by James A. Bacon
Critics of Virginia’s state constitution often point to the one-term limit for governors as a source of dysfunctional governance. The state’s chief executives have little time to put their imprint on policy and the budget before they’re gone. But it is precisely that term limit — and the resulting shifting of budgeting power to professional budget and finance officials — that the Volcker Alliance points to as a strength of Virginia’s budgeting process.
“Professional budget and finance officials in Virginia tend to last through multiple administrations, while governors are barred by the state constitution from serving a second consecutive four-year term and thus have relatively limited influence over the biennial budget cycle,” states the Volcker Alliance report, “Truth and Integrity in State Budgeting.” As a consequence, the report summarizes, Virginia has a budgetary policy “that is more administrative than political.”
The Volcker Alliance, launched in 2013 by former Federal Reserve Board Chairman Paul Volcker, praises Virginia’s budget process overall, although it does note some areas where it could stand improvement. The study provides an in-depth look at the budgets of California, New Jersey and Virginia as part of an ongoing effort to shine a light on opaque and confusing budget practices and encourage best budgeting practices. Among the study’s main observations of the Virginia budget:
Revenue forecasting. Revenue forecasting is a strength of the Virginia budget. Forecasts are based upon input from the Joint Advisory Board of Economists and from the Governor’s Advisory Council on Revenue Estimates, two statutorily established panels. “While the practice does not guarantee more-accurate forecasts,” the study states, “its wide range of inputs allows political leaders to focus more on the debate about expenditures than on a debate about the level of revenue.”
In actual practice, the forecasts missed the downturn in state income tax revenues stemming from a downturn in capital gains income when president George W. Bush’s tax cuts expired in 2012. But the system recovered fairly quickly.
Either because it was late in the budget process or because the governor was unwilling to re-estimate revenue by year-end, the fiscal 2015-2016 biennial budget was not adjusted downward for $1.55 billion in diminished revenue expectations ($950 million in 2015 and $600 million in 2016). Still, the so-called money committees — House Appropriations and Senate Finance — subsequently adjusted appropriations to address the expected shortfall. Their actions included zeroing out most discretionary spending increases and preparing to tap the Revenue Stabilization Fund, the state’s rainy day fund, if needed.
Borrowing.
Maintaining Virginia’s AAA credit rating imposes a “powerful discipline” on policy makers. “Total borrowing is limited by how much the state has received in the last three years from income and sales taxes. Virginia avoids using bond premiums for its general fund; leaders instead use the proceeds to reduce borrowing.”
Transferring revenues and costs. Not so admirable was Virginia’s use of an accelerated sales tax program in 2009 that obligated many businesses to prepay a year of expected levies — an initiative the state has yet to fully reverse. The state also allows for transferring costs from one fiscal year to the next within the biennium.
Pension funding. While Virginia fell way behind it its pension funding, it has been aggressive in recent years to restore the Virginia Retirement System to fiscal health.
The pension is underfunded compared with other states, with actuarial assets only 65% of liabilities in fiscal 2013 — the legacy of years of underfunding. Wilshire Consulting estimates that the funding ratio for state funding plans nationwide was 75 percent in 2013, up from 72% in 2012. (By 2014, the estimate of the funding ratio had risen to 80 percent.)
While Virginia has historically not paid the full amount that actuaries recommend for the annual contribution, it is moving toward full annual funding. The General Assembly has put itself on a schedule to increase funding each year until it hits 100 percent of the recommended contribution in fiscal 2019.
On the positive side, Virginia’s unfunded liability for other post-employment benefits is modest — $649 per capita compared to a 50-state median of $1,023.
Rainy day fund. Virginia has a well-defined policy for deposits into and withdrawals from the Revenue Stabilization Fund.
Deferred maintenance. Virginia has been falling behind in its building maintenance. In 2009 the Auditor of Public Accounts identified $3.3 billion in deferred maintenance of state buildings, more than twice the amount recorded four years earlier. Plans to regularly update that number were shelved after the recession! And according to a 2013 American Society of Civil Engineers report, 6 percent of Virginia’s roads are in poor condition, while 26% of its bridges are either structurally deficient or functionally obsolete. But the study notes that Virginia broke with its “low-tax, project-underfunding practices” with the passage of tax increases that are expected to raise $6 billion for transportation over five years.
(Hat tip: Les Schreiber)
Leave a Reply
You must be logged in to post a comment.