Virginia’s Structural Budget Gap $8 Billion and Counting

Legislators have succeeded the past few years year in balancing Virginia’s budget during trying times without major tax increases (“fees” are a different matter). But a new report by the Commonwealth Institute contends that the current biennial budget falls $8 billion below pre-recession levels once spending is adjusted for the rising cost of providing services to a growing population. Other major conclusions:

  • Even without adjusting for population and inflation, the General Fund falls $657 million below pre-recession levels.
  • The Commonwealth has reduced state support for K-12 education by $2.6 billion over this year and next.
  • Virginia faces a $400 million gap in current spending compared with pre-recession levels in Health and Human Services.

Were it not for the recent economic up-tick, which improved the revenue outlook, the gap would have been even larger, the report says. But the authors do not extrapolate from those findings to draw any conclusions.

That won’t stop me from weighing in. Two main points:

First, economic growth generally, and state/local tax revenues specifically, will continue to lag. This is not your father’s economic recovery. This is one of the most anemic business cycles on record, and there is absolutely no reason to think that it is going to get better. That is a non-partisan judgment. It doesn’t matter who occupies the White House. Bottom line: Austerity stinks, but we’d better get used to it.

Second, we need to start thinking radically differently about how government provides core services in Virginia. Sticking with the old model will not work. Raising taxes will not work. Trimming spending and spreading the pain will not work. We need deep-rooted institutional change. We need to ramp up conversations about how to enact balanced, market-driven land use patterns, user-pays transportation, a consumer-responsive education system, and market-driven health care.

Tinkering on the margins of the status quo will take us nowhere.


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