Category Archives: Budgets

Hidden Deficits: Richmond Streets Edition

Source: City of Richmond

The condition of Richmond city roads is getting worse. Sixty-five percent of the city’s streets and roads are rated “fair to poor” or “poor or below,” Bobby Vincent, director of public works, told City Council Monday. Only 35% of streets and roads were rated “good,” according to Virginia Department of Transportation standards. That’s down from 53% as recently as 2014, reports Community Idea Stations.

Bringing roads back to standard would cost $104 million. Mayor Levar Stoney has proposed including $16.2 million more for roads and sidewalks in the upcoming budget, but the funding would come from an increase in property taxes and cigarette taxes which several city council persons openly oppose.

Allowing infrastructure to deteriorate is just a hidden form of deficit spending. That $104 million figure compares to total budget of about $710 million yearly and an annual public works capital budget of roughly $25 million. That’s quite a lot of hidden deficit spending over the years, and the figure doesn’t include spending shortfalls for other infrastructure such as school buildings, water-sewer plant, and other public facilities. Nor does it include the hidden deficits that take the form of pension under-funding.

But don’t assume Richmond is a unique basket case. Do you know your locality’s hidden deficit? Is it growing or shrinking? Is your city or county using the tax bounty of an economic expansion to reduce its maintenance backlogs? I’ll bet you have no clue.

How to Look Fiscally Responsible While Being Fiscally Irresponsible

Governor Ralph Northam wants to boost the retiree health credit for state police, law officers, sheriffs and their deputies. He has included $8.1 million in his proposed FY 2020 budget to pay for a $2-per-year of service increase for state police and a $1.50- to $5-per year increase for sheriffs and deputies.

While the increase in benefits will be paid for, it legislative hearings have revealed how poorly these retirement plans are funded to begin with. Northam’s proposal would add $76 million in liabilities to two plans that are funded at less than 10% of their long-term obligations. House Appropriations Chairman Chris Jones, R-Suffolk, called the benefit increases “fiscally irresponsible.” Continue reading

Pushing the Limits of Virginia’s Debt Capacity

Source: Debt Capacity Advisory Committee

by Richard W. Hall-Sizemore

The Commonwealth has been on a borrowing/building spree for the past few years and, as a result, its options for dealing with capital needs in the future may be constrained.

Since 1991, Virginia has voluntarily limited itself to the amount of tax-supported debt it would incur for capital projects.  This “debt capacity” is measured in terms of the percentage of general fund revenues that need to be provided for debt service on outstanding capital bonds.  The consensus between the legislature and the administration has been that projected debt service on tax-supported bonds should not exceed an average of five percent of general fund revenue over the ensuing ten years. Continue reading

Bacon Bits: Rider U Screws U Know Who

Now that the State Corporation Commission has finally approved Dominion Energy Virginia’s Rider U, mandated by the General Assembly to force us all to pay for underground lines serving just a few customers, let me explain how perfectly this scheme put the company ahead of its customers.  (For case details, the Richmond Times-Dispatch has this good story, picking up some themes from an earlier Bacon’s Rebellion post.)

Set aside discussions of the “Strategic Underground Program” because the merits do not matter for this illustration.  Start with the information that Rider U is a stand-alone line item on your bill, a financial silo on Dominion’s books, with a guarantee that the utility will recover in full the cost of construction with a profit margin over time.  No risk to the shareholders.

Any benefit to the customers, and there will be some certainly, shows up as reduced maintenance and repair costs and fewer interruptions.  Those maintenance and repair costs are covered by the main portion of your bill, the base rates, outside the Rider U silo.   Say it’s a one-to-one ratio, and the $70 million spent putting lines underground saves $70 million over five years in repair costs.  The fewer interruptions also add base rate revenue outside the silo.

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Northam Budget Priorities: Financial Reserves, Medicaid

Allocations of anticipated new tax revenue in Governor Ralph Northam’s proposed Fiscal 2019-20 General Fund budget.

Thanks to economic growth and windfall tax revenues, Governor Ralph Northam expects Virginia to spend $2.1 billion more in its next biennial General Assembly budget. He proposes setting aside 44% in financial reserves and spending the rest. He does not propose giving anything back to Virginia taxpayers, according to documents released by the Department of Finance today. Continue reading

Will Yellow Jackets Come To Richmond?

Gilet Jaune

I keep wondering when the new French fashion rage, the yellow safety vest or gilet jaune, finds its way across the Atlantic.  The next few weeks may provide some motivation in Virginia, because the General Assembly returns with financial pressures high and consensus in short supply.

