Read the Bills Act Coalition

Tuesday, January 20, 2009

The Bolling Report

The 2009 session of the Virginia General Assembly was gaveled to order at noon on January 14th. During this year’s 46 day legislative session the members of the Senate and House of Delegates will be faced with a daunting task – to balance the Commonwealth’s $78B biennial budget and close a budget shortfall that is estimated at $3-3.5B or 5% of the state’s annual general fund budget.



At the outset, it is important to note why the Commonwealth is facing such a significant budget shortfall. There are two reasons:



First, due to a slowdown in national economic performance Virginia tax collections are lagging far behind budget projections. During last year’s legislative session the General Assembly adopted a budget that assumed revenue growth of 2.8% in the current fiscal year. While we felt this was a reasonable revenue projection, tax collections are currently 4.4% less than they were a year ago. This has produced a significant budget shortfall in the current fiscal year.



Second, in last year’s budget the Governor projected revenue growth of 6.6% in the second year of the biennium and funded a number of new and expanded government programs with this anticipated revenue growth. However, it is now apparent that this revenue projection was terribly optimistic and the state will not come anywhere near meeting this rosy economic forecast. As a result, we will also face a significant budget shortfall in the second year of the budget.



When the Governor proposed his budget last year I cautioned against adopting a budget based on such an overly optimistic revenue projection. I warned that if we adopted a budget based on 6.6% revenue growth and failed to meet that projection that we would face massive budget shortfalls this year. Unfortunately, that is exactly what happened and we must now scale back much of the new spending that was approved just a year ago.



For a copy of Lieutenant Governor Bolling’s op-ed – Kaine Budget: A Formula For Disaster – which was printed in the Richmond Times Dispatch on January 6, 2008, please click here.



To close this budget shortfall Governor Kaine has proposed taking $490M out of the state’s Revenue Stabilization Fund, or rainy day fund. This one time money can be used to offset budget shortfalls in the current fiscal year. While I am concerned about taking so much money out of the rainy day fund, there may be little choice given the significance of the budget shortfall we face.



In addition, the Governor has proposed significant spending reductions in most areas of the budget. Some of the budget reductions the Governor has proposed include:



· Across the board and targeted spending reductions of $1.7B, including a $367M reduction for public education and a $418M reduction for Medicaid and other health care programs



· Elimination of a proposed 2% pay raise for state employees, which will save $242M



· A 15% reduction for Virginia’s four year colleges and universities and a 10% reduction for community colleges.



· The elimination of almost 2,000 state jobs



It is never easy to make spending reductions of this nature, but it is the right approach and I commend Governor Kaine for his willingness to make these difficult recommendations.



When the economy is growing and revenues are increasing we can invest in important state programs. But when the economy is in recession and revenues are declining government must do what families and businesses must do – we must tighten our belts, prioritize spending and spend within our means.



There are many aspects of the Governor’s budget that we agree with and will work to implement.



For example, the Governor has strategically proposed targeting his spending reductions in public education toward central office and administrative positions. This will help protect educational spending in the classroom, which has a more direct impact on the quality of education our children receive.



Likewise, the Governor has proposed investing an additional $5M a year in the Governor’s Economic Opportunity Fund, which is used to encourage new businesses to locate in Virginia. This additional investment could help enhance economic development opportunities in the future.



And the Governor has exempted from spending reductions various community mental health programs that were enhanced last year in the wake of the tragic shootings at Virginia Tech.



However, there are aspects of the Governor’s budget that we disagree with and will work to change.



For example, the Governor’s budget includes tax increases totaling $146M a year. This includes a proposed 30 cent increase in the tobacco tax, as well as elimination of a servicing rebate that is currently provided to retailers who collect and remit the state sales tax. There is never a good time to raise taxes, but the worst time of all to raise taxes is in the midst of a recession, when families and businesses have less money.



We are concerned by the Governor’s recommendation to grant early release to thousands of prison inmates. Current law allows the Director of the Department of Corrections to release inmates up to 30 days prior to end of the schedule sentence. The Governor has proposed increasing this automatic release provision to 90 days. This could result in thousands of prison inmates being released early and undermine the foundation of our truth in sentencing efforts.



While the Governor has proposed a 15% spending reduction for Virginia’s colleges and universities, he has done nothing to prohibit colleges and universities from passing these reductions directly on to students in the form of higher tuition. Tuition for in state students has increased by 93% since the freeze on tuition was lifted in 2002, and we must guard against runaway tuition increases, which makes a higher education less affordable for many students.



Finally, the Governor has proposed $3.6M in reductions for the Virginia Economic Development Partnership and the Virginia Tourism Council. To better position Virginia to take advantage of the economic recovery when it occurs, we should not be making reductions in important economic development and tourism promotion programs.



There is one other aspect of the Governor’s budget recommendations that concerns me greatly.



As discussed above, a significant part of the budget shortfalls we face this year are due to the overly optimistic revenue projections the Governor included in his budget last year. I am concerned that the Governor’s revised budget continues to embrace overly optimistic revenue projections.



While Virginia’s tax collections are currently lagging 4.4% behind last year’s rates, the Governor’s budget assumes that we will have 4.1% revenue growth in the fiscal year beginning July 1, 2009. Unfortunately, I see little evidence that economic growth is improving.



While it would be nice to think that we would see economic growth of 4.1% in the next fiscal year, if we base our spending patterns on such an assumption and fail to achieve those goals we will be faced with another significant budget shortfall next year.



I would give the Governor the same advice I gave him last year – base the budget on a more conservative revenue projection and adjust spending accordingly. In that way, if we exceed our revenue projections we will enjoy a budget surplus, as opposed to having another budget shortfall for the third year in a row.



Needless to say, the budget decisions that the General Assembly must make this year will not be easy. To find solutions to these budget challenges we must work together on a bipartisan basis, but the two controlling goals should be to 1) balance the budget through spending reductions and not higher taxes, and 2) make certain that we base future budget actions on realistic revenue projections.



If you would like to share your views on the state budget with me, you can contact me directly by email at bill.bolling@ltgov.virginia.gov or you can call my office at (804) 786-2078. I would welcome your input.



In next week’s edition of The Bolling Report, I will talk about my 2009 Legislative Agenda.

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