The Search for Virginia’s Budget Surplus

For three straight years we have heard a consistent theme from the McDonnell team: Virginia has a budget surplus. 2010: $403 million; 2011: $544.8 million; 2012: $129 million. What hasn’t been featured is the growing long-term Virginia debt. 2010: added $2.38 billion; 2011: added $1.89 billion; 2012: added billions more?

This isn’t the full story either because the finances themselves are wrapped in derivatives of a sort while the state’s infrastructure deteriorates more rapidly than can be mitigated by the maintenance dollars dedicated to preserving it. McDonnell shamelessly went to the General Assembly and asked to issue obligations (through the Grant Anticipation Revenue Vehicles (GARVEE) Bond Program) backed by the promise of a future federal funding stream that is itself threatened by the state’s inability to generate transportation revenue and thus the matching funds required to secure the federal funding. Unlike the Governor, we wait anxiously for the 2012 Comprehensive Annual Financial Report for the full story.

“The Governor’s plan to accelerate the sale of previously authorized CPR (Capital Projects Revenue) bonds, issue federally backed direct GARVEEs, and create a Virginia Transportation Infrastructure Bank is an innovative approach that doesn’t saddle Virginians with further tax burdens.” – Senator William Wampler (R-Bristol)

“Innovative:” no taxes…for now. At least Senator Wampler was consistent with Republican fiscal lunacy. Republicans would rather take out a second (or is this a third?) mortgage on Virginia’s future than to face the fact that they are fiscally incompetent; that philosophy worked so well for Republicans at the national level. And a hint of the unintended consequences of this charade are reflected in the decreased transportation budget for 2013:

The Virginia Department of Transportation’s (VDOT) annual budget for Fiscal Year 2013 is $4.19 billion, representing a 12 percent decrease (emphasis added) from the previous year. The decrease is largely driven by the GARVEE bonds programmed in Fiscal Year 2012.  – VDOT

That’s right: we borrowed money for and we have less to spend on transportation. Further, McDonnell indicated that the issuance of the GARVEEs obligates the state to collect tolls somewhere, somehow by anticipating those revenues in his proposal. From a McDonnell press release:

Facts about Direct GARVEE bonds

• A GARVEE bond is a debt financed instrument that allows investors to be repaid through the use of future federal highway funds.
• The legislative proposal will also include a recommendation to modify Virginia Code to authorize Direct GARVEE bonds.
• Direct GARVEE bonds are sold for specific construction projects and use federal revenues for debt service.
• This would allow the Commonwealth to issue at least $1.1 billion in direct GARVEE bonds and utilize toll credits for state match, freeing up cash for statewide and regional projects.
• Several projects that may immediately benefit from the combination of the Direct GARVEE bonds and toll credits include the Midtown Tunnel in Norfolk, the Broad Street Corridor in Richmond, 460 PPTA projects, I-95/I-395 Hot Lanes in Northern Virginia, and the Coalfields Expressway, as well as others.

What all of this means is that Virginia’s net worth, a better measure of financial health than the “budget,” has diminished significantly under the McDonnell administration. This is without a full accounting for the depreciation of the state’s capital assets. The bottom line is this: If Virginia issued stock, the basis of that stock would have been eroded by billions over McDonnell’s term in office. And, “conservatively,” McDonnell has added about $1,000 per Virginian to the per capita state debt. Maybe he should touch base with Eric Cantor’s wife to see how that can be sold as a derivative. And find a comrade in George Allen, who helped originate the national rationalization for fiscal irresponsibility.