Tuesday morning the 2019 General Assembly sees its opening ritual, with Governor Ralph Northam standing in front of the combined money committees to outline his financial plans.  The speech is probably written, the cartons of printed budget bills probably on a truck heading for the State Capitol, and the on-line posting has undergone its final edit.

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State Basic Aid for Schools Still Below Recession Level

Source: Joint Legislative Audit and Review Commission

Virginia spent about $6 billion in FY 2018 to fund the state’s constitutionally mandated K-12 standards of quality (SOQ), representing an increase in both total spending and spending per student every year since 2011, according to data published by the Joint Legislative Audit and Review Commission (JLARC). However, while the state now spends more money on support for K-12 education than before the 2007 recession, adjusted for inflation, spending per student was $649 less on average.

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(Fiscal) Winter Is Coming

Congressional Budget Office projections of federal government annual budget deficits.

Let me set the scene by reviewing a few numbers. The federal deficit is on course to hit $1 trillion annually by Fiscal Year 2020. With retiring Baby Boomers swelling Medicare, Medicaid and Social Security expenditures, deficits will increase inexorably for decades. The U.S. national debt stands at $21.7 trillion. As deficits pile up and interest rates rise, the national debt expressed as a percentage of the GDP, 78% today, will reach 96% by 2028. CBO projects that interest payments on that debt will increase from $263 billion in 2017 to $915 billion by 2028, putting increasing deficits on autopilot that no amount of budget cutting can offset.

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Fairfax Supervisors Face County’s Monster Pension Crunch

Fairfax County Board of Supervisors Chair Sharon Bulova

Once upon a time, way back in the year 2000, Fairfax County’s general-employee pension plan was amply funded at 109% of projected needs. But the funding ratio dropped severely during the last recession and has been hovering around 70% in recent years. Today unfunded pension liabilities for Virginia’s largest local government are roughly comparable in size to that of the Virginia Retirement System, which which state employees and many local government employees participate.

Taxpayer groups are sounding the alarm and, astonishingly, the Board of Supervisors is actually studying proposals to address the shortfall.

County officials have proposed a range of tweaks to the pension plans for public safety workers and general employees. (School teachers have their own plans not controlled by the county board.) Among the changes: The minimum retirement age would be bumped from 55 to 60, the retirement-eligibility formula would increase age + years served from 85 to 90, and the final salary-averaging period for calculating retirement-payments would be increased from three to five. The changes would apply only to new employees hired on or after July 1, 2019, reports Inside NoVa.

Said Board Chair Sharon Bulova (D): “The Board, all of us, have felt this is a contractual, really, issue. If you joined the county under certain expectations and you’ve based your retirement plans on what you believed would be the deal when you came to the county, we are not changing that for current employees.”

Sean Corcoran, president of the Fairfax Coalition of Police Local 5000 described the proposed pension changes as “a completely contrived crisis.” Others speaking for county employees warned that the plan would create a new class of “second-class employee” and would hurt morale and recruitment.

But taxpayer advocates said the proposed reforms were just a start.

Arthur Purves, president of the Fairfax County Taxpayers Alliance, said while the county’s population increased 20 percent since 2000, inflation-adjusted salaries for county employees rose 35 percent, health-insurance payments went up 194 percent and pension costs increased 244 percent.

County real estate taxes since 2000 have increased three or four times more than the inflation rate, said Purves, who blamed compensation increases as the culprit.

The proposed pension cuts for new employees “are only a small and necessary start,” he said. “You need to look at raises.”

McLean Citizens Association president Dale Stein said county pension borrowing went up $600 million during the last three years and added officials were basing their calculations on average annual returns on investment of 7.25 percent, while returns over the past decade averaged just 5.9 percent.

“We strongly urge the Board of Supervisors to ensure a strong, competitive compensation package for all county employees,” Stein said. “In making those packages possible, the realistic question is, ‘Where in the heck is that money going to come from?'”

The Inside NoVa article did not say how much the proposed changes would reduce the unfunded liabilities.

Bacon’s bottom line: You can keeping kicking the can down the road but eventually you run out of road. The time to act is now. Relatively small changes today can fix a problem that is still a couple of decades away from a full-blown crisis. Failure to enact reforms, however, will make necessary changes all the more painful in future years.

