By Kathryn Watson | Watchdog.org Virginia Bureau
ALEXANDRIA—Gov. Bob McDonnell’s so-called $450 million surplus is absurd, critics say.
“Any governor can claim a surplus at this point that is a total fabrication, and I guess, just hope to keep the lie alive until they get out of office, and it’ll be somebody’s else’s problem,” Frank Keegan, editor the nonprofit Sunshine Review’s State Budget Solutions, told Watchdog.org Virginia Bureau.
For the third year in a row, Virginia finished its fiscal year with a “surplus” by raking in more revenue than expected and spending less than was budgeted — at least, on paper.
And this year, state workers will get $77 million of that $450 million “as a reward for good stewardship,” McDonnell said. The General Assembly last session said that’s just fine, saying that if revenue was up and spending was down, state employees would get the bonus — about 3 percent of their salaries.
“I think that is responsible fiscal management, and it is the Virginia way that we talk about up here so often,” McDonnell said Thursday of the state’s fiscal performance.
But Republicans, Democrats and outside critics alike are calling out the governor for supposedly twisting figures and shallowly masking ugly fiscal realities.
Keegan said no state has a true surplus when massive unfunded pension liabilities — recent estimates put the Virginia Retirement System at $17.6 billion underfunded — and other long-term obligations aren’t included in budget calculations.
The state’s bond indebtedness is so nebulous, in fact, that the state’s top auditor couldn’t pull a definite number from across the various debt schedules.
“There’s not a consolidated schedule that just has it all in one place,” Walter Kucharski, auditor of public accounts, told Watchdog.org Virginia Bureau.
As of June 2011, the state carried more than $36 billion in total debt, according to the most recently available report by the Commonwealth’s Debt Capacity Advisory Committee, which reviews the state’s debt and makes recommendations to the governor. That figure is up from a little less than $34 billion a year earlier.
State Budget Solutions has a figure that’s doubly ugly — $65 billion. That’s nearly $22,000 per private sector worker.
Bond indebtedness alone rings up at more than $32 billion to be paid out until 2041, according to the same DCAC report.
Bob Williams, president of State Budget Solutions, said lawmakers — Virginia’s lawmakers included — are either ignorant or in denial of their bleak fiscal futures.
“Legislators have no idea,” said Williams. “They have no idea, for example in Virginia, what the unfunded retirees’ health care obligation is, or even of the unfunded pension liability, because the way the states account for — the funny gimmicks they use in government accounting rules — greatly underestimates it.”
In his run for governor, McDonnell vowed to keep budget transparency squeaky clean.
“We’ll eliminate budget gimmicks,” he said in a September 2009 policy paper.
But critics have more reasons to second guess McDonnell’s budget surplus claim this year. In 2011, McDonnell claimed a budget surplus of $311 million by postponing roughly $600 million in payments due to the foundering Virginia Retirement System that now has to be coughed up over the next 10 years.
State Sen. Richard Saslaw, D-Fairfax, said there wouldn’t be a surplus if the state hadn’t cut its obligations to things like primary and secondary education and the Virginia Retirement System.
“Yeah, if you don’t pay your bills, hell yeah, you can have a surplus,” Saslaw told reporters after McDonnell’s speech.
Delegate Ben Cline, R-Amherst, chairman of the Conservative Caucus and a member of the House Finance Committee, offer another criticism. Taxpayers, he said, not state employees, should be the ones to benefit from any unspent tax dollars.
“… Now that revenues are running ahead of projections, the best way to continue Virginia’s economic recovery is to continue to control spending levels and return the remaining surplus to the taxpayers,” Cline said in a news release. “After all, it’s their money. When the government overcharges the taxpayers, they should get a refund.”
Paul Logan, spokesman for McDonnell, skirted the question of whether the governor agreed with Cline’s statement that taxpayers should benefit from the surplus directly.
“Well … if you look, there’s a system … and I think if you look at the document that I sent you yesterday, it lays out the way that the surplus funds are then allocated,” Logan told Watchdog.org Virginia Bureau. “Part of it goes to the rainy day fund, part of it by legislation goes to that state employee bonus.”
That breakdown document can be found here: http://www.governor.virginia.gov/utility/docs/FY2012-Surplus.pdf
Once the state pays its employees the $77 million in bonuses, deposits the required money into its rainy day fund, and doles out dollars to other obligations, McDonnell still will have nearly $42 million to spend as he pleases — and with no set-in-stone deadline to do so, said Daniel Timberlake, director of Virginia’s Department of Planning and Budget.
“It’s not uncommon for that not to be resolved until December when (the governor) releases his budget,” Timberlake told Watchdog.org Virginia Bureau.
And since McDonnell “didn’t have enough money” leftover for discretionary reappropriations after paying for things like the 3-percent bonus, no money will go to categories like the Transportation Trust Fund, Timberlake said. That fund, created in 1987 to construct highways, public transit and ports, is lower on the priority totem pole.
Michael Thompson, president of the Thomas Jefferson Institute, a nonprofit policy research group, said Virginia needs to go back to the drawing board and consider long-term budget priorities.
“I guess part of an argument or part of a discussion at some point, should probably be, is it more important to spend whatever amount of money into bonuses, rather than going into fully funding the retirement system?” he said.
Contact Katie Watson at email@example.com.