirement so that making it more worthwhile to stay in Virginia, helping employers pick them up. Seventy-five thousand vets have been hired over the past four years through the system. And then scholarships through VMESDEP, this Virginia Military Survivors Independence Education Program, 11,000 scholarships for veterans and their families.

Environment, Chesapeake Bay, huge progress. They’ve taken out in 2022, 375,000 pounds of nitrogen supplements, agriculture to now over 2 million, and then big investment in parks.

And public safety, last but not least, [Virginia was] the number one state in the country for reduction of fentanyl deaths, down 59% since 2022, lowest since 2018. And that’s just through Secretary Coles, who has moved on to Washington. His DEA had an amazing program under the Governor’s leadership to really aggressively intercept dealers. It only takes one program and then distribution of 430,000 naloxone doses. And homicides down 33%.

So much longer answer than you probably hoped for, but those are key pillars of what he’s done. As I said, the most impressive thing is very organized cabinet: a mixture of public sector, private sector. There were things that we did in advance to help people get more transparent about what they were running, making sure we didn’t have other problems that I think helped us all execute better.

Bacon: That is a very impressive list of accomplishments. That’s also a lot of programs, a lot of spending. And one of the things that stands out in the budget numbers is that revenues surged 5% to 8% a year adjusted for inflation, I think. There are two ways of raising revenues. One is to raise taxes. The other is to spur economic growth, which is the path that the Youngkin administration chose. Any thoughts on the relationship between strong economic growth and the ability to fund all these various programs and initiatives that you just described?

Cummings: Yes, let me clarify. That 5 and 8, that’s real. That’s real numbers. That’s not inflation adjusted.

Bacon: Oh, OK.

Cummings: Obviously, we’re in a very robust environment and we took a conservative view. I think we all understood that there were some real big issues that needed to be addressed. [You and I] didn’t talk about healthcare and Medicaid, Medicare stuff. It’s always behind the big growth in budget requirements. But the underlying premise here is growth. It’s when you have a declining revenue stream, when you have declining population, you’re gonna have a really hard time running a government and running it effectively.

Through the policies that the governor implemented, we’ve attracted companies, we’ve added 277,000 jobs over the term of the governor’s administration. There’s still 220,000 open jobs, not counting jobs that aren’t yet open, but 85,000 new jobs that are in the economic development pipeline to be delivered over the next five years. And that does not include the 40,000 construction jobs that are associated with them. So, when you put all that together, it’s like 600,000 people who still are looking to fill jobs and growth that’s coming. So, Virginia has jobs. This is the narrative that we think is fact- based and others don’t want to talk about. And the reality is that at 220,000, we have 1.6 jobs for every unemployed person in Virginia. Nationally, it’s under one. That dynamic is underlying your revenue stream because withholding is our biggest revenue source. And that is what can help the flywheel get going here, where we are successful in generating revenues that continue to grow and which allows us to fund other things and reduce taxes.

You can look at a couple other key states here. North Carolina is the best example. They got that flywheel going five to 10 years ago, and they have been consistently reducing taxes while their budget has increased.

One of the other components I haven’t mentioned is the net domestic migration. For over a decade, up until FY 2023 or calendar 2024, more people were leaving Virginia with their families than were moving to Virginia. That reversed in 2024. If there’s one metric that gives you a sense of how you’re doing with respect to your overall development of the economy, it is attractiveness for people to live, work, and raise their families. More people are walking with their feet and saying, I’m stopping in Virginia on I-95. I’m not going to continue to North Carolina, South Carolina, Georgia, Florida. And that’s happening. That sustainable, positive economic benefit allows you to get things done and not do it by overtaxing your citizens.

Bacon: you raised a really interesting point about the 1.6 job openings per unemployed person. There may be a problem there: people who are unemployed may not have the skill mix that is needed to fill those jobs. But clearly that’s a very advantageous ratio. Why aren’t we bringing in more people into Virginia? Clearly a part of that answer is affordability. I know the governor was interested in addressing affordability and let’s tie it into what’s going on in General Assembly right now. By some counts, General Assembly, Democrats have submitted 50 bills in session that would boost taxes or revenue enhancements like fees. That’s not going to make anything more affordable. I wonder where you see that heading under Abigail Spanberger.

Cummings: I’m watching this closely and I am very concerned because I don’t see anything that would fall under the definition of improving affordability. Just about everything I’ve read are net negatives to that, and I think will create a business unfriendly environment that may well impact the current pipeline of economic development and will certainly impact future economic development. The whole tone of this is repellent to a CEO who’s looking for a new home to make a $5 billion investment. So, I’m very concerned about it.

