Senate Retreats to Mason Inn

It’s a cold day in Fairfax. The trees are bare.  The campaign signs have been put away

The Senate of Virginia is back together again for our annual briefing on state budget issues.   This year’s edition is at the Mason Inn on the neighborhood campus of George Mason University.

The briefing lasts for two days and covers every angle.  Every member and member-elect is invited.  They’re all here, along with a couple hundred lobbyists for corporations, nonprofits and trade groups.

I’m sitting in the back corner of the ballroom, between Mamie Locke (D-Hampton) and Ryan McDougle (R-Hanover).  Here’s what I’ve learned thus far:

Economic Growth:  Virginia is on pace for 4.5% economic growthin FY12, which ends next June 30th. Our unemployment is holding steady at 6.5%.  We are slowly adding jobs, but not enough to absorb the high jobless rate of our young people (nearly 20% for those under 25 are out of work).  Of course, this economic growth is highly correlated to the U.S. defense budget which directly accounts for 16% of the employment in Virginia – and indirectly accounts for nearly that many jobs.

Projected Revenues:  Our General Fund revenues are projected for nearly $17 billion, which means we are just now catching up to FY 07 totals.  In between, we had two years of negative growth (FY 09 and FY 10) and several years of stagnancy.  We do have a small “surplus” from this past year, due to the low revenue targets.  Don’t let that deceive.  All that money is committed to ongoing costs.

Necessary Costs:  We are staring at major upfront costs in FY13 and FY14.  The most pressing is our “payback” of the VRS loan, which means that we have to reimburse the pension fund at a very high rate (13.4%) over the next two years in order to make good the dramatically reduced rates (2.3%) we paid during the recession.  The other major cost driver is Medicaid which has reached nearly $5 billion in costs.  I need to do a separate post on that program, as it will be the primary focus of 2012 cost-cutting.  Finally, there is the inevitable cost increase as our K-12 population increases.

Rebalancing Higher Education:  In 2004, the Assembly set a percentage of 67/33 for subsidizing the academic costs of in-state students.  Eight years later, that percentage is
upside-down with the state only providing 49% of the average cost and students
paying the balance in tuition.  In 2011, the Governor sponsored a bill (“TJ 21”) with a lot of unfunded aspirations (100,000 new degrees!) and very little substance.  Frankly, I’d like to just see us lock in 50/50 as the cost split until circumstances improve.

Gridlock Upon Us:  The Senate Republicans have crowned themselves the majority in the 2012 Senate. (“20 is the new 21”). There are all sorts of procedural realities that make this “majority” ephemeral at best.  I can’t undo the election results.  However, I can say that the fiscal situation requires a lot more ingenuity and flexibility than a hard-line “no new taxes” rant.  For example, we give away $2.9 billion annually in tax credits, the equivalent of our entire higher education budget.  Does anyone track these credits or investigate their value?   We need to review the effectiveness of these credits, just as we review the effectiveness of any spending item.

OK, that’s all for now.  I have a lot of thoughts (now that I’m back home), mainly dealing with Medicaid and higher education.

I’d also like to write something about college football in the next few days.  Just so much to say.

 

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