08/25/11: Virginia’s deferred debt

This op-ed appeared in The Virginian-Pilot on the date shown.

WHEN IS a surplus not a surplus?

Last week, Gov. Bob McDonnell announced that Virginia ended the fiscal year with a surplus of nearly $545 million. That comes on top of the $403 million surplus from the year before. On the surface, it seems Virginia is in good financial shape.

In the strictest sense of the word, Virginia did have a surplus; that is, its inflows or revenues for the year exceeded its outflows or expenses.

Last year, in order to balance the budget as required by the state constitution, the General Assembly made a number of decisions to reduce outflows necessitated by the economic downturn and declining inflows.

One of those decisions was the deferral of $620 million due to be contributed to the already underfunded Virginia Retirement System. Rather than paying it last year, that amount is to be repaid over a 10-year period beginning in 2013.

The retirement system, according to a study by the Joint Legislative Audit and Review Commission released last December, is underfunded by $17.6 billion.

And that’s not all. Since October 2009, Virginia has borrowed money from the federal government to pay unemployment benefits. A total of $569 million has been borrowed, with $358 million of that having been repaid this past May. But the fund is still in the red, and it is expected that Virginia will have to borrow an additional $251 million between this September and April 2013 to meet its obligations. And Virginia owes $20 million in interest.

The very definition of deficit spending is when more money is spent than there are revenues. Somehow, the difference has to be resolved. There really aren’t that many options: tap into savings, if there are any, cut spending, increase revenue, defer payments until later or borrow.

As individuals, we engage in deficit spending every time we buy something and don’t pay cash out of our current income for it. Debt isn’t necessarily incurred. Buy a new car and take the money from savings ? Deficit spending. Buy a house and take out a mortgage? Deficit spending. Send your kid to college and take out student loans? Deficit spending.

So it really isn’t a surprise that Virginia — balanced budget requirement notwithstanding — has engaged in deficit spending over the past few years.

Virginia has used a combination of all of the tools available to it to pay its bills. And don’t forget the federal stimulus money to Virginia helped out, too.

Just as our households have bare minimums that we must spend — we have to eat, have shelter, pay utilities, to name a few — so are there minimums that the state must spend for core government services like public safety, transportation and education. The economic downturn wreaked havoc on the budgets of states across the country, including Virginia.

Tough times call for tough measures — and that includes deficit spending. And while technically Virginia enjoyed a surplus, it still has unpaid bills and debt. That surplus won’t be real to me until all of those are paid.