State Expects Revenue Windfall Will Pay Down Federal Loan

By Amanda Iacone, Virginia Statehouse News Sunday, June 26, 2011

RICHMOND - Virginia is tracking to meet or beat revenue projections as the end of the fiscal year nears but much of the extra money is already spoken for as the state works to pay down some debt.

Finance Secretary Ric Brown said last week that the state could end up bringing in $100 million to $200 million in unanticipated revenue — all depending on the past 10 days of June collections.

June is the last month of the 2011 fiscal year.

The potential accounting windfall is a pittance compared to the state’s overall budget, and legislators portend that the next two-year budget will be lean as revenues grow slowly.

The state is forecast to collect $14.7 billion and needs to collect another $1.4 billion in June to meet that projection. Last year the state took in $1.6 billion in June, Brown said.

“We’re obviously in good shape for a surplus,” he told legislators during a House Appropriations Committee meeting.

But any extra dollars will disappear in the state’s underfunded pension system and to repay a federal loan among other debt and transfers required by law.

For example, a portion of the money will go into the state’s rainy day fund and to a water quality improvement fund. Little would remain to pay for operations or programs, Brown said.

Virginia also owes $8.9 million in interest to the federal government for money the state borrowed to pay unemployment benefits, he said.

The state must pay also for promised improvements at the Oceana Naval Station, Brown said.

The state promised to create a safety and noise buffer around the station during the 2006 base realignment and must buy land to accommodate the buffer.

Those commitments, including directing some of the cash to the transportation system, means there will be little money left to pay for any new projects, said Delegate Charles Poindexter, R-Glade Hill.

Lawmakers also suggested that the surplus go to the Virginia Retirement System. The state has borrowed more than $600 million from the underfunded Virginia Retirement System to help balance the budget as lawmakers faced budget cuts worth more than $4 billion. The pension system is about $17.6 billion short of its total liabilities.

That loan will be repaid over the next 10 years, Brown said.

Delegate Chris Jones, R-Suffolk, said the state should use any surplus revenue to address outstanding obligations, like the pension system, rather new programs or operating expenses — a major goal for House Republicans as they worked on changes to the current budget during the most recent General Assembly session.

“It’s about managing expectations. I think when the people see a surplus in the headlines they don’t always equate that to what reality might be, the position we’re in economically within our budget,” Jones said. “We do not have additional dollars to spend.“

Lawmakers need to be cautious when spending taxpayer dollars because sales revenue is flat and the economy remains weak, Jones said.

Delegate Joe May, R-Leesburg, agreed the term “excess revenue” is misleading but meeting or beating revenue projections is better than coming up short.

Lawmakers will craft a spartan, two-year budget when they convene in January, reflecting the slow economic recovery, May said.

Last week, Sen. Edd Houck, D-Spotsylvania, said any available surplus funds should go to higher education to help implement a new reform law the governor signed last week.