by Dick Hall-Sizemore
If anyone needs concrete evidence that the 2024 General Assembly had more money for the 2024-2026 biennial budget that it could responsibly spend, he need only to examine one little-known item in the budget: capital maintenance reserve (MR).
In an earlier article, I examined this budget item and identified five agencies that likely could get through the upcoming biennium using only their existing balances without any additional appropriation. That would have resulted in a saving of about $200 million.
This article is a follow-up to that earlier analysis and examines what approach the legislature took. The conclusion: rather than cut off any additional money because these agencies already had enough, the legislature gave four of them more than the governor had recommended and, for the fifth one, decreased the governor’s recommendation only slightly.
The earlier analysis had been based on the assumption that agency expenditures in FY 2024 would be close to their average expenditures for the most recent five years. As it happened, the FY 2024 expenditures for all the agencies exceeded their five-year average, only slightly for one and significantly for others. As a result, even assuming that their annual expenditures over the next two years of the biennium would equal their above-average FY 2024 expenditures, three of the agencies would have been able to get through the upcoming biennium just using their maintenance reserve appropriation balance on June 30, 2024, without any additional appropriation. The other two agencies would have been able to get through FY 2025 without any additional appropriation and may have needed only a supplement for FY 2026 in the 2025 session.
The table below summarizes the relevant data. The key rows are: “Balance, 6/30/2024”, “Available, 2025-2026”, and the annual average expenditures. The FY 2024 expenditures for the Dept. of General Services (DGS) and Virginia Commonwealth University (VCU) were significantly above their five-year averages. Even so, the June 30, 3024 balances alone for both agencies would have been sufficient for FY 2025 with perhaps a supplement needed from the 2025 session for FY 2026. The FY 2024 end-of-year balances for the other three agencies—the Virginia Community College System (VCCS), the Dept. of Behavioral Health and Developmental Services (DBHDS), and the Department of Corrections (DOC)—would have been sufficient for the next two years, even if the agencies had continued to spend at their elevated FY 2024 levels. However, the legislature provided them a total of $152.7 million in appropriation for the next two years that they very likely will not spend.
The most egregious over-appropriation is that for DOC. The largest annual expenditure for maintenance reserve for the agency was $13.8 million in FY 2023. Yet, the legislature provided an additional $25.1 million for FY 2025 and $50.4 million for FY 2026! To make the situation even more ludicrous, DOC was proposing to close several prisons, which would have decreased its need for maintenance reserve funding. As it now stands, the agency will have more than $125 million to spend on MR over the next two years.
As noted in the previous article, “It needs to be stressed that this conclusion does not reflect the actual need for MR funding. Each agency likely could justify on paper its need for the additional appropriations at issue and, possibly, for even more than is being proposed.” However, the question is whether the agencies are able to spend the money they are provided each year. For whatever reason, these agencies, especially three of them, have not been able to do so, thereby building up large balances.
Rather than take reality into account, the governor and General Assembly just keep throwing more money at them.
My Soapbox
Capital outlay is a section of the budget that relatively few in state government or the legislature pay any attention to. There is a general consensus that the state, with numerous older buildings, is faced with a lot of deferred maintenance. Funding for maintenance reserves projects is the principal method of dealing with this issue.
At one point in the past, the allocation among agencies of the total amount identified for maintenance reserve was based on the amount of square footage in buildings more than five years old. Often, such formulas get put on “auto-pilot” and are not updated. In addition, there is a reluctance to reduce an agency’s maintenance reserve allocation.
If any of the analysts in the Dept. of Planning and Budget (DPB) looked at the actual expenditures and growing balances in any agency’s maintenance reserve project and recommended a moratorium on funding, the Secretary of Finance and the governor’s office did not follow any such recommendation.
I know one of the money committee staff analysts was aware of this situation because I discussed it with him/her before the last session. Whether either one of the capital subcommittees was presented with evidence that VCCS, DBHDS, and DOC were not spending all of their annual MR appropriations and were building up sizable balances, I don’t know. Even if they were, obviously, it did not matter. Given the availability of more than enough money to go around, it was easier to provide more money for MR, while feeling like they were doing something to further reduce deferred maintenance.