McDonnell and Bolling Unveil Budget and Spending Reform Plan

-Plan Highlights Need for Fiscal Responsibility in Richmond-

Calls for Accurate Revenue Forecasting, Spending Restraint, Reform of the Budget Cycle and Increased Transparency in State Government

RICHMOND- Bob McDonnell, Republican gubernatorial nominee and former Attorney General of Virginia, and Lieutenant Governor Bill Bolling today unveiled their plan to bring greater fiscal responsibility to Richmond through budget and spending reform.  McDonnell and Bolling announced the plan during a press conference call this morning.  Building off of the “Good Government” plan the two unveiled in May, today’s proposals continue their promise to make Virginia’s government more open, transparent and accountable.

Highlights of the McDonnell-Bolling Fiscal Responsibility Plan Include:

• Committing Richmond to accurate revenue forecasting done in a realistic, accurate and conservative manner
• Reforming the Rainy Day Fund, including increasing the permissible size from 10% to 15% of the Commonwealth’s average annual tax revenues
• Enacting budget cycle reform recommended by the Wilder Commission
• Implementing evidence based budgeting
• Improving government transparency and setting new standards for accountability
• Instituting performance audits of major agencies
• Standing up for Virginia against unfunded federal mandates
• Establishing a Government Performance Commission to review Idle Assets
• Implementing performance spending

Speaking about his plans to dramatically increase fiscal responsibility in Richmond, Bob McDonnell remarked, “We are going through some very tough economic times. These tough economic circumstances have forced the Governor to make serious and difficult cuts to Virginia’s budget. Unfortunately, state spending has increased in recent years at a pace not in line with the overall economy. As the economy has slowed down we have come face to face with a serious divide between what the state has been spending, and what incoming revenues will actually allow for. While my opponent supports increasing taxes on Virginians during this recession in order to increase available revenue in Richmond, that’s not the correct path to take. It is irresponsible and fiscally reckless to ask Virginians to pay more in taxes as they face the toughest economic conditions in generations. The correct answer to these tough circumstances is budget prioritization, spending restraint and fiscal responsibility. As Attorney General I cut my office’s budget by 14%, took a pay cut and gave back my state car.  Those are the kinds of tough decisions Virginians expect to see out of our state government.  In a McDonnell Administration, we will make the tough decisions necessary to prioritize within the existing budget, keeping economic development, education, public safety and transportation among the top priorities.  And we will do so without raising taxes.”

McDonnell continued, “We must put an end to the roller coaster spending by Richmond. That will require exercising spending restraint, not just in bad times, but in good times too.  To do this we will implement accurate revenue forecasting and not make overly optimistic revenue projections.  A 2006 report by JLARC, The General Assembly’s version of the Congressional Budget Office, noted that of the 50 states, Virginia had the second largest forecasting errors in state budgets.  That is unacceptable. A failure to forecast correctly leads to a failure to allocate state funding correctly, and eventually leads to the situation we face today: spending not in line with incoming revenue, necessitating difficult, immediate cuts.  We also have to do a better job preparing the Commonwealth for tough economic times. As Governor, Doug Wilder led the way for creation of our state Rainy Day Fund.  It is a crucial resource to help state government weather tough times. I will call for an increase in the allowable size of the Rainy Day Fund, to help further buttress the Commonwealth against the difficult times that we must always be prepared for. Governor Wilder also called for a reform of Virginia’s budget cycle. We need to move the budget system to odd years, allowing a Governor to oversee two biennial budgets, providing for a greater continuity in spending and planning.

