By Kathryn Watson | Watchdog.org, Virginia Bureau
ALEXANDRIA, Va. — It’s a new day in Virginia, and the new Terry McAuliffe administration already has its hands full.
McAuliffe has proven that he can raise money — tens of millions of dollars, in fact. But, from fiscal woes plaguing Washington to budgetary concerns here at home, fundraising skills won’t solve the issues. Here are the top fiscal issues McAuliffe will need to address.
The real question is, will he?
1. Severing the umbilical cord to Washington
If sequestration and government shutdown revealed anything, it’s how dependent Virginia is on the federal government. And when Washington wavers, so does the Old Dominion.
Federal spending accounts for about 30 percent of Virginia’s economy, and federal employment — either directly or indirectly — accounts for about 30 percent of the state’s jobs, according to George Mason University’s Mercatus Center. Federal dollars have helped keep the state afloat through the Great Recession, but when things get rocky across the Potomac River, as they did with the recent government shutdown, Virginia is the first to feel it.
If Washington scales back spending, Virginia will be hit — hard.
“You have to kind of look forward in the future, that government spending is not going to keep growing at the rate that it’s been growing,” Keith Hall, senior research fellow with the Mercatus Center, told Watchdog.org in an interview on Tuesday. “Obviously, that’s going to impact Virginia more than any other state.”
How do you mitigate that impact?
Virginia should stop picking industries and businesses for “special treatment” with tax preferences to become friendlier to job growth, Hall said.
2. Taking a good, hard look at tax incentive programs
Virginia’s tax preference system is out of control.
Virginia’s Joint Legislative Audit and Review Commission — the watchdog arm of the General Assembly — reported that, in 2008, Virginia doled out $12.5 billion in various tax preferences. That’s nearly as much as the state reaped in revenue. And there’s no “consistent process” to measure effectiveness, JLARC found.
After all, handing out tax credits left and right is simply “spending through the tax code,” as Scott Drenkard, economist with the Tax Foundation, says.
So, the General Assembly this year launched a subcommittee to evaluate the effectiveness of tax preferences. The McAuliffe administration could be key in influencing the General Assembly’s decisions.
3. Shoring up public pensions and pension debt
The state’s top auditor said it — public pensions are the most problematic fiscal issue facing Virginia.
“The biggest thing in the next few years is definitely pensions and the pension debt,” Martha Mavredes, Virginia’s auditor of public accounts, told Watchdog.org in a January interview.
She has a point. The Virginia Retirement System has an estimated up to $80 billion in unfunded public pension liabilities — that is, money it’s promised state workers, but doesn’t have in the bank.
Gov. Bob McDonnell’s administration made a dent in addressing the issue, but that won’t be enough to put the system on solid financial footing.
4. Minding Medicaid expansion
In his victory speech Tuesday night, McAuliffe again stated his support for expanding Medicaid under the Affordable Care Act, certainly a politically palatable position.
But there are some real fiscal issues to consider — like whether the federal government actually will make good on its funding promises, and whether Virginia can afford adding more people to the program. After all, once Virginia expands the program, it will be nearly impossible, both legally and politically, to roll it back.
Those are all things Virginia’s Medicaid Innovation and Reform Commission, tasked with making recommendations to the General Assembly about reforms and expansion, is considering.
“If the funds aren’t there, somebody’s ox is going to be gored,” Steven Landes, vice chairman of the commission, said during last month’s meeting.
Like virtually everything else, the McAuliffe administration will hold some sway in the decision-making process.
— Kathryn Watson is an investigative reporter with Watchdog.org’s Virginia Bureau, and can be reached at [email protected].