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Bacon's Rebellion

The Politics of Budget Surplus

Virginia needs Taxpayers Bill of Rights for real fiscal reform

Geoffrey Segal
April 11, 2005

The landscape of the 2005 General Assembly was much different than the legislative sessions of recent years past. The state has run a surplus for two consecutive years, bringing in $1.5 billion more than originally budgeted. Talk of deficits is gone.

Certainly, the budget surplus is good news. Virginia's economy has fully rebounded and seems as strong as ever. However, despite notable strides made toward long-term structural reform, we have not changed the spending mindset in Richmond.

The real problem facing our state is the average annual growth in spending of 8.12 percent between 1997 and 2006. If this continues, we will face another tax battle in a couple of years and it will make last year's "mud fight" look tame in comparison.

Since the 1996-98 biennium budget cycle (former Gov. Jim Gilmore's first budget) the Commonwealth's budget has seen a dramatic increase. In just 10 years, the budget has increased more than 80 percent—an average of 16 percent each biennium over this time. If you take a year by year approach the budget has more than doubled! At this rate the biennium budget will reach more than $110 billion in 2012-1014.

Each of the last two years the Commonwealth has enjoyed a surplus. Last year's was $324 million and there will be a surplus of at least $1.2 billion at the end of this year. A portion of these surpluses was, by law, channeled into the rainy day fund and the rest was quickly gobbled up by additional state spending. Facing an even larger surplus this year, new additional spending quickly swallowed the surplus whole.

To put it simply, this kind of spending is not sustainable. Spending must be controlled. If not, more and larger tax increases will be needed to continue to "feed the beast" of state government.

The path to fiscal reform is a constitutional limit on the growth of state spending—commonly known as a Taxpayers Bill of Rights (TABOR). Various TABOR like measures have been introduced in each of the last several legislative sessions. While each initiative was unique, they had the same central tenet—slow down the rate of growth of Virginia's budget to the rate of Virginia's families.

With surpluses as far as the eye can see the state desperately needs "fiscal guardrails" to prevent adding excessively to the base budget.

Unfortunately, the General Assembly has failed to pass any of the competing initiatives to limit state spending in a reasonably responsible fashion. It hasn't even allowed the voters an opportunity to vote on the idea through an advisory referendum. Given our state's constitutional design we're several years away from installing anything. This will be much too late if we continue to enjoy surpluses over that time and spend every last penny growing the state government.

Colorado has instituted the strongest constitutional spending limitation—although 26 states have enacted some variant of a spending limitation. Furthermore, 25 states have introduced some form of TABOR—in many cases, this represents simply shifting toward a stronger limitation than what is already in place.

In the 12 years since its passage, Colorado's prosperity has been boosted. Better government has been promoted and it helped Colorado working families by putting $3.4 billion back in their pockets via tax refunds. Spending restraint during the 90s boom protected Colorado from a California-style deficit. Indeed, had California implemented TABOR at the same time as Colorado, it would have enjoyed a $90 billion surplus rather than a $35 billion deficit! And, of course, Governor Arnold would still be making movies.

Government should not and cannot, over an extended period of time, faster than the families and the communities that support them. The time to instill spending restraints is now—while we enjoy surpluses and are not in crisis mode. Its time our state leaders got serious about Virginia's future and put some restraints on their addiction to spending.

The current campaign for governor is an ideal time to make this issue of government spending a central part of the debate. Without firm spending restraints, we are faced with a pending fiscal crisis not too far down the road.

Geoffrey Segal is director of privatization and government reform at Reason Foundation.



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