Budget “Surplus” Lie Grows Like Pinocchio’s Nose

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    Brace yourselves, folks. Not only have the state’s Republicans hypocritically refused to acknowledge the importance of federal stimulus money to saving vital state services, but Bob McDonnell has promised once more to enlarge on the lie that the state budget has a surplus, promising reporters, “I’ll see you Thursday,” the day I fully expect him to tout the “enlargement” of the so-called surplus to about $400 million. Well, let’s look at that “surplus” the way a teacher of math might.

    The Virginia biennial budget, largely written by outgoing Gov. Kaine and changed by the General Assembly early this year to avoid adding any revenue, was “balanced” by cutting programs for the poor, the mentally ill, children in school, local law enforcement, college students, etc. You get the idea.

    Thanks to the two stimulus bills regularly trashed by the GOP at the same time that Republicans are proudly cutting ribbons on local stimulus-funded projects and using the funds to restore some of the draconian cuts to education and public health, the worst effects of refusing to raise revenue have been avoided. Even with all those cuts and federal money, however, the state legislature couldn’t balance the books. So, they resorted to accounting tricks.

    By requiring merchants to turn in June sales tax receipts a month early, legislators effectively got 13 months of sales tax revenues by the end of the 12-month fiscal year. Still unbalanced, the budget then was put into phony balance by “borrowing” a $620 million payment the state was supposed to make to the Virginia Retirement System, instead giving VRS an IOU saying the money would be paid to the fund, plus interest, starting in 2013 and ending in 2023. So, that’s the “Pinochio nose” in Virginia’s “balanced” budget.

    Here are the real accounting figures:

    First, Virginia borrowed hundreds of millions of revenue dollars from the fiscal year we are now in. About 1,000 of the state’s largest merchants were forced to pay an estimated June sales tax by June 15, rather than July 1. So, to get the real budget numbers, subtract approximately $227 million from that $400 million “surplus.” $400m – 227m = $173m “surplus.”

    If you’re wondering what we will do with the $227 million deficit the present fiscal year budget starts with, worry not. We are going to pull the same sale tax accounting trick next year. (By the way, the budget just passed started with a left-over “surplus” of $423 million that reverted to the General Fund, but we’ll just ignore that since it, too, was produced by cooking the books.)

    Now, let’s do the VRS arithmetic. Our $173 million “surplus” must now be reduced by $620 million. So, the budget, as of this moment, is NOT in surplus. Instead, we have a $447 million deficit (173m – 620m = -447m) going into the second half of the biennial budget. But, not to worry. Remember, we aren’t going to start paying back that $620 million the state borrowed from VRS until 2013. So, that problem is one for the next governor to work out. Meanwhile, we all get to hear Bob McDonnell tell us how he produced a “budget surplus.” Aren’t we lucky?

    You know, I think I’ll just suggest that all Virginia workers ask their bosses to pay their next paycheck early so they will have more money in their pockets for those back-to-school sales. Plus, maybe they can convince Social Security not to take any of the tax money they owe that retirement fund this year if they promise to pay the money back with interest over a 10-year period, starting in 2013. What, you don’t think that could ever happen? Just ask Bob McDonnell how he pulled it off. He even gets to claim credit for a “surplus.”

    • dgjudy

      …we’ve got us a surplus!!

      Prepare to hear that argument in January if not before.  The setup is just too obvious this time, and McDonnell is clearly in the early stages of the big push.

      As today’s WaPo shows, a separate (and equally fatuous) argument is circulating that the sale of liquor stores will somehow be revenue-positive in the long run.  I’ve tried (at that link) to point out some of the flaws in the argument (it boils down to asserting that private liquor retailers are so friendly they’ll gladly give back most of their profits in higher taxes).

      In a perfect world these arguments would be scrutinized by every one who hears them.  In reality the appeal to authority will be presented at every turn.  “State officials” have said we have a surplus!  The Washington Post’s Business Section has said that the VABC privatization won’t reduce overall revenue!  Wow!

      Understanding the flaws in these arguments, and pushing back early, is going to be critical to prevent McDonnell from completely framing the issue his way.