Virginia’s financial Bull Run?

We learned last week that Virginia will be facing another budget shortfall in the current fiscal year. Though the news seemed to surprise many people, it should not surprise anyone.

Over the past three years, Democratic Gov. Tim Kaine has attempted to balance the state budget through overly optimistic revenue projections, the use of one-time money to pay for ongoing programs, an excessive use of state debt, federal bailout dollars and raids on the rainy-day fund.

The result has been predictable. Over a three-year period, we have experienced more than $5 billion in budget shortfalls, with more on the way, and I have no doubt that we will deplete the state’s rainy-day fund by the time this governor leaves office.

In the current fiscal year, it appears as though we will miss our revenue projections once again. The result could be another budget shortfall of $300 million or more, but this is just the beginning of what well may be a long-term problem.

On July 1, we will start another budget year, fiscal 2009-10. The new budget is only “balanced” because it assumes revenue growth of 4 percent. Frankly, this Republican thinks it is very unlikely that our state’s economy and subsequent tax collections will grow by 4 percent in the next 12 months.

If we fail to meet this revenue projection, we will face another budget shortfall in 2010. For each 1 percent that we miss our revenue projection, the shortfall will be $170 million.

But once again, this is just the beginning of a larger problem.

When the General Assembly returns to Richmond in 2010, it will not only have to make amendments to the state budget for fiscal 2009-10, it also will have to adopt a new state budget for the 2010-2012 biennium. That budget process could be the most difficult one of all.

Earlier this year, the governor told us we were facing a budget shortfall of $3.7 billion. To close this budget shortfall, we were looking at significant spending reductions in most state agencies.

Fortunately, most of these budget cuts were avoided when Virginia received an estimated $4.8 billion from the federal stimulus package. While this enabled us to avoid spending reductions this year, it was a short-term solution to a long-term problem.

Unfortunately, the federal stimulus dollars will expire in September of 2011, and most of the budget shortfalls we were facing earlier this year will return. So, our current budget shortfalls could pale in comparison to the shortfalls in the next biennial budget.

The next governor will likely inherit a financial mess, and we will have to be guided by core principles if we are going to solve this problem the right way.

The basic problem in Richmond is that we are spending more money than we are taking in, and we cannot continue to do that. We cannot continue to balance our budgets through gimmicks. That is not how we became the best-managed state in the nation, and it is not how we earned a AAA bond rating.

We have to restore fiscal integrity in Virginia’s state government. That means basing our budgets on realistic revenue projections and reducing spending to match the revenues that are available to pay for it.

Restoring fiscal integrity to our budget process will not be easy. It will require us to set strict budget priorities and focus our spending decisions on the core responsibilities of state government.

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