Preston Bryant is a Republican who has represented Lynchburg and part of Amherst County in the Virginia House of Delgates since 1996. Preston Bryant Preston Bryant column archive Join A Discussion Reprint Email this Article

Monday, May 24, 2004

The news from Richmond last week was that the economy has continued rebounding and the state treasury is growing more than expected. It’s predicted that the state may end up with a healthy surplus.

State economists early on had forecast Virginia’s revenue growth this year at 6.7 percent. The latest figures, however, peg it at 9.5 percent, suggesting that the current fiscal year, which ends June 30, may show a $300 million surplus.

This is somewhat reminiscent of the late ’90s, when then-Gov. Jim Gilmore was enjoying unanticipated revenue growth. His year-to-date income at times ran 12-13 percent, a handful of points ahead of what his own financial wizards had predicted. Gilmore, a Republican, closed out the books one year with an unprecedented surplus hovering around the billion-dollar mark. The growth he experienced, not unlike that which is being seen now, came from a naturally expanding economy that yielded bigger boosts than expected in state sales, personal income, and corporate income tax collections.

Such growth in the Gilmore years, however, proved quite anomalous. It shouldn’t be forgotten that the state’s annual growth rate, when reviewed over a decade or so, generally has been in the 4-6 percent range. Revenue figures that are roughly double the historic average can’t really be considered sustainable.

In those boom years, Virginia’s executive and legislative budget-writers acted as though double-digit growth rates would be the norm and endure forever. While it’s true that some of the newfound loot was returned to taxpayers by way of tax cuts and credits, Gilmore and legislators also plowed more and more money into the recurring expenses of everyday government programs.

And it’s those everyday, programmatic expenses that get you in trouble if not kept in check. It’s here that government grows. And grows. And grows.

Let’s, in fact, look back at that late-’90s boom and then forward ahead to the early-millennium recession, the one that’s just now receding. During the dotcom economic explosion, so much of the state’s newfound cash had been put into recurring expenses that when the recession hit – only to be compounded by the 9/11 attacks – the drop-off was sudden, severe, and steep. Those fattened government programs were quickly cash-starved. And that’s the phenomenon that led to the big shortfalls Virginia’s budget has experienced since about 2001, requiring some $3 billion in cuts and another $3 billion in shifts in order to produce annually balanced books.

So what about the current “surplus”? Is it really a surplus? And if it is, what should be done with it?

Well, if you subscribe to the view that we need to pour even more money into government spending – over and above what the 2004 General Assembly’s billion-dollar-plus tax-reform package will produce – then we really don’t have a per se surplus. To be sure, there are more than a few legislators – Republicans and Democrats, delegates and senators – who will want to spend every bit of the extra dough.

But a greater number of delegates and senators likely will want to save the surplus or begin returning it to Virginians through tax cuts. This is the position that’s likely to prevail – after all, next year is an election year for all 100 members of the House of Delegates.

By law, a certain percentage of any year-end surplus must be deposited into two specific funds: the state’s Rainy Day Fund (a big savings account that can only be tapped in serious economic downturns) and the Water Quality Improvement Fund, which helps local governments invest in clean-water programs and infrastructure.

Any surplus left over after these statutory deposits have been made likely will go toward fixing the big accounting gimmick that been embedded in the state’s books for several years. That’s the so-called accelerated sales tax, where the state requires some of the larger retailers to anticipate their July sales taxes and pay them a month early, a sleight-of-hand that allows the state to end June – and thus its fiscal year – in a better financial position than is otherwise the case. Correcting that dishonest bit of bookkeeping requires a one-time adjustment of more than $180 million, which is about two-thirds of the projected surplus.

If there’s a prudent tax cut to be made from any bounty left over after the reserve account and WQIF deposits are made, it’d be another increase in the personal income tax deduction. The legislature just raised the annual per-person tax break from $800 to $900, effective January 2005. Many would like to boost it another hundred bucks to $1,000.

It’s hoped that next year’s General Assembly will be a lot different than the raucous one just completed, where so many legislators nearly came to blows over tax and budget policies. It wouldn’t be too soon if Republican House and Senate leaders started working this summer with Gov. Mark Warner, a Democrat, on ’05 budget priorities, including what to do with leftover ’04 money.

Like beauty, surpluses are in the eye of the beholder. Let’s just hope they don’t lead to black eyes.