Out of Control Policy Blog

New at Reason: Virginia Needs a Fiscal Makeover

Virginia is long overdue for a fiscal makeover, as I write in my new Bacon's Rebellion column:

Like a number of other states, Virginia is largely papering over its current budget deficits through the use of temporary federal stimulus dollars, largely avoiding politically unpopular cuts in state services and programs. But with revenue declines and budget deficits projected to continue for several years, state policymakers need to get serious about reducing the price of government and ensuring fiscal sustainability, as the stimulus gravy train won't last forever.

Virginia's ongoing budget woes really serve to highlight a systemic failure in the state's fiscal management. But at the same time, crisis breeds the opportunity for a state budget makeover. To that end, there are three important first steps state policymakers should be taking.

First, at a June news conference announcing the most recent $300 million deficit, Gov. Kaine told reporters that his administration is "working hard to [...] assess both the prioritization and performance of each state program" as part of its cost management strategy. But the devil's in the details. The state is certainly recognized for having fairly robust systems in place for measuring program performance, but prioritization is a tougher nut to crack. Currently missing from the equation is a truly effective process to determine how to prioritize spending on programs relative to each other.

What Virginia really needs is a budgeting process designed to generate public buy-in on how to fund first things first and last things last (if at all). To that end, the Commonwealth should follow the lead of Washington, Iowa and other states that have begun shifting to an outcome-based budgeting system in which policymakers and the public collaboratively rank budget priorities and fund the most important things first. The state government then goes down the list, most important items first, "buying down" with available revenues until they run out of money. This ensures that vital services are being funded before less-critical ones, and services not deemed of the highest importance are reduced or eliminated. Kitchen table budgeting works this way, and there’s no reason the state shouldn’t do the same.

Second, Virginia needs a rational process for estimating revenues. House Majority Leader Morgan Griffith recently told the Roanoke Times that state revenue forecasts "have been consistently overly optimistic" and he's right. For example, in the fiscal year 2009-2010 budget, policymakers assumed a revenue growth rate well in excess of four percent, and this budget was prepared at a time when the bleak fiscal outlook was well understood.

The state needs stronger tools to ensure realistic revenue estimates and a mechanism to send budgets back to the Assembly that fail to rely on them. In Texas, the state Constitution gives the Comptroller of Public Accounts (a chief fiscal officer, of sorts) the responsibility to certify the state's budget and send back any spending bills that the state can't afford. It's an elected position, which places political pressure on the officeholder to ensure accuracy in forecasting. Having a third-party enforce prudent fiscal forecasting and spending would help to avoid the situation the Commonwealth currently faces, where policymakers adopt the rosiest of revenue projections to help justify new spending and then complain of a budget "crisis" when the mythical money doesn’t materialize.

Last, Virginia needs to rejuvenate its privatization efforts. The state has always been known as an early adopter in the privatization of various state services, activities and programs; but at the same time it is also known for moving slowly and in piecemeal fashion on privatization, lacking a robust policy framework that would ramp up the use of this proven policy management tool.

A central lesson learned from global experience is that privatization works best—maximizing cost savings and value for money—when governments develop a centralized, independent decision-making body to manage privatization and government efficiency initiatives, in effect a state "center of excellence" in procurement. Florida's Council on Efficient Government, for example, was developed during former Governor Jeb Bush's tenure and was a key component of a strategy that ultimately helped his administration realize over $550 million in cost savings through more than 130 privatization and managed competition initiatives.

If restructured and given more authority and teeth, Virginia’s Commonwealth Competition Council could potentially serve that function, as I wrote in my February 2009 Bacon's Rebellion column. And earlier this year, the House of Delegates overwhelmingly passed an efficiency board bill—House Bill 2463, sponsored by Del. John M. O’Bannon III—only to see it stall in the Senate. The bill would have established a new Government Efficiency Review Commission to review agencies on an eight-year cycle and advise the General Assembly on the elimination of waste and inefficiency and potential alternative service delivery methods. Ideas like these need to be front and center in the next legislative session.

Fiscal responsibility needs to quickly become the central public policy discussion in Virginia, because most experts are predicting ongoing state fiscal challenges through at least 2011. Policymakers can no longer rely on gimmickry and federal handouts to avoid making the politically unpopular—but absolutely necessary—reforms to reduce the cost of Virginia government.

» Reason's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform


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