State Debt Service Begins Toll on Budget

By Peter Smith, Virginia Statehouse News Saturday, November 26, 2011

ALEXANDRIA - Virginia will pay nearly $600 million to creditors in 2012 after borrowing record amounts during the past few years, diverting money from services and programs facing budget cuts.

Paying down Virginia's debt ate up $1.19 billion over the past two years — 3.7 percent of the $32 billion allocated for the general fund operating budget over that period.

Legislative analysts for the state Senate Finance Committee said that number will rise even more next year.

Bill Echelberger, a Senate fiscal analyst, told lawmakers gathered at the committee's fall retreat that Virginia had seen the “four largest tax-supported debt acquisitions” in history during the past four years, including Gov. Bob McDonnell's $600 million transportation package.

The large scale borrowing is expected to increase debt payments by $50 million in fiscal 2012, which comes as the state prepares for budget cuts.

McDonnell has asked state agencies for 2 percent to 6 percent across-the-board budget cuts, exempting Medicaid, Kindergarten through grade 12 education, and higher education from the austerity measures.

Debt payments bind the hands of budget writers, because they operate on a fixed schedule, which can detract from government services and programs.

A flat debt level could have nearly spared the state Department of Corrections from the $60.7 million that could be cut from its budget, if 6 percent cuts are enforced. A 6 percent cut across the board would save $220 million for the upcoming biennial budget.

Debt has more than doubled in the past six years, increasing from $5.8 billion in fiscal 2005 to $11.9 billion in fiscal 2011. Annual interest payments have increased at an even faster rate, from $236 million in 2005 to a projected $593 million in 2012.

Virginia's debt total is among the lowest in the country, a big reason for its AAA credit rating. Some budget hawks, however, said the state's fiscal picture ignores an issue that could further strain its ability to pay for services and programs.

“What’s not included in that analysis is $54 billion in unfunded pension obligations,” former Government Accountability auditor Bob Williams said. “It’s government accounting gimmicks that allow them to get away with it — a private company in Virginia would not have that luxury.”

Williams, a former Republican politician, is president of State Budget Solutions, a nonpartisan budget policy group with conservative leanings.

State estimates put the pension debt at about $20 billion. Williams said his estimate is based upon the stricter accounting standards required for the private sector.

The committee's report is based on fiscal projections on recent tax revenue and spending.

The Debt Capacity Advisory Committee, a state body that makes recommendations to the governor on how to issue debt responsibly, will release its own long-term estimates on Dec. 19.