The Senate Finance Committee held a retreat a few weeks ago regarding the current budget situation. You can read the briefings here.The bottom line is that while the economy and tax revenue have improved, revenue is still below budgeted projections which means the state budget must be cut the budget again. The Senate Finance Commitee is projecting about $200 million in cuts.
This year's budgeted General Fund revenues are projected to be slightly above collections from five years ago - 2005. We are still in a weak economy.
Moving into FY 2012, things are not likely to get markedly better given that the current budget holes were plugged using substantial amounts of federal stimulus funding such as the recent receipt of $200 million of Federal Medicaid monies.
The Senate Finance Committee also pointed out that the three largest debt authorizations in the history of the Commonwealth have occured since 2007. Debt service is now the sixth largest program in the General Fund behind Public Education, Medicaid, Higher Education, Adult & Juvenile Corrections and the Car Tax Repeal. The use of debt has been driven by lagging General Fund and transportation revenues. The General Assembly also authorized an additional $1.3 billion of debt, but because of lagging revenue growth, the Commonwealth is prohibited by statute from issuing the debt due to statutory debt limits. The purpose of the cap is to ensure Virginia's AAA bond rating which keeps interest rates down and is a fiscally conservative policy.
The trends are troubling. Last session, about $300 million of our $2 billion budget hole were closed with "revenue adjustments" which have now proven to have been overly optimistic (wrong). Last year's budget hole was also plugged using a number of gimmicks including deferring over $600 million of retirement fund contributions - one of many reasons I voted "no" on the final budget.
We can only continue to avoid dealing with reality for so long. Virginia faces significant structural imbalances in its General Fund and Transportation Trust Fund. Until something is done to address these problems, Virginia's residents should not expect to see significant improvements to education, improved affordability higher education, or any relief to transportation gridlock.
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