Monday, March 17, 2008

2008 General Assembly: The Bolling Report

Special Session on bonds and transportation still await legislators
March 16, 2008

The adoption of a budget is never an easy thing and the process was unnecessarily complicated this year by the fiscally irresponsible budget that Governor Kaine introduced in December. As I have discussed in past editions of The Bolling Report, the Governor’s budget suffered from a number of serious flaws including:
  • A proposed withdrawal of $423.4M from the state’s Revenue Stabilization Fund, also known as the rainy day fund
  • A proposed transfer of $65M in lottery profits from the Lottery Proceeds Fund to the general fund
  • A proposed transfer of $180M that had been earmarked in last year’s budget for transportation to other government programs
  • Hundreds of millions of dollars in spending on new and expanded programs
  • More than $3B in new state debt
  • Overly optimistic revenue projections in the 2008/2010 biennium

Taken as a whole the Governor’s budget was a formula for disaster. It spent too much money on new and expanded programs and it sought to pay for these programs through budgetary gimmicks like raiding the rainy day fund, the lottery fund and transportation.

In addition, the Governor’s budget would have placed the state in a perilous economic posture for the future. If we failed to meet the Governor’s overly optimistic revenue projections, we would not have been able to pay for the new programs he proposed and we could have been facing massive budget shortfalls in future years.

When the General Assembly began its consideration of the Governor’s budget, I encouraged my fellow Republicans to do their best to address these issues in the final budget conference. In some areas they were successful, but in other areas their efforts were blocked by Senate Democrats who generally rubber stamped the Governor’s budget proposals.

As far as the Revenue Stabilization Fund is concerned, the final budget agreement reduced the Governor’s proposed withdrawal of $423M, but only marginally. The final withdrawal number is $351M, considerably more than I feel was appropriate.

Fortunately, we were able to restore the proposed transfers to the Lottery Proceeds Fund. As a result, lottery profits will be returned directly to local governments for use in public education. This was a major victory and keeps faith with the intentions of the Constitutional amendment that voters approved in 2000.

Likewise, we were able to restore the $180M in transportation money the Governor had proposed spending on other programs. While this money was restored via the use of bonds, as opposed to cash, at least we will not see transportation funding diminished as a result of this change.

The General Assembly reduced spending on several of the new and expanded programs the Governor had proposed and made across the board cuts totaling $100M in aid to localities and $35M for various state agencies. However, the final budget still includes millions of dollars of spending on new and expanded programs considerably more than I would have preferred.

The issue of debt remains unresolved. The Senate and House of Delegates have passed competing bond bills for capitol improvement projects, but budget conferees were unable to agree on a final bond package. This issue remains under discussion and should be resolved when the General Assembly returns to Richmond for the Reconvened Session on April 23rd.

My biggest concern with the budgets adopted by the General Assembly continues to be the overly optimistic revenue projections that the budgets are based on.

In the current fiscal year, Virginia’s economy is growing at a rate of about 2.3%. In the 2009 fiscal year the budget adopted by the General Assembly assumes revenue growth of 2.2%. This is a realistic estimate based on current economic performance.

However, in 2010 fiscal year the budget adopted by the General Assembly assumes revenue growth of 6.8% and imbedded within this projection is projected growth in personal income of 7.6%. I am concerned that this is an overly optimistic revenue projection.

While I hope that our economy is growing at a rate of 6.8% in 2010, I do not believe that should base our budget on such an optimistic forecast. A more prudent course would have been to adopt a more conservative revenue estimate and reduce spending accordingly.

If we fail to meet these revenue projections, we will be unable to afford the new and expanded spending programs the General Assembly has approved and we could face significant budget shortfalls in future years.

I should also note that the final budget agreement did not include language to eliminate state funding for Planned Parenthood. We had fought hard to secure this language in the Senate budget and I was very disappointed that the budget conferees did not include this language in the final budget agreement. While I understand that the Democrats did not support this prohibition, at the very least the budget conferees should have secured comparable concessions, such as restoration of funding for abstinence education programs that Governor Kaine had previously eliminated. Their failure to do so is a huge disappointment to me and other pro-life Virginians, who do not believe that taxpayer funds should be used to subsidize one of the largest providers of abortion services in the country.

Some of the key funding provisions of the budget include:

Employee Compensation

  • A 2% salary increase for state employees, college faculty and state supported local employees.
  • A 2% salary increase for teachers and other educational positions funded by the Standards of Quality.

Public Education

  • A total of $890M in additional funding for Virginia’s public schools. (required to re-base the Standards of Quality for public education)
  • $22M for the Virginia Pre-School Initiative for disadvantaged four year olds. (Governor Kaine had requested $56M for this program in his Executive Budget)

Health and Human Resources

  • $344M to rebase Medicaid, a federally mandated health care program for low income citizens
  • $44M for 600 new mental retardation waivers in 2009
  • $41.6M to implement various mental health care reform initiatives recommended by the Virginia Tech Review Panel.
  • $13.4M to expand community based foster care and adoption programs
Higher Education
  • $22.1M to increase base adequacy funding for Virginia’s colleges and universities
  • $37M for 2% faculty salary increases in both years of the biennium
  • $32.9M for a variety of research initiatives at our colleges and universities
  • $35M for a tuition moderation fund, which would provide incentive grants for colleges and universities who limit future tuition increases

Natural Resources

  • $30M for the acquisition of open space lands and historic sites
  • $20M to expand pollution control programs through the implementation of agricultural best management practices
  • $30M in bond funding for repairs of dams owned by various state and local governments

Public Safety

  • $4.5M for the Wounded Warrior program, providing mental health services to veterans returning from Iraq and Afghanistan
  • $1.5M to expand the work of Internet Crimes Against Children Task Forces in Northern Virginia and Southern Virginia

Taken as a whole, there are things I agree with and things I disagree with in the final budget agreement. However, in a divided government - where Democrats control the Governor’s office and the Senate and Republicans control the House of Delegates – I recognize that compromises have to be made to reach agreement.

I know that many Republicans will be disappointed that this budget does not do more to constrain spending in a challenging economic time. I share that disappointment. But the best way to assure that this is done in the future is to elect a conservative Republican Governor in 2009. That way we can set the agenda and better frame the budgetary debate.

Lieutenant Governor Bill Bolling