Whispers of the “R” Word

Source: World Economic Forum

With the stock market taking a beating, all of a sudden economists are uttering the “R” word — recession. JPMorgan Chase & Co. has put the odds of a U.S. recession beginning within 12 months at one in three — up from an 8% probability a year ago, reports the Wall Street Journal.

Central Banks in Europe, Japan and the United States are walking back quantitative easing policies designed to fight the past recession, and interest rates are rising. Germany and Japan both reported negative growth in the past quarter, and the Chinese economy is slowing. The expansion of global trade has diminished to a crawl. The dollar is increasing in value, putting developing countries that went on a borrowing binge — in U.S. dollars — under heavy pressure.

The U.S. economy remains strong for the moment. But if developing nations start going Venezuela on us, it’s not entirely clear which banks, hedge funds, and other investors might go belly up, launching investors worldwide into risk-avoidance mode and sending cascades of fear ripping through the global economy in unpredictable ways — just as the subprime-mortgage fiasco did in 2007. The governing authorities did not foresee the last recession, and it’s like that the masters of the universe won’t see the next one coming until it’s upon us. One thing you can count on: With global debt as a percentage of global GDP at record highs, the unwinding of trillions of dollars of banking, corporate, government, and consumer debt will be frightful.

As I reported three weeks ago, Secretary of Finance Aubrey Layne conducted a sensitivity analysis of the Virginia budget to see what would happen if a recession comparable to the last one occurred. General Fund revenues would decline from $21 billion a year by $9 billion a year over three years. Admittedly, no one is predicting such a scenario… at the moment. But we would be fools to ignore the possibility, given the fact that the Commonwealth has set aside reserves utterly inadequate to help it through a 40% downturn in General Fund revenue. The impact on state governance would be catastrophic.

Against that backdrop, Virginia is flush with revenue right now from better-than-forecast economic growth and a series of potential windfall gains resulting from federal tax cuts, a Supreme Court ruling on Internet sales taxes, proposed entry into a regional carbon cap-and-trade system, and a Medicaid tax on hospitals. The big question is, what do we do with this money? Do we crank up new spending programs? Do we give some of the money back to taxpayers? Or do we build up our financial reserves to spare Virginia some of the trauma stemming from a possible reprise of the last recession?

Medicaid Is The Story With State Budget

New hospital taxes collected from Virginia private hospitals in this budget cycle, and the federal matching Medicaid dollars they draw down. The larger portion covers higher payment rates, not coverage of new patients.

The General Assembly’s key money committees gathered in their annual end-of-year financial retreats last week to talk about Medicaid.  Sure, the state’s multi-billion-dollar budget delves into plenty of other areas that were mentioned, and the Amazon location announcement grabbed headlines, but the meetings were about Medicaid.

The explosive and uncontrolled growth of Medicaid is all but eliminating any new dollars for those other areas of state responsibility, and existing dollars are under pressure.  There is no point in talking about anything else.  The opportunity for tax reform due to windfall revenue may be short-circuited by Medicaid.  If the rosy projections of new state money from Amazon come to pass, every dollar may be needed for Medicaid.

Every year the Joint Legislative Audit and Review Commission (JLARC) does this dry report about the growth in state spending.  The simple bottom-line fact it has demonstrated over and over is that Medicaid is squeezing everything else out.  It looks back at a ten-year period and during the ten years leading up to and including 2017, 60 percent of all General Fund growth went to for Medicaid.

JLARC: 60 percent of the growth in state spending over ten years has gone to Medicaid (Department of Medical Assistance Services). The was before the 2018 expansion.

At the beginning of the period the state’s allocation to localities for public schools was the top expenditure, but it dropped down to second by Fiscal Year 2017.   During that same ten-year period, from FY 2008 through 2017, the Department of Education didn’t even make the list of the ten agencies with the highest growth in General Fund dollars.

Right behind Medicaid’s 60 percent of the new money over the decade was the Treasury Board (debt payments) and the Department of Behavioral Health and Developmental Services, the other state agency providing major direct medical services to citizens.  A similar chart from the 2009 report, looking at 2000-2009, had Medicaid getting 19 percent of the growth revenue, and the Department of Education 39 percent.  A healthy share of growth dollars going to education may never happen again.

Medicaid (DMAS) and Department of Education have switched places on JLARC’s latest report on state spending. This includes state and federal shares.

The figures in the JLARC report, of course, do not include the impact of the expansion of the program to an estimated 375,000 more recipients by July 2020.  Nor do they include the $463 million in cost overruns announced since the budget was adopted (several months late, remember) in the existing pre-expansion program.  Those will not show up in a JLARC look-back report until the 2020 report on Fiscal Year 2019.

