Rosy Scenario Makes a Return

Back when the Reagan administration was trying to make their failed “supply side economics” appear valid, some wag joked that “the most popular woman in the Reagan White House is Rosy Scenario.” Now, Rosy has taken up residence in the Governor’s Mansion in Richmond.

Last week, Bob McDonnell trotted out and told reporters that Virginia had – gasp – a “budget surplus,” for which he happily took credit. Ah, but that “surplus” is in the eye of the beholder.

Ask the people who won’t receive medical care because of state cuts in Medicaid if there’s a surplus. Ask the teachers, firefighters, and municipal workers laid off all over the state if there is a surplus. Ask the trustees of the Virginia Retirement System (VRS) that provided the cushion in funds that cooked these books if there is a surplus.

Mark Rozell of George Mason University explained exactly how this “surplus” was engineered.

“Anyone who works in the state public sector understands and has experienced that there is a real budget shortfall in Virginia. So, although it’s politically beneficial for the governor to mention that the budget carries an actual surplus, it doesn’t tell the real story of the fiscal situation in state government.”

The General Assembly created the possibility the state would have the illusion of a surplus by passing a bill the contained extremely conservative revenue forecasts, coupled with not paying the state’s fourth quarter payments into the VRS trust fund. That, plus making a 3% state employee bonus contingent on the state having $83 million in “surplus funds” by July 1, “balanced” the budget.

Hmmm. With that kind of economic thinking, maybe I should “defer” paying my mortgage for three months and then declare that – magically – I have a “surplus” in my bank account. Then, I could give myself a “bonus.”

There is only one way that a budget, whether a household budget or a state budget, can be in surplus. After paying all the bills due, there is more revenue on hand than expenses paid out. There is no surplus if revenue is created by not paying obligations.

For the state of Virginia to be running a surplus, it would have to pay the share of VRS funding it didn’t pay on time and still have money left over. That won’t happen. Instead, McDonnell will gladly take political credit for giving state workers a bonus that they really do deserve. It’s been years since state employees got a raise.

However, the poorest Virginians deserve medical care just as much. The people who lost home health care through Medicaid need care just as much. The people who won’t receive mental health services because of budget cuts deserve care just as much.

So, what’s the difference? A very large percentage of state workers vote. Don’t doubt for a minute that McDonnell and the GOP will remind those voters about the bonus – over and over – in 2011. The poor and needy don’t vote in large numbers. They don’t have lobbyists in Richmond raising money for politicians’ campaigns.  

Here’s a final reminder to all of us who rely on VRS for our pensions. When the state uses its obligations to our pension system as a piggy bank to be raided every time hard budget decisions have to be made, we all stand to lose. Other states have been down that path. As Robert Powell noted a few months ago in the Wall Street Journal, far too many state pension systems are “a train wreck waiting to happen.”

Virginia has always, on a bipartisan basis, carefully guarded the health of its state pension system. I hope that recent budget actions – plus the glaringly bad appointment of Diana Cantor, a Goldman Sachs alumna and wife of Rep. Eric Cantor (R-7th), to be chair of the board of trustees of the VRS – aren’t portends of  future problems.

When a board member who is an economics professor and has served on the board since 1994 calls Cantor’s appointment a mistake, it’s pretty chilling. It’s time for VRS to be given a governing board that is not political, but rather is based on proven ability to make prudent investment decisions. And…it’s time for a constitutional amendment that requires Virginia to fully fund its pension system.