Additional Lessons from Richmond for Washington

I have reported previously on the successful action being taken by the new Governor of Virginia, Bob McDonnell, to reduce spending in the state government and eliminate the deficit he inherited from the current Chairman of the National Democratic Party (his predecessor, Tim Kaine). In my last post on this subject, I noted that Governor McDonnell announced in July that the $1.8 billion deficit projected for fiscal year 2010 when he entered office had been eliminated and that he estimated that the fiscal year would end with about a $220 million surplus. See http://jaxonnews.blogspot.com/2010/07/more-lessons-for-washington-from.html

Well, the fiscal year has now ended and the Governor announced on August 19, 2010 that the fiscal year ended with an actual SURPLUS of $403.2 million. However, rather than take all the credit for the turnaround and blame his predecessor for the mess he "inherited" as our President repeatedly does as the national debt grows and the country's economy continues to falter, Governor McDonnell said this:

"Last session we faced a potential $1.8 billion shortfall in the remaining FY 2010 budget. Today I am pleased to report that we closed the fiscal year with a $403.2 million surplus. We collected $228 million more in revenues than expected and spent $175 million less than budgeted. But please don't get too excited, most of it is already obligated in statute or in the budget to meet various needs.

This modest surplus and fiscal turnaround was achieved by two Administrations, two houses of the General Assembly, and two political parties.

I applaud former Governor Tim Kaine for the tough cuts he made in this budget prior to leaving office. Governor Kaine also exercised conservative judgment in his revenue reforecast in December. Our Administration continued that policy of restraint during this session.

With a politically divided General Assembly, nothing meritorious is possible without bipartisan cooperation. The spending cuts and fiscal discipline that led to this surplus were the result of tough negotiations and agreement between a Republican House and a Democratic Senate. Thank you for your leadership and cooperation in this endeavor....

The other side of the surplus is found in savings. Virginia's dedicated state employees deserve credit for their efforts to save nearly $175 million in tax dollars at the end of the fiscal year, rather than spending their budgets down to zero. Our managers found savings, and the Cabinet found smarter ways to do business, adhered to our hiring freeze, and brought in strong leaders.

Of the $228.5 million collected above the official forecast for general fund revenues and transfers, individual non-withholding payments and corporate income tax payments accounted for $169 million of that total. In addition, withholding and sales tax collections, which are directly tied to economic activity in the Commonwealth, exceeded the forecast by $62 million. This revenue growth occurred in the last four months of the year, beginning in March....

I am pleased to report that $82.2 million of the revenue surplus will go to provide the general fund share of a one-time 3% bonus to state employees on December 1, an action we all agreed to in the budget last session. Our state employees have not received any increase in pay since November of 2007. A prudent budget strategy we adopted was to incentivize state workers to generate savings and not spend their entire agency budgets by the June fiscal year close. Our employees knew there would be a financial reward for saving taxpayer dollars and returning unspent balances to the General Fund. I thank our hard working state employees, though there are fewer of them, for saving so much even after their budgets were reduced.

What this result also shows us is the power in economic incentives. This notion of gain sharing or economic rewards for getting results is a concept widely used in the private sector, and long overdue in practice and implementation within state government operations. I plan to look for more ways to use such incentives in the budget and amendments I submit to you in the coming years....

The preliminary balance sheet for June 30, 2010 indicates that the Commonwealth ended the fiscal year with cash equivalent assets in the general fund of $872.9 million. This is the first time since June 30, 2007, that we have seen an increase in general fund assets from the previous fiscal year....

Working together during this past General Assembly session, we made the very tough choices necessary to close an unprecedented $4.2 billion shortfall in the FY 2011/2012 budget through reducing spending, not increasing taxes. And we did it on time, in a bipartisan fashion.

We also made Virginia one of the only states to have already balanced a budget for FY 2012, the first year in which states will no longer receive Federal stimulus funding...

While we have balanced our budget responsibly by making tough choices and not raising taxes, other states have chosen a different approach. Wisconsin, Massachusetts, California, New York and many others have chosen higher taxes as their solution to budgetary shortfalls. These choices have repercussions for future economic growth....

I thank you again for giving me the tools to tell the Virginia free enterprise success story around the nation and the world to help create jobs for our people.

From February to June, Virginia ranked 3rd highest nationally in the total number of jobs created, trailing only Texas and Pennsylvania, and 4th highest nationally as a percentage increase.

Our statewide unemployment rate has fallen to 7.0%, which ranks Virginia the 12th lowest rate in the nation and the 3rd lowest east of the Mississippi behind only Vermont and New Hampshire. During these tough economic times, it appears that our business-friendly policies are bearing fruit as we fare better than most states. Virginia's workforce remains one of the most diversified in the country, but workforce development remains a top priority to facilitate greater competitiveness in the growth industries of tomorrow....

In the toughest economy since the Great Depression, with our national deficit at $1.6 trillion for the year and our national debt exploding to over $13 trillion, Virginians and Americans are looking at how things are done in the Commonwealth, and they see that there is another way forward. We should not hesitate to tell the story of Virginia's balanced budget and spending restraint, and to encourage our federal government to learn from our bipartisan effort." http://www.governor.virginia.gov/news/viewRelease.cfm?id=319

Our nation's Chief Executive and other federal employees should learn some lessons from Virginia's leader and his state's accomplishments: bi-partisanship; spreading credit rather than blame among one's political opponents; using private sector approaches to provide incentives for cutting spending rather bureaucratic approaches to using every dollar appropriated before the the fiscal year ends; rejecting tax increases as a method to balance budgets; rewarding government employees for contributing to reductions in public spending after freezing public compensation in earlier periods, and thanking all those who contributed to the good results rather than seeking to divide political factions with selective praise and pointed attacks at the opposition party.

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