That would be after the next election.

The state’s economy is improving and an additional $600 million or more in tax dollars are expected this year and next, the committee staffs reported, but about 75 percent of those new dollar will be needed for that overrun.

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Blue Wave Does Not Change Do-Nothing Consensus

The 2018 Congressional elections have been dubbed by some as “the most important mid-term elections in history,” but that’s mostly partisan blather. Democrats did indeed re-take control of the House of Representatives. But two more years of hyper-partisan gridlock will not change the nation’s perilous fiscal trajectory.

While many bemoan the lack of consensus in Washington, there is in fact a consensus — a consensus to ignore growing deficits and the surge in the national debt, except as a club to be wielded hypocritically against the other party. No one wants to touch entitlements. No one is serious about cutting discretionary domestic spending. And no one has articulated a scaled-back foreign policy that would permit a prudent shrinking of military spending.

As Trump and his antagonists mud-wrestle one another and the news media focus on political spectacle to the exclusion of all else, deficits will continue to climb, the national debt will continue piling up, un-cuttable interest on the national debt will consume an ever-increasing share of spending, and the Medicare and Social Security trust funds will get two years closer to depletion. The Medicare Hospital Insurance trust fund is scheduled to run out in eight years, Social Security’s Old Age and Survivors fund in 16 years. If you think politics are ugly now, just wait.

I would say that Americans are like ostriches with our heads stuck in the sand — but that would be an insult to ostriches.

Meanwhile, back at the ranch… Insofar as the 2018 elections can be said to have been a blue wave, the epicenter of that wave was Virginia. The switch of three congressional seats from red to blue portend gathering strength for the Democratic Party in the Old Dominion. If the electoral trends of the past two years continue — and there is no sign that they won’t — Democrats will take control of the General Assembly in 2019, seize the machinery of redistricting, and ensconce themselves in power for the next generation.

For the moment at least, the Republican Party is in no condition to resist the blue tsunami. Corey Stewart was an unmitigated electoral disaster. Being Trumpier than Trump is not a winning electoral formula in Virginia. But pursuing a moderate, technocratic formula didn’t work much better for Ed Gillespie in the 2017 gubernatorial race. The GOP has roped itself to the shrinking demographic base of rural/small town Virginia. It has no coherent message. It is floundering.

A blue Virginia portends a more activist government, more spending on “social justice” priorities, and higher taxes. Steve Haner’s recent piece, “Taxaginia,” lays out where we’re heading in 2019. Admittedly, the blue wave this year was propelled in great measure by culture-war issues — in particular the #MeToo movement and suburban women’s revulsion against Donald Grab-Them-By-the-Pussy Trump. But if you think the electorate will exercise a moderating influence on the tax-and-spend proclivities of the political class, just consider the referendum on Question No. 1.

Seventy-one percent of Virginians voted in favor of a constitutional amendment that would subsidize continued building in flood-prone areas. Given all the other fiscal challenges Virginia faces — unfunded pensions, under-funded capital spending, budgeting sleight-of-hand, and all the rest chronicled on this blog — the vote was utter folly. Virginians are in fiscal denial. I once thought of state/local government as the bulwark against federal collapse. I’m no longer so hopeful.

Update: Looks like John Rubino at Dollarcollapse.com and I are in sync on our appraisal of the national election. Writes John today:

As contentious as the US midterm elections were, there was never a scenario in which they mattered. Any possible configuration of Republicans and Democrats in the House and Senate would have yielded pretty much the same set of economic policies going forward: Ever-higher debt, upward trending interest rates and (through the combination of those two) rising volatility. … The system is on autopilot and it matters exactly not at all which party or which configuration of parties is running the asylum.

Medicaid: the Program that Ate the Budget

Budget forecasters have under-estimated the cost of the Medicaid program by $202 million this year and $260.3 million next year, a total of $462.5 million in the biennial budget, reports the Richmond Times-Dispatch.

Finance Secretary Aubrey Layne was at pains to explain that the added costs were not related to Medicaid expansion covering an estimated 400,000 near-poor Virginians beginning in the new year. “This isn’t about expansion. This is about the base Medicaid forecast.”

Medicaid is growing by 6.2% compared to an estimate of 2.5%. For years, the $11 billion healthcare program for the poor has been crowding out spending for K-12 education, higher education, mental health, the environment, and other priorities. In rough numbers, the program now accounts for $5 billion of state spending in a $21 billion General Fund budget.

