The Budget Fix That Fixed Nothing

Virginia lawmakers balanced the state budget last month largely with a mix of rainy day funds and directives to state agencies, colleges, universities and local governments to live on less and cut their budgets.

But another maneuver they used flew mostly under the radar. And it is a perfect illustration of why lawmakers need to come up with a permanent revenue source to meet Virginia’s needs rather than muddling through from one crisis to the next.

Specifically, the budget deal delays part of an earlier transportation funding package that called for ramping up the transfer of sales tax revenue to the Highway Maintenance and Operations Fund (HMOF). Instead, that money will stay in the general fund, which pays for schools, health care, and most other state services.

The increased diversion of sales tax dollars to the highway fund was supposed to take place over several years, starting in fiscal year 2014. But lawmakers hit pause on that back in June, delaying a portion of the planned increase for FY 2015 with a promise to pay it back next year. As a result they got to keep $30 million in the general fund for the state’s other priorities.

But, facing an unexpected budget shortfall, lawmakers decided in September to delay all of the planned FY2015 bump up for transportation and keep almost $50 million in the general fund for other priorities. They also eliminated the promise to pay back the money to the highway fund next year.

Few Virginians noticed the maneuver at the time, with media attention focused on the impact of the budget cuts and the legislature’s continued inaction on closing the health care coverage gap. The scant recent coverage has focused only on the need to make sure lawmakers didn’t undermine the state’s ability to issue bonds to finance transportation projects.

But the problem is bigger than that: The maneuver simply papers over the fact that lawmakers have not addressed how to find the revenue it takes to build the economy and invest in the future.

The June and September delays in the ramp-up of the sales tax diversion kept critical resources for the general fund for this year’s budget, but they are not a long-term solution to the state’s revenue needs. That $50 million we’re retaining won’t be available in future years unless, of course, legislators decide to further delay the ramp up of transportation funding.

Rather than undoing part of the transportation package that the 2013 General Assembly worked so hard to pass, legislators should consider ways to come up with enough permanent revenue to meet Virginia’s needs. That’s the real problem they need to fix.

Learn more about the fiscal and other policy challenges facing the state at Inform + Engage: The 2014 TCI Policy Summit. More here.