Virginia has a strong economy and a budget surplus now but faces major fiscal challenges ahead, warns Secretary of Finance Jody M. Wagner. Speaking to the Hampton Roads Tax Forum, Wagner offered a two-pronged argument: (1) that much of the state’s surging revenue comes from volatile sources such as corporate income taxes, capital gains and real estate recordation taxes that may not be sustainable; and (2) a new accounting standards will require state and local governments to report retirement liabilities differently. Funding for the Virginia Retirement System, she said, is only 82 to 85 percent of where it needs to be. And, of course, there’s the Medicaid bugaboo that continues to consume an ever-larger share of the budget.

Wagner apparently did not draw any policy implications — at least nothing mentioned by Tom Shean, the Virginian-Pilot reporter who covered the speech. But that hasn’t stopped a number of pundits from sounding the klaxon of imminent fiscal disaster unless Virginia raises taxes, preferably for the cause du jour, transportation.

Prudence dictates that Virginia base future spending plans upon cautious budget forecasts. Better to enjoy a surplus than suffer a deficit. But prudence likewise dictates that Virginia not increase taxes, as it did in 2004, in anticipation of deficits that may or may not materialize in the future. If the fiscal situation deteriorates, it makes more sense to deal with the situation then as it is — not now, as we think it might be.