State officials had hoped that herding Medicaid patients into managed care programs might slow the rate of spending increases. They blamed a forecast based upon assumptions generated by an actuary, who has since been canned. The actuarial analysis overestimated the savings gained by switching from traditional fee-for-service to Commonwealth Coordinated Care Plus, a program that relies upon private insurance companies to provide managed care for 215,000 elderly and disabled Virginians. 

Doug Gray, executive director of the Virginia Association of Health Plans, said it’s not unusual for states to make mistakes in their forecasts when they move from a system based on provider billing to managed care. “When you first start a program like this, you’re guessing based on coming from fee-for-serve experience,” he said.

But officials also cited an unforeseen jump in the number of children enrolled in Medicaid ($52.8 million), delayed payments to hospitals for uncompensated care ($26 million), and updated hospital rates for serving children under the Medallion managed care program ($25.5 million).

If it’s any consolation, Layne says that Medicaid expansion actually will save the state money. How’s that possible? First, because the federal government will pick up 90% of the tab for the expanded program, as opposed to the 50% for the legacy program. Second, because expanded Medicaid will cover populations for which the state spends money in other programs.

That’s assuming, of course, the actuaries guess right on what the expanded program costs.

How Bad Can It Get? You Don’t Want to Know.

Try taking $9 billion out of this, and see what happens. Image source: Department of Planning and Budget

The United States is enjoying 112 months of uninterrupted economic expansion. We’re basking in one of the longest business cycles in American history — the average expansion since World War II has lasted 58 months. Unless someone has repealed the laws of economics, sooner or later, we’ll experience another recession.

There is a widespread belief among economists that the longer and stronger an expansion lasts, the more complacent people get about the chances of anything going wrong. They take greater financial risks, misallocating capital and seeding the next financial crisis and recession. Compound inevitable investor greed and folly with years of highly stimulative central banking policies in the U.S., Europe, and Japan that expressly encouraged people to take more risk — resulting in unprecedented borrowing and debt accumulation around the world — and the global economy could be cruising for a major bruising. When the next recession comes, it could be a doozy.

How would another 2008-scale recession impact state government finances here in Virginia? Someone asked that question of Virginia Finance Secretary Aubrey Layne, and he gave an answer at an Oct. 25 hearing of the Senate Finance Committee. (You can hear his remarks here. Go to the 23-minute mark.)

Layne emphasized that he knows of no mainstream economist who is predicting such an event, at least not in the next 24 months. But the fiscal consequences would be cataclysmic. Virginia’s General Fund budget would experience three years of what Layne, in his understated manner, described as “fairly significant” declines in revenues:

Year 1 — $2.6 billion
Year 2 — $3.7 billion
Year 3 — $3 billion

Those numbers are cumulative. The declines would total $9.3 billion over the three years. As a point of comparison, the FY 2019 General Fund budget is a bit more than $20 billion. That wouldn’t be a mere budget crunch. It wouldn’t cause routine pain and hardship. It would mark the end of state government as we know it. It would unravel the social fabric.

As Layne noted, Virginia has limited policy “levers” to pull to counteract such a drastic revenue fall. The Commonwealth is prohibited from running deficits, and it can’t print money. The state has about $1 billion in reserves — that would get wiped out in the first year. 

Broadly speaking (this is my analysis, not Layne’s), Virginia has three options: raise taxes, cut spending, or engage in fiscal sleight-of-hand. Higher taxes would reduce the state’s long-term economic competitiveness, crippling the state in the long run. As for cutting spending, many argue that the state is already under-investing in key areas such as K-12, higher education, mental health… and the list goes on. So-called “unmet needs” are limitless.

That leaves fiscal sleight of hand. Remarkably, Virginia has retained one of the gimmicks it adopted during the last recession — the “accelerated sales tax,” in which the state compels large retailers to accelerate payment of the sales tax by a month. That created a significant bump of revenue in 2010 when the state needed it most. But budget makers never fully unwound the measure. Lawmakers, suggested Layne, might consider reverting to the traditional way of collecting the tax. (Total state sales tax revenue this year is projected to be around $3.5 billion. Unwinding the accelerated payment, I presume, would entail foregoing about 1/12th of that sum, about $300 million.)