Bacon: Let’s talk about some of the major drivers of general fund spending. Medicaid, I guess, is the big kahuna. Back when Governor Northam passed Medicaid expansion, we were promised that expansion would actually save money by getting people out of the expensive emergency rooms and into doctor’s offices. Has that happened? In fact, is there any evidence that health outcomes have improved? Admittedly, any kind of comparisons are made difficult because of the COVID epidemic, but is Medicaid on spending autopilot or is it actually doing what it’s opponents of expansion said it would?

Cummings: I think you know I’m I am not an expert in in this specific field, so I can’t really comment on the metrics of getting people out of emergency rooms and onto Medicaid. I would say the data probably wouldn’t in general support that. But I think we all understand that that is a wrecking ball on budgets because much of itis out of your control. [Three billion dollars more went to Medicaid and a half-billion to education.] Once you account for those two things, what we were saying to all the other agency heads is, hey, folks, we don’t have much room to do other things. I think we still have gotten a fair amount of that done, fortunately, because our numbers continue to get better. So, there’s definitely room for them to spend beyond what we had built in the budget because we think that the that surplus for this year is only going to grow.

But just for the Medicaid portion of this, and the changes from the federal government spending that’s going to take place, the changes that there are going to be pulled in on reducing funding for rural hospitals, that’s something that’s going to need to be absorbed. As you know, there’s some extra funding to start to develop a plan, what they want to do to require work or education for able-bodied people who are on Medicaid who don’t meet the original requirement. And the expectation that those people are going to only end up in emergency rooms is another burden onto the hospitals. So, I’d say that there are things to do in Medicaid to help remediate that.

One of the biggest cost drivers was pharma and the governor worked hard on bringing that down. The redeterminations certainly are going to be a big part of that and then going after fraud, waste and abuse, which certainly exists and there’s work to be done. Something that we could not get into — it just wasn’t ready at the point in time that we need to collaborate with federal government — is duplicate coverage for people in different jurisdictions. That’s biggest part of it.

Bacon: Let’s switch gears a little bit. I’ve long maintained that there are two sneaky ways of doing deficit spending, even states like Virginia that are mandated to balance their budgets every year. One of those ways is unfunded pension liabilities. It got pretty bad in Virginia for a while. We’ve made some progress. but we’re far from 100% fully funded. What do you see as the picture relating to the Virginia Retirement System?

Cummings: I think it’s in pretty good shape, honestly. That’s my personal opinion. I think 100% would be the gold standard, but I don’t think you need to operate at 100%. I think that we put some extra money into it a couple times. It’s performed very well. They do a fantastic job in managing the money. So I think at the mid-80s, the funding level is okay. I personally don’t see that as a crisis. The rating agencies are not concerned about it. That’s the test: do they see that contingent liability as something that could reach up and bite you at some point in time? It’s not even on the conversation. It’s a check off.

Bacon: Another form of hidden deficit spending is deferring maintenance on physical assets like roads, highways, government buildings, school buildings. The problem seems to be especially acute for school buildings, which are the responsibility of local governments, not the state. But is Virginia tracking deferred spending or maintenance backlogs or anything like that?

Cummings: Jim, I think this is a great point that not many people talk about, because it only gets worse over time, if you don’t do the housekeeping and upkeep along the way. And it’s something that we have focused on. Let’s put V-DOT to one side. I do think that [former Transportation Secretary] Shep [Miller] and his team really have done a good job. And I think that that’s been well managed.

I would say most of our other spending is in higher-ed. State buildings are built very well and generally well maintained. But higher-ed is a huge portfolio and we don’t control how they execute. I would say in general, probably the maintenance requirements have been underestimated. We’ve bumped it just about every year. Given that we are seeing college enrollment go flat and probably even dip here in the future, we’ve been very tough on new CapEx for expansion buildings and higher ed. We’re not adequately filling the seats we have. We’re not bringing new people in. So, it’s gotta be a really good story for us, or have some private funding, for the state to say, okay, we will step in and help you with this. We’ve said, before you come and say you need a new building, we want you to look at updating, retrofitting, improving what you’ve got before we start spending the enormous amounts of money to build new buildings. And we’ve started an assessment process to make sure that once they get the money that it is spent as intended in a timely manner, because there’s a lot of money in in fund accounts that is identified as maintenance repair money. It’s not monitored as tightly as it should be to make sure that it is spent in a timely manner on the things that it’s supposed to be spent on. Higher ed is not like another agency. We don’t have the degree of control over that as we probably would like. We would like to go in and be more forceful in reviewing and challenging and mandating that execution. So, I think that’s something that has to be really pushed.