Further, McDonnell noted, “We need to make Virginia’s government more transparent. We will improve government transparency and set new standards for accountability so Virginia citizens can see where their money is being spent.  And finally I will continue to stand up for Virginia against unfunded federal mandates that burden our taxpayers. A Governor’s job is to do what is right for their state. When Congress attempts to pass measures that will hurt the Commonwealth’s taxpayers, I will not hesitate to oppose them. This election is about jobs and the economy.  As Governor I will do everything I can to get Virginia’s economy moving again and help create the new jobs we need. A key component of ensuring that we are successful will be our ability to successfully get state spending under control, prioritize within our state budget, make reasonable revenue projections and ensure that Virginia citizens know where their money is going and what it is being used for. “

During today’s press conference call with reporters, Lieutenant Governor Bill Bolling stated, “Virginia has long been known for its fiscal integrity. However, in the past few years we have based our budgets on overly optimistic revenue projections; one time money to pay for ongoing government programs, spiraling amounts of state debt, raids on the Rainy Day Fund and federal bailout dollars. We have missed our revenue projections by 20% points and incurred over $7B in budget shortfalls with more on the way. The result has been millions of dollars of budget cuts in important programs like education, public safety and health care and the loss of 2000 state jobs. We have to reverse this dangerous cycle and we have to do it now. Under a McDonnell/Bolling administration, we will base our budgets on realistic revenue projections, we will eliminate the budget gimmicks and we will not spend more than we can afford. The proposals we announce today will help restore fiscal integrity to state government by strengthening the budget process, enabling us to save more money in good economic times, ensuring that taxpayer money is being spent as efficiently as possible, and improving budgetary transparency. These are the type of reforms we must implement to protect our reputation at the best managed state in America and our AAA bond rating.”

Fiscal Responsibility - Budget and Spending Reform in a McDonnell Administration

Bob McDonnell and Bill Bolling will provide open, transparent, and accountable government. Taxpayers and voters are the owners of our government agencies and their assets.  For democracy to work effectively citizens must have a high level of confidence and trust in their government and those elected to represent them.  McDonnell and Bolling are also committed to dramatically reducing any waste or inefficiencies, when it comes to spending taxpayer dollars.  An effective state government is essential to providing excellent services to Virginia families while ensuring that they keep more of the money they earn.

In these tough economic times, we must look for every opportunity to consolidate and streamline state functions, and to implement innovation and budget prioritization in Richmond. Just as families and businesses make tough decisions and prioritize their budgets, so too should Richmond.

The manner by which we close this shortfall, and create the budget in the years ahead, will determine how Virginia emerges from this recession. Some would argue for tax increases to fill the revenue gap. That is the wrong approach to take, both for our citizens and for our government. We must close this shortfall, and craft future budgets, without burdening our citizens with additional taxes that they cannot afford. And we must put strong job creation and economic development policies in place to begin to grow again.

One of the main contributing factors to Virginia’s budget challenges is the roller coaster like spending by Richmond. When times are good, spending increases much faster than inflation and population growth. Our budget inflates, and then when times are tough, we have to make massive cuts across the board. We need a more even keeled approach to government spending. Fiscal responsibility is about making tough decisions not just in bad times, but in good times too. As he did as Attorney General, Bob McDonnell will be the type of Governor to make tough decisions that put the Commonwealth on a long path for economic vitality.

Our focus must be on supporting policies that will facilitate growth in the private sector, encourage entrepreneurship, and allow Virginians to achieve their dreams, and in so doing, expand our economy. Economic development, education, public safety and transportation will be the top priorities in the McDonnell/Bolling administration. Priority in the state budget will be given to these core functions of government or those designed to increase revenue through job creation.

The recent news of multiple budget shortfalls, the cancelling of the I-95/395 HOT Lane project, the closing of safety rest stops, VITA inefficiencies, the repeated imposition of new financial burdens on tuition-paying students and families, skyrocketing Medicaid spending, and so many other issues make it clear that there is much work to be done to get Virginia’s financial house in order. Bob McDonnell and Bill Bolling have made tough decisions before to control spending and looked for innovative ways to save money. As Attorney General Bob McDonnell voluntary reduced the Office of the Attorney General’s budget by 14.1%, including cutting his salary and that of his senior staff, returning his state vehicle, renegotiating contracts and initiating a hiring freeze.  Lieutenant Governor Bill Bolling implemented voluntary budgetary reduction actions to return funds totaling 7.5% of its fiscal year 2009 appropriation to the State Treasury. Bob McDonnell and Bill Bolling have already announced plans to pursue privatization of ABC and expand public private partnerships for transportation and other areas of government. The McDonnell administration will continue to lead by example and re-examine the efficiency and effectiveness commission reports by Governor George Allen and Mark Warner to make further reforms.

