What’s
a “Budget Shortfall?
Gov.
Warner has cited the existence of a “$6 Billion Budget
Shortfall” as justification for higher taxes. Just
what is a “budget shortfall"? Your intrepid
correspondent digs for answers.
A
key to winning in politics, as fellow columnist Paul
Goldman often reminds me, is to put your number out
there first. The first guy to get his number into the
public domain will frame the terms of any debate.
That’s
exactly what advocates of tax and spending increases
have done in Virginia. The
number hovering over this year’s debate over budgets
and taxes – the infamous “$6 billion budget
shortfall” – has given Gov. Mark Warner and his
pro-spending allies the initiative throughout the
session. Given the presumption of massive imbalances
between revenues and needs, “anti-tax” forces in the
House of Delegates have made concession after
concession. The only questions left to be resolved are
how much taxes, fees and revenue enhancements will
increase, and who will pay them.
Remarkably,
no one has seen fit to ask, just what is
a “budget shortfall”? Where does that oft-cited $6
billion figure come from? And what does it mean?
Your
enterprising correspondent has undertaken the mission of
penetrating this budgetary penumbra. My findings: The $6
billion number is based on real, defensible numbers. At
the same time, it is politically inspired –
crafted to create the impression that a short-term budgetary
shortfall is in fact a revenue
shortfall that requires higher
taxes for the long-term fiscal health of the
Commonwealth.
I
tip my hat to the author of this number, whoever you are.
The $6 billion figure is a political master stroke. I
admire your ingenuity. Having framed the issues to your
advantage, you are very close now to winning your higher
taxes. By yanking the veil from the "budget
shortfall," I feel like the killjoys who plan to
reveal the secrets of Houdini’s escape stunts. Yet
as a resolute foe of tax increases, I have no choice.
Before
digging into the numbers behind the number, let us see
how the $6 billion figure has been used. Here’s what
Gov. Warner said in his January
State
of
the Commonwealth Address:
“Since I have been in office, we have cut
state government more than any administration in Virginia
history.
·
We have closed the largest budget shortfall in Virginia's
history - more
than $6 billion.
·
We have reduced state agency spending by 20% on average.
·
We have eliminated more than 50 agencies, boards, and commissions -
and thousands of positions in state government.
·
And we are fundamentally changing the way we do business in
government to achieve maximum efficiency and savings.”
Note
how the governor couples the “$6 billion” figure
with the phrase “cut state government more than any
administration in Virginia history” and other actions,
such as slashing agency spending, eliminating agencies,
boards and commissions and boosting government
efficiency.
Gov.
Warner repeated that formulation over and over when he
took his case for “tax reform” on the road. Although
the governor added some caveats and clarifications in
the speech that I heard, the thrust remained very much
the same. Here’s how his PowerPoint presentation
summarizes the picture:
"The Warner administration has instituted
sweeping reforms to ensure accountability to taxpayers
and restore Virginia’s
fiscal stability. We have worked with the General
Assembly to close a
$6 billion shortfall:
o
Eliminated more than 50 agencies, boards and commissions
o Eliminated 5,000 positions from state government
o Cut every agency by an average of 20 percent
o Produced significant savings through government-wide efficiency
plans"
I
have scrutinized the budget-cutting claims elsewhere.
(See “Paper
Cuts,”
March
1, 2004.)
My intention here is to show how, by linking the “$6
billion shortfall” to his budget-cutting initiatives,
the governor has created considerable confusion.
Before
reading on, pause a moment and think: What impression
does the juxtaposition of these numbers create in your
mind? What conclusions do you
draw regarding how the Warner administration addressed
the budget crisis?
Let's
see what impression such words created for others. The
first example comes from a column penned by Dr. Ronald E.
Carrier, former president of James Madison University
and a veteran of Virginia budgetary battles, which we
carried in Bacon’s Rebellion ("What's
Right About Warner's Tax Plan", January 19,
2004). Wrote Carrier: “A record $6 billion in revenue shortfalls
has challenged Warner since he took office in early
2002.”
Then
comes this from an op-ed written by former Congressman G.
