When Bob McDonnell was sworn as the new Governor of Virginia in January of 2010, he "inherited" (as President Obama likes to say) a $1.8 billion budget deficit from his predecessor, Tim Kaine, who is now the Chairman of the Democratic National Party. Last week, Governor McDonnell announced that the fiscal year of 2010, which ended on June 30, 2010, would conclude with an estimated $220 million SURPLUS.
The Governor explained this accomplishment as follows:
"Just six months ago we faced a $1.8 billion shortfall in Virginia's budget for the remainder of Fiscal Year 2010. When the General Assembly convened I made it clear that we would not balance Virginia's budget by making it harder for Virginians to balance their own. Through bipartisan cooperation we made tough realistic decisions and closed that shortfall without a tax increase. We continued this work by addressing the unprecedented $4.2 billion shortfall in the Fiscal Year 2011/2012 budget, the spending document that has just gone into effect, in the same manner. We have reduced state spending in this new biennium to 2006 levels. At the same time we put in place funding for a number of job-creating incentives and programs that are already helping us attract new employers to the Commonwealth."
As noted in the Governor's announcement, he also worked with the legislature to close the projected deficit in the next fiscal budget for 2011/2012. All this was done by working cooperatively with both Republicans and Democrats in the legislature to find ways to cut state spending and to adopt job-creating incentives designed to stimulate economic growth without any tax increases!
Governor McDonnell also noted what the surplus would be used for:
"The majority of the surplus is already dedicated within the budget to a number of areas. One of those is to fund a one-time non-recurring 3% December bonus for Virginia's state employees. Our state employees have worked without any increase in pay for nearly four years. This session of the General Assembly, I proposed a plan supported by Democrats and Republicans to incentivize state employees to save state dollars at the fiscal year-end, and receive an incremental bonus of up to 3% if a surplus was achieved. For too long the unfortunate standard procedure in state government has been for agencies to spend down all appropriated funds to zero prior to the ending of the fiscal year. We successfully changed that model by implementing private sector principles of rewarding fiscal discipline and sound management of scarce resources. State employees were successful in identifying more than $28 million in savings..." http://www.governor.virginia.gov/news/viewRelease.cfm?id=238
The "unfortunate standard procedure" of spending all appropriated funds for the fiscal year down to zero is not just a standard practice in state governments. This has been the standard practice in the federal government for many years as well. Governor McDonnell has changed the incentives among state employees from spending money quickly before the end of the fiscal year (so as not to lose it) to looking for ways to SAVE money in order to earn bonuses which he will now use the surplus to pay!
This change in incentives initiated by McDonnell has caused a remarkable shift in the usual manner of bureaucratic behavior. If this approach were to be used in the federal government, it would be very interesting to see what would happen to federal spending.
There is a reference in McDonnell's statement to an action taken by his predecessor in an attempt to control spending that has also not been tried by the federal government: that is that the state employees had not had a pay increase for nearly four years. Imagine how federal spending would be affected if all non-military federal salaries (which now exceed on average private sector compensation levels for comparable jobs) would be frozen for four years!
Private enterprise has built-in incentives to control expenditures in order to help assure a profit for the enterprise's stakeholders. As a result, when economic circumstances make it difficult to maintain the enterprise's revenue streams, it is common practice to adopt incentives to save money, including freezing certain expenditures such as compensation or new hiring.
These types of incentives are, however, not common in the public sector because government employees and their leaders do not have to acquire or maintain customers to earn their revenue. Public employees have operating funds appropriated to them by the legislature, which receives those funds from taxpayers; not customers who must like the organization's products or services before agreeing to pass on their money. Taxes are mandated by the government. Taxpayers must pay taxes or suffer legal penalties, whether they like the government's services or not; or even whether they receive those services or not.
Bob McDonnell had private sector experience before becoming Governor, as have many other Governors. Unfortunately, we now have a federal government run by an Administration that is led by people with no (or very little) private sector experience. The US Congress is led by career politicians who have been on the public payroll so long they do not understand any way of funding the government other than by looking to taxpayers; rather than finding new ways to control spending on their own or to incentivize government employees to reduce spending, as Governor McDonnell has done.
While the federal deficit for fiscal year 2009 was a record $1.41 trillion, the White House just announced a projected deficit for the current fiscal year of 2010 of $1.47 trillion, with the deficit projected for 2011 at $1.42 trillion. Rather than adopting ways to reduce spending, the President has pushed through his Democratic led Congress massive new federal programs from the stimulus bill of last year to health care reform and financial regulatory reform this year.
But Obama does not acknowledge that his new programs have contributed to the lack of any reduction in the deficit. No; he likes to remind everyone that he "inherited" the 2009 deficit and that the economic downturn (that he also "inherited") has made it difficult to cut the deficit. In fact, in today's weekly radio address, the President said that it will take years to significantly cut the federal deficit.
Bob McDonnell also inherited a budget deficit, and Virginia is also impacted by the same economic downturn as the rest of the country (except to the extent that Virginia has a large number of federal facilities and employees that have benefited from the growth of the US government during the Obama presidency). In spite of what he "inherited", Governor McDonnell achieved a budget SURPLUS in six months without raising taxes or blaming his predecessor for the problems he left behind.
How is President Obama addressing the federal deficit? By waiting for a report from his specially appointed budget commission, which will issue its recommendations after the elections in November. I thought we elected Presidents and members of Congress to solve our countries' problems. Why do they have to wait for a group of unelected citizens and a few specially selected members of Congress to come up with solutions?
The Washington Post article on the White House announcement about the revised budget projections describes the Obama approach to the federal deficit this way:
"Economists agree that the most important measure of the deficit is against the size of the economy. Opinions vary, but many economists say a deficit of 3 percent of gross domestic product is sustainable since it would stabilize the overall debt when measured relative to the economy.
The [new White House] report put the deficit at 10 percent of GDP this year and 9.2 percent of GDP next year. It would never reach the 3 percent figure under Obama's predictions - which underestimate war costs and depend on assumptions of tax hikes that may not materialize." http://www.washingtonpost.com/wp-dyn/content/article/2010/07/23/AR2010072303812.html
So it appears that the federal government officials that the American voters elected cannot devise a sustainable budget without seeking advice from a taxpayer funded Presidential commission. As a Virginia voter, I am sure glad we elected a more innovative leader for our Governor. Hopefully, voters in the rest of the country will find better candidates to elect in the future to go to Washington and adopt more creative solutions to our fiscal problems than the unimaginative crew (obssessed with partisan bickering) that we have running the country now.
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