Bacon: There are some other fiscal booby traps out there. Virginia has all these quasi-governmental authorities, ports authority, transportation authorities, local economic development authorities, and so on. I guess the big one, the gorilla in the room, is the Metropolitan Washington Area Transit Authority. Just a black hole. It’s been on the border of insolvency for years and comes back year after year after year needing more state and local funding. What’s your appraisal of MWATA, and do you see any other red flags out there in terms of state and local back debt?

Cummings: I’ve not been involved in that. That’s V-DOT, Secretary Shep Miller. But I do think the governor has been very clear on this, that he is very resistant to additional funding, thinks that some tough decisions need to be made there before you go and pass the hat around. It’s a frustrating governance model where you’ve got D.C., Maryland, and the federal government at the table. When you have a governor like Governor Youngkin, who is a sound financial manager, let’s be real about what we’re looking at. We have to have a plan to get this to a place where it is hopefully self-sustaining. There’s probably not going to be as strong a voice coming from Virginia in the coming periods to make sure that that organization comes up with a better plan to close that gap.

With respect to other authorities and agencies, you mentioned the port. It runs extremely well: great governance, great board. Unfortunately, we lost the leader of that recently, but I’m sure they’re going to find another great leader. That’s one of our big ones and a very strategic asset. But as I go around the others that I’m familiar with, I don’t see financial time bombs in there. I think they’re for the most part quite well run and not in the list of things that keep you up at night. I can’t think of one off the top of my head that I would say that about.

Bacon: I hope you’re right about that. As you might have gathered from my questions, I’m not as sanguine as some about Virginia’s long-term fiscal integrity. Here’s another potential issue. Our autonomy and government are highly dependent upon contributions from the federal government. Uncle Sam has a $37 trillion national debt. Deficits are growing at the rate of 1.5 to $2 trillion a year. The Social Security Trust Fund will run out of money in 2033. Payments on the national net now exceed or spending on defense. You know the whole thing. If the federal government experiences a fiscal crisis, say 10 years from now, and it just can’t meet all the obligations and commitments that it’s made, how well is Virginia positioned to survive the fallout, given our incredible dependence?

Cummings: Virginia is exposed to that risk more than most other states. That is given the nature of our proximity [to the federal government and its jobs]. I think candidly, given what’s happened over the past year, we have given good evidence that Virginia is not Maryland or D.C. We could not be performing any more differently. It’s like we’re on different planets in performing performance over the last couple of years, and including both of them getting downgraded, Maryland being downgraded from triple AAA, which I think they received back in the 60s or 70s. That was enormous loss for them. If anything, our view by the rating agencies has strengthened. But I do think the chickens have to come home to roost here, and we will be addressing that.

We’ve had a lot of money. We’ve returned a lot of money. We spent a lot of money. We are so thoughtful about what is one-time spend and what goes in the run rate because you see it as one number and I think people forget that a lot of that spend is a one-and-done. It might be funded up front and it’s spent over two or three years, but it doesn’t generate a recurring liability. That’s the stuff that you really got to watch closely. We now keep this in mind. At the beginning, we really looked at the history of what was going on with run rate spend, which is in some of the huge areas that people want to jack up. And it looks affordable at the present, but it’s not in the future. I would I argue that that’s been very well managed, and for the moment we do think we are very sustainable. One of the disciplines that we built into the budget that’s now in code is that at the conclusion of our budgeting process we always attach a six-year plan That wasn’t required before. We put it in as a requirement for us. We think it should be a requirement for everybody.

You make some assumptions on a six-year forecast for your general fund revenues, and some basic growth assumptions for the big ones like Medicaid and education, and make some assumptions on wage increases, and make sure it stays balanced for the full six-year period. I think there’s a lot of things that got people — Maryland’s a good example — in trouble. They did a big bump in their education spending. It wasn’t affordable in the outer years. You’ve got to be really watching that closely and making sure you don’t plant some time bombs in the midst of it. Then at the end of the day, if that stuff happens, you just gotta be prepared to make some really tough decisions. Because when you come in, there are things that are very hard to cut. I think we saw that in DOGE. DOGE, at the end of the day, made their reductions through headcount attrition from retirement. There were not a lot of layoffs and firings. It’s people who attrited out of the government that led to the vast majority of the reductions in headcount for the federal government.

Bacon: As you alluded to in the beginning of this interview, you have transformed the job of Secretary of Finance into something akin to a chief financial officer addressing things like audits, risk analysis, IT systems, cybersecurity, and things that are not just creating a budget. I think it’s important that people understand those reforms and how important they are to maintain. I hope that we’ll be able to have you back in the next week or two to discuss them. They’re a little harder to understand and maybe harder to appreciate, but at the end of the day, we’ll be glad that we have them in place. So, thank you so much for your time. We look forward to talking to you again.

Cummings: All right, Jim, thanks so much. I really enjoyed it. Thank you.