Budget Reforms to Get Our Fiscal House in Order

Accurate Revenue Forecasting
In a 2006 Review of Virginia’s General Fund Revenue Forecasting Process Report issued by JLARC, it was noted that when compared to all 50 states, Virginia had the second largest forecasting errors. Since the 2008-2010 biennial budget was submitted to the General Assembly in December 2007, downward revenue adjustments have totaled approximately $6 billion, including the Governor’s most recent revenue revision.

In previous recessions, revenue projections have been much more accurate. As we were heading into a recession, Governor Wilder assumed growth at -.9%, yet with many experts warning of the impending recession in 2007, the Governor and Secretary Wagner recommended biennial growth of 10%.

State agencies have been asked repeatedly to find cuts in their budgets. When revenue projections are overly optimistic, spending will exceed revenues and we are left with holes in our budget. This will only be further exacerbated by the use of one-time revenue sources to pay for ongoing government programs and a fast depletion of the rainy day fund.

We have now seen the results of this mismanagement - deep cuts to core government services such as education, transportation and public safety, as well as state employee layoffs.

Under a McDonnell administration, revenue forecasting will be done in a realistic and conservative manner. Simply put - if the money isn’t there and won’t be there, we won’t spend it.

Reform the Rainy Day Fund
Facing a painful recession, then Governor Doug Wilder balanced the budget without raising taxes, and proposed the establishment of one of the most important fiscal policy mechanisms in Virginia history - the Rainy Day Fund. The foresight of this initiative has been evident on several occasions; the fund has been accessed four times since its inception in 1995, or five times if you include Kaine’s current proposal to close the FY 2010 shortfall.

To better prepare the Commonwealth for tough economic times, McDonnell and Bolling support a constitutional amendment to increase the amount of money that can be deposited in the Rainy Day Fund. This amendment would increase the permissible size of the fund from 10% to 15% of the Commonwealth’s average annual tax revenues derived from income and sales taxes for the preceding three fiscal years. It is evident from this recession that there are times when larger reserves are required. This will encourage more government savings and less spending.

Reform the Budget Cycle
Based on the Governor’s revenue projections as revised over the past two years, it is clear that the incoming Governor will confront significant revenue shortfalls early in his term. Unfortunately, most incoming Governors are faced with the same dilemma and spend their first months in office revising the previous Governor’s budget. This system makes no sense.

Rather than continue this haphazard approach, we should amend the budget cycle, as recommended by the Wilder Commission. Currently, a new Governor must submit budget amendments to the biennium budget proposed by his predecessor just a few days after taking office. This not only imposes extraordinary hardship on incoming Governors, but also deprives the new Governor of the capacity to craft his own budget until his third year in office. The Wilder Commission recommended and McDonnell and Bolling support changing the budget cycle so that, upon taking office, an incoming Governor would only have to offer modifications to the second year of his predecessor’s biennial budget. The incoming Governor would then develop his own biennial budget in the second and fourth years of his or her term. By moving the biennial budget to odd numbered years, each Governor will have the opportunity to introduce two meaningful biennial budgets. This approach will provide much needed continuity and fiscal stability in state budgeting.

Evidence based budgeting
At a time when revenue projections continue to fall and the state is laying off employees and cutting core functions, aspects of zero-based budgeting can be useful. At the very least, zero-based budgeting attempts to bring some accountability to government and can tell taxpayers what the government agencies do and where they spend their money. What zero based budgeting does not do is tell taxpayers how well agencies do their jobs or how well they spend their resources. As the Virginian Pilot correctly pointed out, is it really necessary to expend energy and time asking questions such as “Do we really need public schools? Are state troopers a necessity?”

