Sunday, January 4, 2009

Counting Virginia's Corn

The media is filled with the stories about the projected deficits in Virginia's biennial budget. Facing shortfalls of about $3 billion over the two years, Governor Tim Kaine and the General Assembly will need sharp pencils to balance, as required by law, receipts and expenditures. Already hiring has been frozen, state employee raises have be delayed, and a variety of programs cut or delayed.
While we certainly can't blame today's budget woes on Virginia's two-year budgeting process, the current situation highlights the potential hazards of trying to write a budget with a long time horizon. After all, every family I know looks at their finances on a yearly basis. Businesses do so as well. That doesn't mean a family or business is failing to plan long term. It does mean they are balancing (hopefully) the books each year. In doing so they can plan to save or spend for bigger projects over time - that kitchen renovation has been put off until next year!
So, why does the Commonwealth use a biennial budget process? The practice dates back to the days when the General Assembly met every other year. During the 1970s the General Assembly began meeting every year but they kept the two-year budget cycle. So in a long session (even years) the Governor and General Assembly enacts a biennial budget. The next year, during a short session, the Governor and General Assembly amend the budget to reflect changes in projected revenues or expenditure needs during the past year. Huh? They are working on the two-year budget every year... is that right?
If this process seems clumsy and confusing to you, then join the crowd. Along with Delegate Albert Pollard (D-99), Delegate Chris Saxman (R-20) will introduce legislation to move Virginia to an annual budget. They cite greater accountability and transparency as key advantages of an annual budget. For example, when the biennial budget promises state employees a 4% raise it gets spread in some fashion over the two years - it could be 2% in each year or 1/2% in the first and 3 1/2% in the second. Geez, I'd like the 3 1/2% in the first year - with compounding getting the money sooner rather than later would be lots better for me. Perhaps legislators have incentives to give raises based on something else - like their election cycle?
Pollard and Saxman also point to real-time numbers that are now available to budget writers. In the "old days," information on tax receipts and expenditures were often months behind so perhaps a two-year cycle made since. It isn't a valid reason today. Pollard has these and other reasons for changing to an annual budget detailed on his website.
One other reason for changing Virginia's budgeting process may be found in the cycle of electing the Governor. Virginia Governors cannot serve consecutive terms. With the current biennial budget, a Governor enters office with at least one strike against him or her.
To illustrate, Governor Kaine took office in January 2006, too late to propose his own budget. So the new Governor was mostly locked into the budget proposed by his predecessor, in this case, Mark Warner. Warner and Kaine are both Democrats and were probably on the same page on many budget issues. Kaine could offer changes, but the point is that he was to a great extent locked in to the two-year budget (he could also offer amendments at the short session) presented by the previous guy. The next budget cycle the Governor has the luxury of proposing, helping to enact, and carrying out "his" budget. Of course, in late 2009 Governor Kaine will propose a two-year budget that will be enacted after he is out of office and will be carried out by his successor. So, changing to an annual budget may shift power to the Governor - a good thing?
Putting Virginia on an annual budget seems like a good idea to this bird. It is common sense and easier to understand for most citizens. It is more transparent. It is more accountable. It may allow a Governor to better match governing priorities with campaign promises. But don't believe for a minute that it will eliminate all the smoke and mirrors that are typically part of the state budget - like saying they funded a 4% raise for teachers but started it in December (when teachers' contracts start in August) or failing to provide funding for the actual number of teachers employed. Guess that falsely claiming credit or saying one thing while doing another is just part of politics!

No comments: