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At $585 million, Virginia sees biggest budget surplus since '05

Gov. McDonnell said that by the end of his 2014-16 farewell budget, the state's rainy day reserve will hit roughly $1 billion.

Bob McDonnell

Olympia Meola | Richmond Times-Dispatch

Tuesday, August 20, 2013

Virginia wrapped up the last fiscal year with $585 million in the drawer, the largest surplus since 2005, much of which is already earmarked for specific spending.

The surplus for the fiscal year that ended June 30 combines $264.3 million in revenues that exceeded projections, plus $320.7 million in savings. Gov. Bob McDonnell outlined the figures in a speech to legislators on the House of Delegates and Virginia Senate money committees in Richmond.

In one of his few remaining speeches to lawmakers, he touted the work of his administration and said that by the end of his 2014-16 farewell budget, the state’s rainy day reserve will hit roughly $1 billion.

The governor said that as far as Secretary of Finance Ric Brown can determine, the four-year cumulative budget surplus of about $2 billion is the largest ever compiled by one administration.

Virginia posted a higher one-year surplus of $735.8 million in the fiscal year that ended June 30, 2005, near the end of Democratic Gov. Mark Warner’s term.

Looking ahead to challenges that the state will face long after he leaves office in January, McDonnell cautioned about the repercussions of uncertainty from Washington.

“As we approach this next budget development, that makes our job, I think, even that much more difficult. I think we’ve done well together navigating the unprecedented economic uncertainty,” he said.

“How we deal with this federal uncertainty, I think, will be the number one factor that guides budget development in the 2015-2016 cycle.”

Most of the surplus is already dedicated, with deposits to the water quality improvement fund, the state’s rainy day fund, the transportation trust fund, mandatory reappropriations and a cushion account designed to blunt the impact of federal cuts.

The balances and unspent general fund money will be “carefully reviewed” during the budget development process, which will soon start, to determine how much should be returned to spending for the same purposes or be used for other things.

“Suffice it to say, with these numbers I’ve just presented to you that we start the budget development year in pretty good shape,” he said.

Based off the unspent balance figures, McDonnell could have roughly $100 million in unobligated money as he enters the budget-development process.

He said of net general fund operating spending between 2007 and 2013, “We only had a total increase of .3 percent in general fund spending.”

“That equates to about a spending increase of one-tenth of 1 percent a year in general fund spending, which of course is well below the growth rate of inflation and population over that same period of time.”

The Commonwealth Institute, a left-of-center think tank, said when McDonnell made that claim, “he failed to mention the pain caused by the state’s failure to invest in critical services in order to achieve this goal.”

State support has dropped for Virginia’s colleges and universities and K-12 school construction among other things, writes Laura Goren, policy analyst with the Institute. Much of the cuts were driven by hits to revenue during the recession, she said, adding that between the 2010-2013 fiscal year budgets, spending grew at an annual average rate of 3 percent allowing the state to begin restoring services.

“Holding the line on state spending makes a nice talking point, but we need to acknowledge the real hits to the state’s families and schools caused by deep cuts to critical core services,” she writes.

McDonnell’s term ends in January. While McDonnell will seek to fund his priorities even on his way out of office, the legislature has a number of weighty issues to handle in the upcoming fiscal plan, including the Virginia Retirement System.

Virginia faces an estimated $160 million in additional state contributions to VRS in each year of the two-year budget that the General Assembly and the next governor will adopt in 2014 as a result of failing to fully fund pensions for state employees and teachers.

Saturday, September 14, 2013