by Tim Wise
First, the bad news. The Richmond Times-Dispatch’s Michael Martz reported Thursday that “Gov. Terry McAuliffe will announce a shortfall of roughly $1.5 billion in the two-year state budget to the General Assembly money committees on Friday.” Martz explains:
“The governor will reduce anticipated revenues by about $850 million in the current fiscal year in response to a shortfall of almost $270 million in the year that ended June 30 and increasing pessimism about growth in income and sales tax collections. He will reduce projected revenues in the second year by about $630 million.
The revised forecast, required under state law because last year’s shortfall exceeded 1 percent of major state revenues, substantially reduces projected growth rates for both withholding and non-withholding income taxes, as well as sales tax revenues, the source said.
“The size of the projected shortfall comes almost two weeks after McAuliffe consulted with state political and business leaders in a meeting that one legislator called “cautiously pessimistic” about Virginia’s economy, especially with the possibility of potential cuts in federal spending under budget sequestration in the budget’s second year.
“In the last fiscal year, total state general fund revenues grew about 1.7 percent, lagging well behind the forecast of 3.2 percent growth.”
The Washington Post story by Laura Vozzella and Greg Schneider notes, “The (budget) shortfall would be among the biggest in state history. The worst was in 2010, when the General Assembly had to confront a $4.5 billion hole.”
The good news comes from George Mason University’s Mercatus Center, which recently released its 2016 edition of “Ranking the States by Fiscal Condition.” Separate files are available for the entire report, map, research summary, and dataset. The state fiscal rankings were prepared by Eileen Norcross, a senior research fellow and director for the State and Local Policy Project at the Mercatus Center, and Olivia Gonzalez, a research assistant for the State and Local Policy Project.
We growled about the 2015 edition here, noting that “Virginia ranks #21 in Norcross’ ranking of state fiscal conditions, just ahead of Colorado, Washington and Kansas, and just behind New Hampshire and Texas. Virginia ranked from 5th to 30th in the various categories used to compile the overall #21 ranking. These include:
• Cash solvency — 30th
• Budget solvency — 29th
• Long-run solvency — 27th
• Service-level solvency — 5th
• Trust fund solvency — 15th
But in 2016 ranking, Virginia improved by two places relative to the other states, moving up to #19. Before writing about Virginia, however, here’s the background on the fiscal rankings.
“A new study for the Mercatus Center at George Mason University ranks each US state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pen¬sions and healthcare benefits. This 2016 edition updates the version the Mercatus Center published in 2015. Using the approach pioneered in 2015, the 2016 edition presents information from each state’s audited financial report in an easily accessible format, this time including Puerto Rico to provide a benchmark of poor fiscal performance.
“Growing long-term obligations for pensions and healthcare benefits continue to strain the finances of state governments, highlighting the fact that state policymakers must be vigilant to consider both the short-term and the long-term consequences of their decisions. Understanding how each state is performing in regard to a variety of fiscal indicators can help policymakers as they consider the consequences of policy decisions.
“The study also highlights some of the limits of the financial data reported by state governments. States release these data years after they are most relevant, and because the information is highly aggregated, analysts and the public have difficulty discerning the true fiscal position of any state.”
Now to Virginia. The state’s overall ranking increased two positions to #19. Here is Virginia’s narrative summary:
“On the basis of its fiscal solvency in five separate categories, Virginia ranks 19th among the US states and Puerto Rico for its fiscal health. On a cash basis, Virginia has between 1.63 and 2.40 times the cash needed to cover short-term liabilities. Revenues exceed expenses by 3 percent, for a surplus of $151 per capita. Virginia’s net asset ratio of −0.005 indicates that the state has no assets remaining after meeting its debts. Total liabilities are 30 percent of total assets. Total debt is $6.86 billion. Unfunded pension liabilities are $87.66 billion, and other post-employment benefits (OPEB) are $5.19 billion. These three liabilities are equal to 24 percent of total state personal income.”
And here are the five component categories:
• Cash solvency — 28th (up 2 from 2015)
• Budget solvency — 28th (up 1 from 2015)
• Long-run solvency — 26th (up 1 from 2015)
• Service-level solvency — 5th (same as 2015)
• Trust fund solvency — 14th (up 1 from 2015)
Kudos once again to the researchers for preparing and publishing their 2016 edition of the Ranking the States by Fiscal Condition.
Unfortunately, the Rankings do not explain what actions Virginia’s governing management took to achieve improving its ranking from #21 to #19, but the improvement is worth nothing.
Tim Wise blogs at Growls.
