Gov. Timothy M. Kaine has done a yeoman’s job squeezing spending out of the state government administration (see previous post), and he’s entitled to reallocate those savings — more than $350 million a year, if I understand correctly — to new priorities. Kaine also deserves a small measure of praise for showing relative spending restraint. The roughly $78 billion biennial budget for the next two years (FY 2009 and 2010) is only five to six percent bigger than the current two-year budget — a growth rate that roughly tracks projected inflation/population growth — and the smallest increase since the recession early this decade.

But the budget package Kaine outlined yesterday has significant flaws.

Rainy Day Fund. Kaine still wants to withdraw $261 million from the Rainy Day Fund, the maximum allowed by the state constitution, to plug a spending hole in the current, FY 2008 budget. Bad idea. Even if the state is legally entitled to do so, the current level of economic hardship doesn’t rise to the level where we should deplete our main safeguard against hard times.

Diverting Transportation Trust Fund Revenues. I didn’t pick this up in the news accounts or in the Governor’s speech, but a statement issued by the Republican leadership of the General Assembly states that Kaine also “plans on diverting $180 million from the Transportation Trust Fund in Fiscal Year 2008 so he can fund new or expanded non-transportation programs.” Excuse me, but didn’t Kaine vow early in his administation to fight for a constitutional amendment to prevent precisely such raids on the transportation trust fund? Excuse me, but isn’t this a beluga whale-sized flip flop? Excuse me, but where is the friggin’ outrage?

$3 Billion in New debt. Kaine has proposed issuing a total of $3.2 billion in new debt — again, according to the Republican leadership. While the higher ed initiative in particular has merit (see previous post), there are limits to how much the state can prudently borrow. The added debt would bring the Commonwealth “to the brink of its debt capacity limit,” says incoming House Appropriations Chairman Lacy Putney. That’s a risky maneuver considering the “exceedingly optimistic” assumptions the Governor makes regarding rebounding budget revenues in fiscal 2010.

I recall the Democrats making wisecracks and waving credit cards in mock outrage when the Republicans proposed borrowing a much smaller sum of money a year or two back to fund transportation improvements. I wonder if they will express any objections to the borrowing binge proposed by their friend, the Governor.

Putney concludes: “If only one of these constructs were central to the Governor’s budget proposal, lawmakers would justifiably question its wisdom and its potential effects. With all of them and more as integral components of his plan, it jeopardizes the Commonwealth’s hard-earned reputation for fiscal responsibility and brings into question the overall soundness and long-term fiscal integrity of the proposal. The Governor’s budget proposal is built on the premise of begging and borrowing to the point of being reckless.”

That about sums it up.

Key sources:
Gov. Kaine’s proposed FY 2009-2010 budget
Governor’s remarks to House and Senate money committees
Briefing by the Secretary of Finance
Reaction of General Assembly Republicans

(Update: I checked with Gordon Hickey, Gov. Kaine’s press secretary, to find out what the story was with the $180 million switcheroo. Hickey says that Kaine proposes moving $180 million in General Fund transportation spending to 2010 when the projects cited in the enabling legislation will come online. The money is not being spent on other priorities, Hickey says: The spending is being deferred. He insists that the money is not coming out of the Transportation Trust Fund. Any communications to that effect are simply wrong.