Bob McDonnell and Creigh Deeds would think twice about wanting to win the race for governor if they’d read the latest edition of The Virginia Newsletter, written by public finance expert Jim Regimbald. The headline of his essay says it all: “Virginia’s State Budget—A Train Wreck About to Happen.”
The recession may be ending, writes Regimbald, but the hard work of balancing the state budget is only beginning. “Rainy day funds, other cash balances built up from better days, deferring various obligations and payments, and, most importantly, federal stimulus funds have kept state operating budget reductions from being reduced even further than they already have. Now the reserves are gone. The federal stimulus funding will soon be over.”
In the next biennial budget, says Regimbald, “Virginia’s state budget will experience the full force of the worst economic downturn since the 1930s. Even more painful changes to state government policy are forthcoming.”
The Kaine administration has used up all the one-time budget-balancing tricks, like delaying state contributions to the Virginia Retirement System. The Kaniacs made a few tough decisions, but left most for their successors. Writes Regimbald: “Over 60 percent of the budget reductions needed for the current biennium were accomplished through the use of one-time sources of funding. This means that the state operating budget is not yet ‘right-sized.'”
Don’t count on long-term borrowing to bail us out. Says Regimbald: “The commonwealth’s ability to borrow additional funds and maintain its ‘Triple A’ credit rating is also restricted.” The Debt Advisory Committee calculated earlier this year that Virginia has the ability to borrow no more than $125 million in new tax-supported debt in 2010 and 2011 and meet the goal of keeping debt under five percent of blended revenues. And that was before the latest round of reduced revenue projections. Regimbald doesn’t say so, but one can’t help but wonder if the AAA bond rating is in jeopardy.
Meanwhile, Virginia unemployment insurance fund has run out of money. Virginia is expected to borrow $252 million from the federal unemployment insurance trust fund.
Want more bad news? How about this: “The reality is that the 2010-12 biennium current services operating budget is still at least $3 billion above forecasted available revenues. Virginia’s Medicaid budget alone will require all of the additional $2 billion in general fund revenues available in 2010-12 to keep the same eligibility and provider reimbursement policies we now have in place.”
What do McDonnell and Deeds have to say about this? Nothing, as far as I can tell. They’re both living in la-la land. You can forget the promises they’re making about all the wonderful things they’re going to do when they’re elected. They’ll have one job in the next two years, and that’s balancing the budget. They won’t be spending one dime on anything new.
The new age of fiscal austerity is upon us. Virginia is feeling the bite before the federal government does because the commonwealth is required by the state constitution to balance the budget. The federal government will continue on its merry way, spending “stimulus” money and adding new entitlements like health reform as long as it can continue borrowing. It’s only a matter of time before Uncle Sam can’t borrow anymore. Then things will get really ugly. Let’s hope Virginia stays solvent when the federal government cannot.
The gubernatorial campaign has been a farce. Neither candidate is addressing the issues he’ll be dealing with as governor. The media is complicit, obsessing over Bob McDonnell’s graduate thesis. And the public is somnabulent, still demanding more services like better roads — as long as “someone else” pays for them. Our fiscal path is unsustainable. Our profligate use of energy is unsustainable. Our environmental impact is unsustainable — and I’m not even counting anthropogenic global warming, which I don’t believe in!
Repent ye, Virginians, of your foolhardy ways! Repent before it’s too late!
