Governor McDonnell has a brief piece in the Wall Street Journal outlining how his administration and the General Assembly managed to tame the state’s budget crisis. Some of the actions are praiseworthy (like having new state employees pay into their pension plan). Others, however, are not, such as his contention that the budget was balanced without a tax increase:
…we cut a wide variety of programs (including in education and health), reducing state spending to 2006 levels. As a result we closed that shortfall without a tax increase…
There’s an old advertizing saying that you have to expose a potential buyer to a message at least nine times before they begin to pay attention. Considering how often McDonnell’s office repeats the “no tax hike line,” they may have careers awaiting them on Madison Avenue.
But let’s go back to the record and see if the contention holds water.
The General Assembly, with the Governor’s blessing, hiked fees more than $95 million (and doing so by avoiding normal procedure)…accelerated, through 2013, sales tax payments by retailers while eliminating the dealer discount and creating special holdback for certain tobacco products…raised the mark-up (or profit margin) on distilled spirits at the state-run liquor stores…and skipped $620 million in payments to the state’s pension fund. Oh, and they raised some traffic fines, too.
Out of all those items, though, the reduced payments to the Virginia Retirement System generate the most push-back from the political class. They have promised to pay the money back – really they will. And they did make the required contribution, just not the one covering the unfunded liability.
But it’s that specific action which could have the greatest long-term consequences for the state and local governments. An email from House appropriations staffers explains what the skipped payment will mean in the future:
…[these actions] would require the state (and the localities) to pay higher rates beginning in FY 2013 to compensate for the lower rates.
Throughout the session it was discussed that these VRS savings could be used by the localities to mitigate the impact of the funding reductions adopted for K-12 in the Act.
In other words, we robbed Peter to Paul, and really, really hope there’s enough money in the future to pay Paul back before he realizes he’s been fleeced.
But the choice the legislature faced is framed differently. From a staff-prepared to letter to address concerns that the pols were being too cute by half:
…the General Assembly felt…that the action we adopted related to the VRS contribution rates was significantly better than the other alternatives we had to closing the budget shortfall, which were either a significant tax increase or further cuts to K-12 or health care.
So it was a zero-sum game in which the worthies opted for the sleight-of-hand approach over the tough choices route.
If it sounds a great deal like what Congress does to the budget every year, you’re not alone.
