Northam Budget

A review of general fund revenues was delivered to the desks of lawmakers as Virginia Gov. Ralph Northam delivered his budget update before a joint meeting of the House of Delegates’ and state Senate’s money committees at the Capitol in Richmond on Aug. 20.

Blame the election.

That’s because it’s not clear who’s in charge.

The castor-oil approach to politics is a rarity in contemporary Virginia.

In 2001, Democrat Mark Warner won for governor on a promise to repair the state’s battered finances. A slowing economy and a standoff among Republicans over expanding the car-tax rollback had led to a troubling first: That year, the legislature failed to act on the budget, leaving it to a peevish GOP governor, Jim Gilmore, to implement it unilaterally.

Eighteen years later, the state’s budget has been fatted by a robust economy.

And while fears of recession are taking root, neither the governor, Democrat Ralph Northam, nor legislative leaders are in Cassandra mode, warning of bleak days ahead.

That’s because it’s an election year.

To be decided are all 140 seats in the General Assembly — 100 in the House of Delegates, 40 in the Virginia Senate. Because only a few seats matter, the last thing Democrats (who want to take back the legislature) or Republicans (who want to retain it) are prepared to do is feed voters castor oil.

More than a spoonful is likely when the General Assembly returns for its regular session in January.

It could be a tough swallow for lawmakers.

That’s because many of them, particularly out-of-power Democrats who, for most of the past two decades, have been more observers than participants, don’t fully grasp that the state’s fiscal cushion — while an assurance to Wall Street, which has given Virginia the highest possible credit rating — is only partial insurance for financing public services.

That’s because there are strict rules for using the cushion, rules that would all but guarantee spending cuts as well.

The state has socked away in two emergency accounts $1.6 billion. One is the so-called rainy day fund, anchored in the Virginia Constitution on the insistence of voters in the 1990s.

The other is a cash reserve, set up inside the budget last year by legislators.

Virginia hasn’t had more than $1 billion available as a fiscal safeguard since 2008, just after the Great Recession commenced. That ample reserve reflects a national trend. A study by the Pew Foundation shows that at least half of the states have healthier rainy day funds than before the Great Recession.

The fund helped Virginia through those hard times, which were made more so in the succeeding years by increases in Medicaid, a health insurance program for the poor, that exceeded inflation; occasional pay raises for public employees; and costly, compulsory adjustments in basic school aid.

The rainy day fund was as low as $236 million five years ago and has been steadily replenished ever since, largely to assuage the rating agencies, which were considering taking down Virginia from the AAA perch it has occupied since government credit scores were implemented in the 1920s.

The supplemental emergency account, brainchild of the Republican budget chairman, Chris Jones of Suffolk, was created to address a significant concern of the rating agencies: an overreliance on the rainy day fund to balance the budget even as revenues were growing.

In a recent report to the money committees — his first appearance before the legislature since the blackface calamity erupted in February — Gov. Northam did not gloss over the potential for an economic downturn and accompanying belt-tightening.

He emphasized, however, that he believes Virginia is in a stronger position to endure both.

Northam did so with the remain-calm, the-doctor-is-in flourish one would expect during a high-stakes political cycle in a state with a divided government: That a bipartisan approach to the budget is the key to its strength.

Republicans groused a bit over that, saying that they are responsible for the backup fund as well as election-year tax relief to complement that won by President Donald Trump.

At this point, little is being said about when a downturn might occur or which sector of Virginia’s economy — a quarter of which is a consequence of federal largesse — is vulnerable, though the defense sector might merit close attention.

Spending in Virginia by the Pentagon swelled after the state clawed back during the McAuliffe governorship from the punishing effects of mandatory, across-the-board federal spending cuts.

A blow to the state budget from recession doesn’t mean the legislature just helps itself to those emergency funds. It’s not easy getting to them. It’s not supposed to be.

Think of the reserve as a safe with two locks.

To open the first lock, the shortfall in state revenue must be at least 2%. To open the second: Lawmakers can’t take more than half of the shortfall or half of what’s left in reserve. And then — this augurs spending cuts — they can use only the lesser of the two amounts.

But Virginia isn’t having this conversation yet.

And it won’t until it is clear who’s in charge … of the castor oil.

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Jeff E. Schapiro is a writer for the Richmond Times-Dispatch, where this column originally appeared. Contact him at (804) 649-6814.

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