What Happened to the Long-term Structural Budget Deficit?

Once again we find that tax revenues are surging in Virginia. A front-page graphic in The Wall Street Journal this morning notes that Virginia revenues so far are running 14.9 percent ahead of last year — exceeding the national average of 9.5 percent by a hefty margin. That amounts to 9.03 billion for the first three quarters of the fiscal year.

Actually, the WSJ’s numbers, based on only nine months of results, are a tad low. Says Finance Secretary John Bennett in his latest revenue report, based on 11 months: “Through May, revenues have grown 15.2 percent above the same period last year — substantially ahead of the forecast of 10.3 percent.”

Readers may recall the justification for raising taxes. Gov. Warner and his allies in the state senate warned of a long-term “structural” budget deficit in state finances. Now we’re facing the opposite problem, a long-term “structural” surplus. Last year the General Assembly found ways to spend nearly all of that surplus. The one saving grace was that legislators devoted most of the money to one-time uses that would not add to the state’s programmatic overhead. It will be interesting to see if they can resist the temptation in 2006, when the surplus recurs–bigger than ever–to crank up the spending machine.

The massive surplus is an embarrassment to Virginia’s political class, which would prefer to sweep it under the rug. But voters (those few who bother to go to the polls) should remember the budget surplus when they cast their ballots. The citizenry needs to chastise incumbents who panicked in 2004 and voted for a tax increase that many warned then was not needed, and, in retrospect, is even more clearly not needed now.

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  1. Ray Hyde Avatar
    Ray Hyde

    I don’t know how you get around this. Revenues are up because business is up. Does that mean we can now afford to do some things that need to be done, but which have been deferred? After all, we are all better off, shouldn’t the state be better off too?

    Or do we set some minimum set of government “required services” and set a maximum level of service for those items. Excess revenue above that level goes back to the people, who will spend it as they please.

    What’s the difference if they spend it or the state spends it the way people tell them to?

  2. Anonymous Avatar

    When was the last time any government spent the money they way the people told them to. In my experience they spend it the way that they want to and just confiscate more when they want to spend more.

  3. Bob Griendling Avatar
    Bob Griendling

    Jim, If Warner was blowing smoke about the long-term deficits, why should we believe protestations that we now have a long-term surplus?

    One-year ain’t long-term anything (except a pregnancy).

    Didn’t you also predict today a bursting of the housing bubble? Watch that surplus pop like a glycerin bubble

  4. Jim Bacon Avatar
    Jim Bacon

    Bob, Let me respond as follows:

    (1) I don’t think Warner was “blowing smoke” in the sense that he deliberately made up long-term budget forecasts that he knew to be wrong. He just made excessively conservative assumptions that caused him to lowball revenue forecasts by a wide margin.

    (2) You are quite correct: Any projections of a long-term budget surplus must be taken with a grain of salt. Especially considering the potential for a….

    (3) A melt-down of property values in Northern Virginia (and elsewhere, to a lesser extent).

    However, I would note that the impact of declining property values would be felt most dramatically at the level of local government, which is directly dependent upon property taxes. State revenues would be affected only indirectly: by cries for relief from local governments, perhaps, or by the impact of lower property values on economic activity generally, which would slow the growth of state tax revenues.

    Bottom line: Virginia should raise taxes only when we know there’s going to be a deficit, not when we think there might be one down the road. In our current situation, I would assert that the 2004 tax increase was unnecessary, as proven by the massive budget surpluses we’re running. That situation might change in the future. if it does, we might then have to raise taxes to balance the budget.

  5. criticallythinking Avatar

    What’s the difference if they spend it or the state spends it the way people tell them to?

    What, is the state going to buy me a big-screen TV?

    Taxes are a pact between government and the governed. We, the governed, grant to our government the necessary funds to operate. Government spends no more than it has to, and doesn’t ask for more than it needs.

    OK, that’s not how it really works at all. But to ask why we want to spend our own money, or to suggest there is no difference between us spending our own money, and government making us pay more than e we need to, and then spending the surplus?

    I don’t want you to spend my money, even for my big-screen TV. Why should I feel beholden to you for it?

    “Take what you need, and leave the rest”.

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