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Virginia’s Budget Surplus: Fiscal Success Story, Or Fiscal Fraud?

Jennifer Rubin has high praise for Virginia Governor Bob McDonnell over the reports this week that the Commonwealth had posted at $311 million budget surplus, the second reported surplus in a row:

Governor McDonnell is among the most effective and popular governors in America. He has provided an example for how to effectively govern in a state where one legislative chamber (the Senate) is controlled by Democrats and the other (the House of Delegates) is controlled by the GOP. At a time when public cynicism about our lawmakers is near record levels, it’s encouraging to see chief executives like McDonnell, who know how to provide strong, conservative leadership – and in the process make their states models of success.

I won’t deny that McDonnell has done a fairly good job as Governor. The economic conditions here in Virginia are much better than they are in other parts of the country, and that’s due in at least some part to solid stewardship from Richmond. For the most part, I am pleased with the job McDonnell has done the last two years and don’t regret voting for him one bit. However, all this praise over the budget surplus is missing a significant detail that was buried in the news reports that came out earlier this week:

The state, which is required to make payments each year to the Virginia Retirement System for public employees, reduced its payments by $620 million, promising to return the money with interest starting in 2013. It made an early payment of more than $20 million this year, Finance Secretary Richard D. Brown said.

(…)

Retailers are required to pay sales tax to the state early for one month — allowing the state to collect the tax in June, during the previous fiscal year, instead of in July, during the next fiscal year. Businesses oppose the policy, and legislators are phasing out the practice.

So, in other words, what we’ve got here are accounting gimmicks. In one case, the State legally permitted itself to defer a contribution to public pensions that were twice as big as the reported budget surplus. In the other, they legally permitted themselves to collect thirteen months of sales taxes for a twelve month fiscal year. The impact of both of these should be rather obvious. Reduce obligations while you are increasing revenues and, wow what do you know, we’ve got a surplus.

This isn’t at all new. As Virginia political bloggers Norm Leahy and Adam Bitley noted last August, the legislature used virtually the same accounting tricks to create the $220 million surplus that was reported last year.

It’s also not unique to Virginia. The same techniques are used in states across the country, and in the Federal Budget. Call it “off book budgeting.” Call it “creative accounting.” Call it whatever you like really, but it’s a pretty stark demonstration of the just how hard it really is to believe any government when they say their budget is balanced. More likely than not, they’ve used one or more of these gimmicks, plus a few others, to defer budget items and artificially increase revenue to make it appear that the budget is in balance when it really isn’t.

Here in Virginia we have a “surplus” of $311 million. That money will go, by law, in to education funding and into the state’s “rainy day” fund. In reality, though, is what we’ve got a cooked set of books that says “+$311,000,000″ with a little entry at the bottom of the page that says “I.O.U. $620,000,000.00.”

I don’t know about you, but I don’t call that a surplus. Check your own state, I’ll bet you’ll find the same thing.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. Moosebreath says:

    “In one case, the State legally permitted itself to defer a contribution to public pensions that were twice as big as the reported budget surplus.”

    It’s worse than that. Wait a few years — the underfunding of employee pensions will be cited as grounds to attack the state workers (a la Wisconsin, New Jersey and Ohio), demanding changes to their employment terms in exchange for making (all or some of) the payments to the pensions which the state elected to defer in the past.

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  2. John Peabody says:

    Yes, this is just a normal, political headline. That’s what were down to, isn’t it? People read headlines on”yahoo news”, say “humph! Were okay in Virginia” and go onto Casey Anthony.

    Yahoo, indeed.

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  3. Rob in CT says:

    The state, which is required to make payments each year to the Virginia Retirement System for public employees, reduced its payments by $620 million, promising to return the money with interest starting in 2013

    I have to think Moosebreath is right about this. The current politicians pull this and dump the crap on the pols who will be in power in 2013. If Democratic, they will have to struggle to deal with the shortfall (and may get blamed for it, particularly if they try to actually make good on this promise). If GOP, they will probably say the union deal is “gold plated” and has to go. The public won’t remember and/or won’t care, and will probably be pretty much ok with screwing the state employees, err I mean Union Thugs.

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  4. Anonne says:

    Isn’t this par for the course with government? Two years or less from now, the looming payments will be there and they’ll try to not pay it. And then they’ll blame the Democrats, when it was the Republicans robbing the pension fund so that they wouldn’t have to raise taxes to cover the shortfall.

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  5. OzarkHillbilly says:

    Geeeeeee…… “Virginia” is beginning to sound more and more like “Illinois” every day….

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  6. Wait a few years — the underfunding of employee pensions will be cited as grounds to attack the state workers

    Has already happened. The state didn’t give raises for a long time and in exchange, made contributions to the retirement plan on the employees’ behalf. Last year, all new employees were required to contribute. This year, those earlier employees received a 5% raise – to cover the 5% required contribution to the retirement plan.

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