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

It's very easy to create a "balanced budget" when you cook the books.

Doug Mataconis · · 6 comments

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.