The private sector uses a bottom line - net profit or less - to measure how well money is being spent. Zero-based budgeting in state government does not achieve that because it doesn’t measure how well money is being spent. We need a system that creates metrics and sets benchmarks, using relevant performance measures, to measure efficiency and effectiveness rather than just tracking the sources and uses of funds.

Bob McDonnell will improve the budget system by implementing a budget process that rewards effective programs and allocates future spending based upon that effectiveness.  In contrast to zero-based budgeting, evidence-based budgeting gives each agency a set of performance and effectiveness measures at the beginning of the budget cycle, and then at the end of the cycle assesses how well the agency has met those measures, before determining how much to spend in the next budget cycle. The Council on Virginia’s Future has already begun work in this regard, and we will continue to work with the Council to develop suitable performance measurements.

Transparency in Government
Taxpayers deserve to know more about how their tax dollars are used. With the recent budget shortfall, and billions in federal stimulus money flowing to Virginia, citizens should be provided easy access to information on where and for what programs their money is being spent. As Governor, Bob McDonnell will improve Virginia government transparency and set new standards for accountability.

Bob McDonnell will implement upgrades to the Virginia budget online searchable database to make it more user-friendly, interactive, and transparent, using Texas and Missouri as a model for transparency and ease of use. Here in Virginia our government has made some impressive efforts at opening up its operations. The Commonwealth Data Point service has put the state’s checkbook online and allows citizens to access information on a program by program basis. Virginia Performs allows citizens to check in on how state agencies are doing and see their success at hitting targeted goals. However, these efforts can be made more user-friendly and interactive. Private entities in Virginia have taken the lead on opening up government information to their fellow citizens.  Non-profit websites like the Virginia Public Access Project, Richmond Sunlight and the Virginia Coalition for Open Government are repackaging government data and making it far more user-friendly.  Our state and local governments should learn from these efforts.

Virginia’s state government should rapidly improve both its transparency and the usefulness of the information already provided by learning from other states and making what’s available more usable to the public, our policy makers and the media.

Control Government Spending While Maintaining Quality Service
According to the JLARC “Review of State Spending: 2008 Update,” Virginia’s operating budget increased by 80 percent between fiscal years (FYs) 1999 and 2008. Adjusting for the effects of inflation and population growth, the budget increased by 23 percent. While our opponent brags about having the most budget amendments, McDonnell and Bolling both cut their office voluntarily. While student enrollment has increased only 7.9% from 2000 through 2008, the budget of the “Department of Education, Central Office Operations” has grown from $75,546,367 to $120,313,176, a 59% increase.

While some areas of spending have grown exorbitantly, priorities such as higher education and transportation have been shortchanged. There has been roughly a 40 percent cut in constant-dollar funding for higher education on a per-student basis, helping to drive up the tuition costs for parents, and safety rest stops were closed to save money for transportation. Richmond needs to make its priorities clear in the budget process, and under a McDonnell administration, it will.

Independent Performance Audits of Major Agencies
We need immediate independent performance audits of major state agencies to ensure greater efficiencies and savings. While the state currently has an auditing agency, those audits primarily focus on compliance with specific state procedures, regulations and accounting measures - is the agency following the state guidelines, are there any accounting errors, fraud, etc.? The state auditing agency does not evaluate performance, consider whether the agency is spending taxpayer dollars effectively, nor does it evaluate productivity or recommend structural reorganizing that will make the agency work better. That is why we need independent, performance audits of rapidly growing agencies like the Department of Transportation, Medical Assistance Services, Education, and others to ensure that taxpayer’s dollars are being well spent.

Audits should be focused on performance, not just tracking where money is spent. Are we getting the most out of our money? Is the latest technology being used to speed up processes that waste precious time and money? Are the managers in charge looking for innovative ways to save money without reducing quality of service? These are the types of questions a performance review will answer. A performance audit will independently pinpoint areas of waste, duplication, inefficiency, and determine where better management systems, technology and privatization can be employed.

