The Governor addressed the money committees of the General Assembly Friday morning. He detailed the revenue shortfall faced by the Commonwealth. The total budget reductions required after tapping the $846 million in budgetary reserves included in the current budget, and withdrawing $705 million from the Rainy Day Fund, total $882 million, $345.5 in FY 2015 and $536 million in FY 2016.
Finance Secretary Brown outlined the steps ahead:
Budget actions will be identified and implemented to address the reduction in the fiscal year's 2015 and 2016 forecast.
-- Prepare and review of agency-developed reduction plans.
-- Implement agency budget reductions to address the shortfall in the current fiscal year.
-- Make recommendations in the 2015 amended budget bill for additional items that require General Assembly approval.
The Governor pledged to try to protect public education, transportation, and health care.
As details regarding reductions are revealed, we will send them your way. We anticipate that any cuts to public education won't be large, but our schools are dying the death of multiple small wounds since 2004 when we last saw a significant increase in funding. We have lost all that we gained then.
In the short term, maybe lawmakers should heed the advice offered by the editor of The Virginian Pilot:
This is going to be rough, and it may well necessitate the kind of draconian cuts undertaken six years ago, at the start of the Great Recession. But it doesn't need to be as bad as it's shaping up to be, particularly if lawmakers come to their senses and accept the piles of federal tax dollars sent to Washington by Virginians and available for return to the commonwealth. (Medicaid expansion)
But, in the meantime, this shortfall should lead thoughtful observers to question the adequacy of Virginia's tax structure. One of the things our Governor said on Friday was, "This past fiscal year marks the first time that general fund revenues have declined in the Commonwealth other than in a national recession." As a consequence, we will be dipping into the Revenue Stabilization Fund (Rainy Day Fund) when our state's economy and our nation's economy are expanding.
This begs two questions. First, if we are dipping into this fund when times are good, will there be a sufficient balance to protect core services when we hit the next recession? Second, do we need to examine the adequacy of our tax structure? Is our tax structure providing sufficient revenues to support core services?
In short, Virginia faces fundamental change. For decades, our economic growth has been driven by ever increasing federal defense spending in Northern Virginia and Hampton Roads. This funding has been cut, and it appears that more cuts are on the horizon. The consequence of these cuts and an expanding economy is high dollar defense related jobs replaced by low paying jobs in the service sector. This drives down income tax revenues.
This leads to the most interesting passage in McAuliffe's speech:
... we have already seen the damage sequestration has done to our economy so far.
And the Secretary of Defense has indicated, if no changes are made by 2016, an additional $50 billion in defense cuts will have to be made.
We all know of Northern Virginia's economic reliance on the Department of Defense, and in Hampton Roads, military spending accounts for 42% of the area's Gross Regional Product.
If I have learned anything after more than 40 years in business, it's that you don't sit idly by when your largest customer cuts spending. You get out there and hustle to find new sources of revenue so that you can keep your business healthy.
That is why we must work together to build and maintain the best public infrastructure system anywhere in the world, so that we can attract the next generation of jobs in cybersecurity, biosciences, data analytics, aerospace and other industries that are building the economy of tomorrow.
Whether it's the Pentagon, a Fortune 500 company or a small business, when decision makers start looking for a new location, they look at which state offers the best public schools, the strongest transportation networks,the highest quality health care, the safest communities, and the cleanest environment.
These are all enormous strengths for Virginia that contribute to the quality of life that our families enjoy. But if we are going to out compete 49 other states and Build a New Virginia Economy, we cannot afford to be complacent.
The Governor is right, we cannot afford to be complacent, but Virginia has a record of complacency when it comes to supporting public education and the other core services.
On the same day the Governor gave his speech, our friends at the Commonwealth Institute (CI) released an "infographic" detailing Virginia's declining investment in the education of her children. CI accurately asserts that, "School funding per pupil is down 16 percent compared to 2009, after adjusting for inflation."
Virginia can do better, and must do better if we are to, as the Governor said, "Build a New Virginia Economy."
Where do we stand now?
39th in state per-pupil funding, pre-K-12
37th in teacher pay
13th in state corrections expenditure per offender
10th in wealth
46th in state and local taxes as a percent of personal income
Virginia can do better. Our politicians talk a good game, but the truth is in the numbers, and the numbers reflect that public education is a low priority. Does this reflect the will of the people of Virginia? Absolutely not! The most recent Commonwealth Education Poll (2013-2014) reveals that, "Virginians remain strongly supportive of funding for the public schools. Almost two-thirds of Virginians (65%) say that Virginia schools do not have enough funds to meet their needs ...."
We have a governor who is inclined to help us, but, at this point, his ability to advance an agenda is compromised by the fact that his party controls neither the House nor the Senate, and I suspect that even he will need a serious push if we are to see bold action.
As Shakespeare said, "Timing is everything." There is little opportunity for meaningful progress in the short legislative session of 2015, but 2016 will be a budget year, and there is an election for all members of the General Assembly in November of 2015. Starting with the end of the 2015 session, February 28, 2015, we will need to start making noise. We should follow the advice of Laura Goren at the Commonwealth Institute:
Virginians who care about the quality of their local schools should be asking their state legislators, local elected officials and school boards some tough questions about how we can all bring to the table the resources that Virginia's kids need.
Director of Government Relations and Research