- The Washington Times - Thursday, August 18, 2011

RICHMOND — Virginia Gov. Bob McDonnell announced Thursday the commonwealth ended fiscal 2011 with a $545 million surplus, but urged lawmakers to set aside $30 million of the windfall to help the state economy as Washington begins to cut spending to rein in the federal deficit.

“We have people now that might depend 80, 90, 100 percent of their business on the federal government,” said Mr. McDonnell, a Republican. “That money may not be there in five, 10 or 15 years, based on this deficit-reduction plan that has to happen in Washington.”

The federal government will cut roughly $2 trillion over a decade as part of the bipartisan deal reached earlier this month to raise the federal debt ceiling and keep the country from defaulting on its loans.

Mr. McDonnell said the commonwealth must take immediate action because Hampton Roads, with its Navy bases, and Northern Virginia, home to defense-contracting companies and many federal employees, will be among the hardest hit.

“So $30 million is just the start,” Mr. McDonnell said. “And I intend to do more on that going forward.”

Moody’s credit-rating agency has already put Virginia and four other states’ bond ratings on review for downgrade because of their heavy reliance on the federal government. Moody’s confirmed Virginia’s AAA rating this month, but changed the state’s outlook to negative.

Roughly $311 million of the state surplus came from better-than-expected revenues. And an additional $234.1 million came from state agency savings and unspent balances, Mr. McDonnell told the General Assembly’s finance committees.

This is the second consecutive year Virginia has posted a surplus, though revenues declined from fiscal 2009 to fiscal 2010.

Under Virginia law, much of the surplus money is already allocated.

Roughly $132.7 million will go toward the state’s rainy-day fund, increasing the balance to $440.5 million in fiscal 2013. And $50.3 million will be set aside for the Water Quality Improvement Fund for cleaning up the Chesapeake Bay.

Two-thirds of the unappropriated surplus balance, or $67.2 million, will go to the state’s transportation trust fund.

To further help the Virginia economy, the governor said he would issue an executive order to expand the mission of his jobs commission, tasking state leaders with finding ways to diversify the state’s economy in the face of potential defense and federal-procurement cutbacks.

“I think it’s an excellent start,” said Delegate Kirk Cox, Colonial Heights Republican. “$30 million isn’t anything to sneeze at.”

Still, Mr. McDonnell has drawn criticism for claiming a surplus when the commonwealth still has outstanding obligations, including $620 million in payments it deferred from its retirement system to balance the current biennial budget.

“McDonnell’s self-congratulation over his ‘surplus’ is similar to a family refusing to pay their mortgage for a year, then celebrating the balance in their savings account,” said David Mills, executive director of the Democratic Party of Virginia.

But McDonnell said the deferrals helped close a $4.2 billion shortfall that existed before the budget was enacted, and had nothing to do with the surplus. He also said adding that the state is repaying the deferral at an accelerated rate.

It remains unclear whether Virginia will give any additional money to Phase 2 of the Dulles Metrorail project. The transportation funds have to be reapportioned by the General Assembly and wouldn’t be available until at least next July.

Virginia Transportation Secretary Sean Connaughton said the commonwealth is still working with stakeholders toward an agreement, but the roughly $90 million in surplus money available for transportation purposes aren’t slated to go toward Dulles rail at this point.

He said if Virginia makes a contribution, it would be primarily to reduce toll rates on the Dulles Toll Road.

In addition, the governor has been asked to restore in next year’s budget the roughly $60 million in aid to localities that was cut in the current fiscal year.

“When I develop the budget over the next couple of months, it’ll be one of the things I look at,” Mr. McDonnell said.

Other obligations include roughly $18 billion in unfunded liabilities for the Virginia Retirement System for state employees and teachers. The VRS fund also lost $3.5 billion, dropping from about $54.5 billion to $51 billion, over the past six weeks because of the stock market’s recent volatility.

Mr. McDonnell said he would propose further reforms to the system in the coming General Assembly session. He pushed for an optional defined contribution system, akin to a 401(k), during the past session. However, lawmakers passed legislation to require state employees hired before July 1, 2010 to contribute 5 percent of their salaries toward their pensions, to be offset with 5 percent raises.

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