Fri08012014

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The underreported story of the state’s budget cuts

It was a strange year when it came to news coverage of the debate and eventual enactment of a budget for the Commonwealth. To read the news reports, whether in the newspaper or the internet you would think the only issue was the expansion of Medicaid and Obamacare. Almost every other topic, save some relatively short lived coverage concerning mental health care funding, got pushed aside. No one was interested in talking about anything except Medicaid expansion.

Well, that debate, for the moment is over. Virginia won’t be expanding Medicaid coverage to take advantage of Federal funds made available under the Affordable Health Care Act. But, as unfortunate as this was, there was a story, arguably as important, about the state’s fiscal health and one of the leanest budgets in years that was mentioned almost in passing.

Virginia, unlike many states, to its considerable credit, can’t run a deficit. The legislature and the governor have to build a budget that doesn’t include red ink. This means that when the money isn’t there, there have to be cuts elsewhere. This is good housekeeping. However, this year, our expectations about revenue and what we actually receiving got a bit out of whack.

The legislature had begun the term with fairly high expectations when it came to revenue. But, quickly enough, they had those hopes dispelled. What’s happened is that revenues in the Commonwealth are off sharply. Last year they were down a bit, but this year, they plunged. For example, the May 2014 tax proceeds were 20% lower than were in May just one year ago. This is primarily, though not exclusively due to a reduction in revenues from taxes on the proceeds from the sale of assets.  It’s been speculated that investors wanted to get ahead of the federal increase in capital gains taxes last year and went on a selling spree.  Now that things have normalized, the revenue stream Virginia had counted on, not very wisely, dried up. Other proceeds, including sales taxes and corporate taxes weren’t off by as much, but in no way could they make-up for the shortfall.

So, that put the legislature, at the same time they were duking it out over Medicaid and Obamacare, in the position of having to make some deep cuts in spending. These are the kind of cuts that hurt and are going to be felt all the way down to the local level.  

One of the biggest reductions, and it was high on the list because it was so easy to cut, is the state’s contribution to support an increase in teacher salaries. Legislators had hoped to increase teacher salaries, which have been lagging since the recession, but it was no dice this year. If teacher salaries are going to increase, then local boards of supervisors and school boards will have to make that decision. Unfortunately, almost every locality has set its tax rate, has budgeted accordingly, and isn’t in a position, even if it wanted to, raise additional taxes to pay teachers more.  So, either they reallocate locally, or teachers go without a raise.  

Another budget area where there had been some hope for additional funding was expanding kindergarten. That, at one point proceeding with GOP support in the House, fell by the wayside. Other cuts were pay raises to state employees and state contributions to law enforcement that would have supported raises at the local level. There have also been cuts to various transportation projects, but nothing that can be called wholesale.  Sadly, the biggest casualty was education.

Overall the budget cuts required over two years, that is cuts to projected spending levels, were over a billion. However, spread out over two years that comes to about $300 million, with an extra cushion added through tapping the rainy day fund. Still, it was a tough pill to swallow. But because we were so distracted by the Medicaid it seems as if almost no one noticed.  And given the scope, and the focus to cuts to education, that’s too bad.

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