February 21, 2009 |
As the 2009 session of the Virginia General Assembly enters its final week, the Senate and House of Delegates have adopted competing proposals for balancing the Commonwealth’s $78B budget.
There are big differences in the budgets adopted in the Senate and House of Delegates, and these differences will have to be resolved before the General Assembly’s scheduled adjournment on February 28th.
Two significant events preceded the General Assembly’s budget actions.
First, Governor Tim Kaine revised his revenue projections for the coming year, conceding that his initial budget estimates missed the mark by some $821M. The Governor had previously estimated the state’s budget shortfall at $2.9B, but declining revenue projections now show that the actual budget shortfall is $3.7B.
The Governor’s revised budget estimate did not come as a surprise to most Republican members of the General Assembly. We have been saying for months that the Governor’s budget was based on overly optimistic revenue projections and that the shortfall was considerably higher than $2.9B.
Second, we have obtained additional details on the economic stimulus package approved last week by the United States Congress. It appears as though Virginia will receive a one-time infusion of $4.5B from the stimulus package over the next 18 months. While some of this money is targeted toward one-time capital projects, most of the funds are intended to offset the immediate need for spending reductions in ongoing government programs.
The House of Delegates adopted its budget recommendations on February 12th, before the Governor’s revised revenue projections were released and before details on the federal economic stimulus package were received.
The Senate did not adopt its budget recommendations until February 18th, after the Governor’s revised revenue projections were released and after details on the federal economic stimulus package were received.
Because of the different approaches taken by the Senate and House of Delegates, there are significant differences in their budget recommendations.
For example, the House budget includes revenue estimates that are overstated by $821M, but it does not include any money from the federal economic stimulus package; while the Senate budget reduces revenue projections by $821M, but includes the money Virginia will be receiving from the federal economic stimulus package.
These differences will be resolved in a Committee of Conference that will begin meeting on Monday. The Committee’s task will be to bring forth a compromise budget recommendation before the General Assembly’s scheduled adjournment on February 28th.
As discussed in past editions of The Bolling Report, adopting revised budget recommendations in the midst of the Commonwealth’s current economic downturn has dominated this year’s General Assembly session. I have maintained throughout this process that we should have two fundamental goals:
First, we should balance our budget through spending reductions and not tax increases. Fortunately, it appears as though there is consensus on this approach and the tax increases that had been proposed by Governor Kaine have been rejected in the Senate and House of Delegates.
Second, we should base our budget on realistic revenue projections and not prop it up through budgetary gimmicks or attempt to pay for ongoing government programs with one-time money. Unfortunately, I remained concerned that this will be the case, particularly so since the state will be receiving significant one-time revenues from the federal economic stimulus package.
My views on the federal economic stimulus package have been discussed in past editions of The Bolling Report. While some of these federal funds can be used to fund one-time capital projects and be of benefit to the Commonwealth and our efforts to get the economy moving again; the vast majority of these funds are merely intended to lessen the short term need for spending reductions in core areas like education, health care, public safety, etc. and I do not believe that they will have any meaningful stimulative impact on economic growth.
Our initial analysis of the federal economic stimulus package indicates that Virginia will be receiving about $4.5B in federal funds over the next 18 months. As mentioned above, some of this funding is directed toward one-time capitol expenses and could very beneficial for the Commonwealth.
For example, Virginia will be receiving $698.5M for highway construction and $136.6M to improve public transit and rail projects. We can certainly use this money to help pay for needed transportation improvements in our Six Year Highway Plan.
In addition, Virginia will be receiving significant funding to help expand broadband access to underserved areas and help pay for upgrades to water and wastewater facilities.
These types of capital projects represent a good use of one-time federal funds. Their completion can help address legitimate needs and help create economic growth.
However, the vast majority of the money included in the federal economic stimulus package represents one-time funding for ongoing government programs. For example, we estimate that Virginia will be receiving:
Another provision of the federal legislation would create a general pot of $218.9M to restore funding for any other government service at the discretion of the Governor and the General Assembly.
While these may all be worthwhile programs, spending money on these types of programs will do little to stimulate the economy. That is why the Wall Street Journal estimated that only 12% of the federal economic stimulus package would actually stimulate the economy, while the other 88% simply represents spending on general government programs.
Nonetheless, it is likely that the final recommendations advanced by the budget conferees will include these funds to offset many of the budget reductions that had previously been proposed by Governor Kaine.
While the use of these funds can help alleviate the need for short term spending reductions in areas like education, public safety, health care and other government programs, it is important to remember that these are all one-time funds that will expire on September 20, 2010.
We must make certain that the receipt of these funds does not create an intoxicating delusion that our fiscal troubles are behind us. They are not. This is at best a short term solution to a long term problem.
By relying on one-time federal funds to balance our state budget we are not addressing the fundamental structural problem in the budget. Simply put, we are spending more money than we are taking in and we cannot continue to do that. Unless the economy begins growing at a very rapid rate in the next 18 months, which most experts do not expect, we will once again be left with a budget that is out of balance when these one-time funds expire.
Going forward our full attention must be directed toward effective proposals to get out economy moving again. We can do that by reducing taxes for families and businesses, eliminating unnecessary regulatory burdens, directing more resources to aggressively recruit new business and industry to Virginia and empowering the private sector to unleash the entrepreneurial spirit of America. That is what will ultimately get our economy moving again, not continual financial bail outs from Washington.
In next week’s edition of The Bolling Report, I will highlight some of the other legislation that has been considered by the General Assembly this year. Lieutenant Governor William T. "Bill" Bolling |
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