Budget Balancing by Deception

I’d like to underline Ward Armstrong’s comments about how we in Virginia have been fooled about the state budget that was passed early this year . Since we are in an economic recovery that will be slow at best, the next Virginia biennial budget will start with very serious problems, in part because of decisions made last January when the legislature borrowed from the future to avoid looking at new revenue sources or ways to cut the budget other than what it only too readily did – slashing social services to the poorest and sickest Virginians.

The budget cycle we are now in has an obligation for ten years into the future to repay the Virginia Retirement System (VRS) $620 million borrowed to help “balance” the budget, plus interest. In order to repay that, starting in 2013 the state will have to come up with about $74 million over and above its regular payment into VRS, according to Finance Secretary Richard D. Brown. That doesn’t include the underpayments to VRS that have been going on for years.

In the budget legislators also forced retailers to pre-pay sales taxes a month early, thus using that revenue to “balance” the budget. The same gimmick will be used next June to balance the budget we are now in. But, the legislature inserted into the budget an amendment Bob McDonnell wanted, one that will end that sort of practice, but only after McDonnell leaves office. Isn’t that convenient?

When McDonnell reported his phony $403 million budget “surplus,” I was disgusted. Republican Del. Ben Cline (R-Rockbridge) got it right when he told the Washington Post, “Before we rush to spend any surplus, we should first put our fiscal house in order. These creative accounting maneuvers may have helped to technically balance the budget, but they have frustrated taxpayers and slowed business growth in the commonwealth.”

The Virginia Municipal League also recently complained about other ways the state pretended to have a “balanced budget.”

In the last legislative session, the General Assembly and governor agreed to a budget package that diverted, skipped or suspended state contributions made on behalf of state employees and teachers for retirement, life insurance, health care credits, and sickness and disability programs. These actions cut state spending by $849.9 million for the biennium. These actions also have consequences for localities. Earlier in the year the VRS Board had approved employer retirement [payment] rates for teachers of almost 13 percent. The “savings” resulting from the legislature’s actions reduced the rates to less than 4 percent, but they are short-lived. By the time VRS calculates the next round of new employer rates, some localities may be wistfully nostalgic for the 13 percent rate.

In other words, the General Assembly didn’t just push state pension obligations into the future. It forced localities to do the same thing. In addition to that, cities, counties and regional jails were forced by the budget to pay back a portion of the state dollars they were given to provide services. Or, as the VML put it, “It’s like someone agreeing to pay you $100 to perform a service on their behalf, but then demanding $5 back because he really couldn’t afford the true cost [but] didn’t want to forego the service.”

I won’t even get into the headaches Virginia will face in the future if the Republicans in the U.S. House of Representatives actually do substantially cut discretionary funds in the federal budget. (I personally believe they won’t because of the uproar that would follow.)

According to Eileen Norcross of George Mason University, since the 1980s, the number of federal grants to state and local governments has grown by 87.5 percent. In the federal fiscal year that ended last month, federal grants represented one-third of state budgets, much of that the stimulus money that GOPers said they hated while they pocketed the cash.

The stimulus dollars run out by the end of 2011. What then? My guess is that the Republicans don’t have a clue. They are trapped inside a political mantra that insists that cutting taxes somehow produces equal or greater revenue, all the while not daring to slash programs that they know the public wants and will punish them politically for cutting. Their whole philosophy is built upon fiscal lies and snake oil.