Let’s focus on two reasons why his budget was so difficult and why so much had to be cut. First, we are living through a deep recession caused by government policies that allowed an unsustainable housing bubble that simply had to burst. And second, an increase in spending over the ten years prior to this recession that – according to the Richmond Times Dispatch – exceeded the rate of inflation and population growth by fully 30 percent.
Spending in the next two year budget will be about the same as it was in 2006; not such a bad year. Of course, we now have more people living in Virginia so spending per capita is less than it was in 2006, but we’ll survive.
This new budget cuts money that goes to our counties and cities, meaning many localities will cut spending or raise taxes to help cover some of these “missing bucks.” Many of these localities say a tax increase is needed to offset continued reduction in property values. Tax rate increases are, in most cases, leaving the taxpayers with about the same property tax burden as last year. Of course, what these governments don’t seem to realize is that the taxpayers are less able to pay the same taxes as last year – because of the recession.
So here we are today, with the General Assembly spending roughly the same as in 2006 and our localities faced with a similar dilemma. But have these governments really faced up to the problem? Have they figured out how to avoid this kind of headache in the future? Have the really hard decisions on government reform been made? Of course not – at least not yet.
So what is missing from today’s budget discussions? It is the simple question of “how do we avoid these budget cuts in the future?” History shows that government cuts spending or raises taxes in recessionary times only to increase spending when times are good. This happens because the recession ends and all too often the new tax rates stay in place so governments see a windfall as economic growth picks up steam. Good times seem to wipe out the government memories of the past “hard times.” Yet, unless we understand that government’s role in our lives must be re-evaluated, government programs prioritized, reformed and remolded to be more efficient, then we will have learned nothing from what we are going through today.
For instance, if our localities don’t index tax increases in a way that automatically reduces rates when property values begin to increase over the next few years, these bureaucracies will be wallowing in an ocean of new cash; creating a huge drag on each and every one of us in the years ahead. Bu where is the call to protect the taxpayers?
Bob McDonnell’s recently established Government Reform Commission has the potential to greatly benefit our long term economic growth. Government programs need to be prioritized. Duplicative programs need to be merged, others analyzed and those not worthy of continuation dropped. Activities that can and should be done in the private sector need to be moved there. Programs that never should have been in government should be eliminated. Public Private Partnerships must become the option of first resort when building needed infrastructure. Personnel policies such as the state paying for all the retirement health insurance benefits for employees must be reconsidered for those now employed. Few, if any private sector companies offer such gold-plated programs so why do it here in Virginia?
What state commercial programs would have a better home in the private sector? The ABC stores, the state lottery and our college tuition investment fund standout for starters. What capital assets – land, equipment, buildings and the like – does the state now own that could be sold on the open market?
And in order to avoid in the future the kind of budget headaches faced this year, governments have to understand that they simply cannot spend more, year after year, than the percentage growth of our economy. Rate of inflation and population growth is one formula and there may be others. Clearly, if our state and local governments don’t limit their growth in the future to mirror economic growth, we will see government gobbling more and more of our “economic seed corn” and future budget crises could surely be worse than the one we experience today.
The Government Reform Commission can lead the way if it will take the bull by the horns and use today’s economic recession as the means to truly restructure what government does and how it does it. We are facing an exciting possibility or a lost opportunity.