The state also could do what it did from the last recession, short-changing payments to the Virginia Retirement System and paying back the balance over time. But this time around, we’d be ten years closer to actually needing the money to pay for the pensions and healthcare benefits promised to the latest wave of retiring state employees. Borrowing from the VRS at this point would be reckless in the extreme. Without getting into specifics, Layne suggested that legislators might want instead to “look at” the retirement benefit plan obligations.

One other option would be to refrain from issuing long-term debt. Virginia tends to borrow up to the limit of its bonding capacity. (To preserve the state’s AAA bond rating, bipartisan policy dictates that debt payments not exceed 5% of General Fund revenue). Exercising self-restraint now would preserve the state’s debt-issuing capacity in the event of a major revenue downturn.

The Northam administration is preparing its budget recommendations for the next fiscal year, and legislators will have a lot of their own ideas on how to modify it. Virginia will benefit from windfall revenues from a variety of sources, and likely run a budget surplus, too. This may be one of Virginia’s few remaining opportunities to put its fiscal house in order before another recession. Failure to prepare for the inevitable downturn would be unforgivable.

Local Governments’ Alarming Capital Spending Ratios

Reinvestment ratios for Virginia cities and counties have been declining in recent years. Source: Moody’s. (Click for larger image.)

I’ve been strenuously making the point over the past several months that there are many ways for state and local governments to run hidden deficits. One of those is deferred maintenance — an issue that has played out most prominently in the debate over aging, run-down school buildings. What I never realized is that there is a way to measure the extent to which local governments kick the maintenance can down the road. It turns out that we can track what Moody’s calls the “median capital asset reinvestment ratio.”

I cannot find an exact definition of this ratio, but, generally speaking, it expresses a local government’s capital investments as a ratio of its assets. A higher ratio indicates that local governments are spending more — building new buildings and infrastructure and/or renovating, retrofitting and otherwise updating older facilities. A lower ratio is a tip-off that a local government might be falling behind on repairs and maintenance.

The chart above shows that Virginia localities had healthy capital asset reinvestment ratios a decade ago, but those ratios have declined sharply in recent years — barely reaching replacement value for Virginia counties. As Moody’s writes in a recently issued report on the credit quality of Virginia localities:

The condition of capital assets has suffered from a lack of investment. Asset quality will likely improve if local governments make capital investment a priority. But funding will be a challenge, given the already above-average fixed-cost burdens many Virginia local governments carry.

A slowdown in capital investment is reflected in another statistic, the median age of capital assets.

Median age of capital assets, Virginia cities and counties. Source: Moody’s.

As this graph shows, the average age of Virginia’s capital assets is steadily and relentlessly increasing for both cities and counties. Needless to say, there is variability between jurisdictions. Some localities do a better job of maintaining the level of capital investment than others. The Richmond Public School System is noteworthy for doing a particularly poor job — keeping open more schools than justified by the number of students and scrimping on maintenance and repairs. But the problem goes far beyond the City of Richmond.

Growth Ponzi scheme. In past posts I have discussed Charles Marohn’s concept of the “growth Ponzi scheme,” a malady afflicting fast-growth counties. Under the logic of the growth Ponzi scheme, counties encourage inefficient growth (low-density, autocentric, segregated land uses in contrast to walkable, mixed-use projects) to get a quick hit of revenue from new development. Typically, developers pay for their own roads, water and sewer, plus proffers and impact fees, and then turn the assets over to counties for maintenance, so counties have only modest up-front costs. After 20 or 30 years, however, the assets need replacing and aging and tax-inefficient projects now cost more than they reap in revenue. Counties have kept the system going by soliciting more growth.

Eventually, the Ponzi scheme sputters and stalls. Counties run out of new land to develop. Recessions put an end to growth. We can see this happening in the top chart. In the go-go days of the early 2000s (not seen on the chart) and even in the recession, Virginia counties dedicated considerably more to capital investment than did cities. They built a vast, costly infrastructure of roads, utilities and other public amenities. Since then, maintenance has consumed an increasing share of capital spending. Absolute levels of capital spending may look robust compared to past levels, but as a ratio of assets, they’re not.

If you think Richmond Public School buildings are a blight, just wait twenty years and see what happens to the infrastructure quality of Virginia counties as they continue to under-invest in capital spending.

Essential ratios. There are undoubtedly complexities and nuances to the capital spending I’ve discussed here. And a general statement that applies to one locality may not apply to another. But these ratios are critical to evaluating the fiscal health of local government. Every city and county manager should have these ratios at their fingertips. Every council and board member should know them by heart. If they don’t, they have no idea what they’re doing, and they should be booted out of office.