William Whitehurst, now a lecturer at Old Dominion
University and no neophyte when it comes to government
budgeting, published in the Richmond-Times
Dispatch: “State services and institutions are
still reeling from the impact of more than $6 billion
in budget cuts over the past two years.”
What
is a "budget
shortfall" -- a revenue reduction? A budget cut? A
spending cut? Or
something else entirely? Read the editorials in your own
newspaper, and I’m sure you’ll find the confusion
replicated endlessly. As I will show below, both Carrier
and Whitehurst used the numbers inaccurately, though
it's easy to see why, given how the Warner
administration has packaged them.
One
could argue that the Warner
administration should not be held accountable for how
friends, allies and sympathizers mis-handle the $6
billion number -- especially given the fact that, as far
as I have seen, the governor has stuck to the literal
truth in his speeches and presentations. However, I
would argue that the fuzziness of the term serves
the governor’s ends by fostering the sense of fiscal
crisis that justifies a $1
billion-per-biennium in tax hikes.
One
more note before I plunge into the thicket of figures:
my goal is not to diminish Gov. Warner’s
accomplishment in dealing with an exceedingly difficult
budgetary challenge when coming to office in January
2002. He took quick and decisive action to balance a
budget that was badly out of kilter, and he took
proactive measures to ensure that the budget stayed
balance over the next two years. Good job! (Round
of applause!
)
My
quarrel with the governor is the way he has
characterized the budget crisis in order to advance his cause of
raising taxes. Shame, shame! (Jeers and catcalls.)
I
asked Pam Currey, deputy secretary of finance, how the
Warner administration derived the $6 billion figure. She pulled together a detailed
explanation and answered all of my questions. Should you entertain any doubts
or questions about my analysis,
you can refer to her own words here.
Here
are the key points that will help the public put the "$6 billion shortfall"
in Virginia's General Fund budget in perspective:
-
The
budget shortfall consists of two main components: a $3 billion
revenue shortfall over three years,
attributable to the recession, and $3.1 billion
in "required new spending" that hadn't
been provided for in the budgets. This spending,
explains Currey, consists of greater-than-budgeted
obligations that the state legally must meet unless
there is a change of legislation. Major categories
include Medicaid, prisons, K-12 education, a
juvenile youth program and reimbursements for local
car-tax relief.
-
Gov.
Warner and the General Assembly enacted
approximately $3.3 billion in spending cuts over the
three years -- for a net cut in General Fund
spending of about $200 million over three years!
These cuts were perceived as acutely painful because they were
concentrated in the area of administrative overhead,
but it is grotesquely erroneous to suggest, as some
observers have, that the state has
"cut spending" by $6 billion.
- Lawmakers made up $420 million of the
shortfall through permanent new fee
increases and other revenue enhancements.
- Lawmakers made up
$841 million of the "shortfall" by drawing
down the Revenue Stabilization Fund (better known as
the Rainy Day fund).
-
Lawmakers
made up the rest, about $1.5 billion, through
"alternate sources of funding" and
"resource adjustments," most of which
which can be fairly described as one-time sources
and accounting gimmicks.
Currey
argues, persuasively, I think, that those accounting
gimmicks represent one-time fixes that can't be repeated
and, indeed, in the name of fiscal responsibility,
should be eliminated. They represent a form of
borrowing against the future -- a temporarily
distasteful measure to get through hard times -- and a claim on state resources going forward.
Gov.
Warner deserves kudos for wanting to restore integrity
to the budgeting process. But he also needs to be
straight with the public. If he'd said, "We need to
raise taxes to redress the billion dollars or so in
funny-money accounting we used to get through the
recession," I wouldn't have a problem. I can't say
I'd agree with him on the need to raise taxes, but I'd
respect him for stating the problem clearly and fairly.
But
it's not kosher to tell Virginians that the state had a
"$6 billion shortfall" in such a way that
people mistakenly draw the conclusion that the state has
gone through some hideous downsizing. Yes, the governor
did hack out a lot of administrative overhead, but
program spending has expanded without let-up, and state government is no smaller today than it was when the
recession began.
-- March 29, 2004
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