Fight Unfunded Federal Mandates and Don’t Impose Unfunded Mandates on Localities
In recent years, more and more unfunded federal mandates have been piled onto the states.While many of the programs at the federal level have laudable objectives, they still require hundreds of millions of dollars of spending from the Virginia budget. Republican and Democratic Governors alike face the challenge of balancing their state budgets in the face of unfunded federal mandates. This is not a partisan issue. The Bush administration and a Republican controlled Congress increased the number and amount of unfunded mandates. It was wrong then - and it is wrong now.

Bob McDonnell and Bill Bolling will not hesitate to speak up on issues that affect the people of Virginia. When the federal government continues to impose unfunded mandates on the Commonwealth, it impacts our state coffers and our ability to invest in our budget priorities. We will stand up for Virginia and fight against unfunded federal mandates by working closely with our congressional delegation in a bipartisan manner.

We also acknowledge that localities face the same burdens from the state many times, and we will not impose unfunded mandates on the localities. Bob McDonnell will veto or amend bills that place unfunded mandates on localities.

Virginia Inspector General
McDonnell and Bolling announced in May a proposal to transform the State Internal Auditor into an Inspector General with enhanced authority to proactively pursue citizen complaints concerning fraud, waste and abuse in state government. Currently, the system is primarily designed for state employees to utilize the fraud, waste and abuse hotline.  As all Virginians regularly interact with state government, we will ensure that the hotline is accessible to local government officials and citizens to report suspected misuse of taxpayer resources.

Government Performance Commission and Review of Idle Assets
McDonnell and Bolling also previously announced the establishment of a Government Performance Commission. The Commission shall review all major state agencies and boards on an eight-year cycle and advise the General Assembly on the elimination of waste, duplication, and inefficiency on the part of such agencies. The Commission will ensure that streamlining mechanisms put in place after the independent performance audits, are maintained for the long run. It will consist of 14 members, including six members of the House of Delegates to be appointed by the Speaker, four members of the Senate to be appointed by the Senate Committee on Rules, the Lieutenant Governor and three citizen members appointed by the Governor. Unlike JLARC, which reviews certain agencies when charged by the General Assembly, the Commission will conduct a continual critical review of the operations of state government. Unlike the independent performance audits, the Commission will ensure that changes made to state government efficiency are permanently maintained.

Texas established a Sunset Advisory Commission in 1977 with similar authority, and the commission has saved the state nearly $750 million between 1982 and 2003, compared to spending just $20 million on the Commission.

The Commission will also be charged with investigating idle assets owned by the State.  This will include land, vacant and underutilized buildings, mothballed vehicle fleets, equipment, and other assets owned by the state that is not being used for necessary operations.

 
Performance Spending
Controlling state spending is not just a function of the Governor, chief agency heads and the legislature. There are opportunities to control state spending throughout government - from bottom to top.

As an example, the Department of Human Resource Management has a centralized program to provide awards to employees who propose procedures or ideas that are adopted and that will result in eliminating or reducing state expenditures or improving operations. The program includes the potential for cash rewards of $5,000 for savings of $20,000 or more, together with 1% of the savings over $20,000.  The Program also includes lesser cash awards and additional paid leave for suggestions producing fewer saving.  In 2009, the legislature enacted the Fraud and Abuse Whistle Blower Protection Act which provides a cash reward of 1% of any savings realized by the Commonwealth (up to a limit of $5,000) arising from a report of fraud or abuse of state funds.  Bob McDonnell will promote and expand such programs and will propose an additional approach to increasing government productivity.

Performance spending can also work well when targeted to the agency, rather than just the individual.  In Charlotte, North Carolina, the local government has instituted a gain-sharing program where the department may retain a percentage of its productivity gains for the current fiscal year, to apply to other departmental priorities.  A similar program could spur a real productivity dividend in Virginia. This performance pay program will be aimed at controlling state spending, incentivizing excellent performance and maintaining a high quality level of service to the people of the Commonwealth. When an agency can demonstrate a true productivity gain - i.e., when it is able to deliver the same services for less cost, the agency should have the opportunity to retain a portion of the savings achieved during that fiscal year for other agency priorities.