With the onset of cold weather, I’m now waiting to see what this year’s crop of nuts is going to look like. I am of course referring to events of two days ago, here in Virginia. I’m hoping that our newly elected leadership will be in the mold of traditional (that is, rational) Virginia Republicans. But ever since the last Republican administration here, which I will describe briefly below, that assumption of rationality has been questionable.
Anyway, this started off as a post on gardening, but quickly morphed into a post on politics.
Let me start with the interesting fact that you probably haven’t realized, first. And then get into it.
Maryland West Virginia Kentucky North Carolina Delaware … Colorado Idaho … Virginia had a huge FY 2021 budget surplus.
Our most recent fiscal year (FY 2021, ending June 2021) ended with a budget surplus. It is, nominally, the largest budget surplus in Virginia history. In fact, it’s just over a $2.5B surplus on an annual spending basis of about $70B in combined operating and capital expenditures. Or, with rounding, something like four percent of total revenues.
It would be much higher as a percent of Virginia tax revenues, as large portion of state budgets (e.g.) comes from Federal sources. But the surplus is a surplus of funds from all sources, not just state taxes. For that reason, I would argue that the proper measure of the size of the surplus is as a fraction of total revenues, not just Virginia tax revenues.
That, by itself, isn’t at all strange. Virginia has a long-standing history of fiscal responsibility. We’ve had a AAA bond rating for as long as I can recall.
As with many states, a balanced budget is, loosely speaking, required by law. In addition, by law, at least half of any budget surplus (loosely calculated) must banked in a “rainy day fund” (that is, reserves to be used in case of significant revenue shortfall). Under those conditions, a budget surplus isn’t all that unusual.
Here’s what I hope strikes you as strange. This was a budget formulated by a Democratic governor and passed by a Democratic house and senate. It ended up with the largest dollar budget surplus on record. And nobody was bragging about the surplus. This, despite the fact that the entire Virginia House, and the office of the Governor, were both up for election.
In fact, if you read what Governor Northam said when the surplus was announced, he pretty much thanked everybody but himself. And kept it within the context of a COVID-19 situation that was, at that time, still quite unsettled. For a guy who was at the helm when Virginia received this huge windfall, he did little more than attribute his part in that to prudence and common sense.
I mean, seriously, go to the link above and read what this guy said. It’s a quiet recapitulation of how good government works.
Here’s our top elected official getting all excited about this record-breaking surplus:
"But we can all be proud that we have been able to act prudently and set aside money in our reserves. This action will protect Virginia when the next economic downturn comes—and we know one will come eventually."
As a Virginian, that’s kind of the way we like it. Or, at least, the way we used to like it. Nothing flashy. Even if it doesn’t exactly fire up the electorate.
But there’s an even more fundamental reason not to get excited about last year’s budget surplus. Something that eventually becomes apparent as you raise your eyes from your own locality and start looking around.
So, let’s look around. Let’s start by looking around the border of Virginia:
- Oddly enough, Maryland also had a gigantic budget surplus in FY 2021.
- Traditionally poor West Virginia had a “huge” FY 2021 budget surplus.
- Kentucky had a record-breaking FY 2021 budget surplus.
- Tennessee had a $3.1B budget surplus.
- There was a big budget FY 2021 budget surplus in North Carolina.
I think I might be seeing a pattern here.
It doesn’t much matter where you look. Briefly:
Every state had a large or record-breaking budget surplus in FY 2021.
Don’t believe me? Pick a state at random, Google FY 2021 budget surplus and the name of a state, and see what it says. In a dozen or so tries, the sole exception I found was New York State, where the surplus was nothing to remark on.
Want to bet on why every state had a fantastic FY 2021? More to the point, want to bet your state’s bond rating on it?
To a close approximation, every state had a fantastic revenue year in FY 2021. Which, if you think about it, really ought to give you pause, right?
The question is, what’s the right state response to that revenue increase? And that, in turn, depends on how long you think it’s going to last.
On the one hand, maybe COVID-19 has produced some brave new era and all the States in the Union are now on Easy Street. And the pain of local taxation will now be a thing of the past.
On the other hand, as Governor Northam seemed to hint above, this is a situation that may well prove to be temporary. And making permanent changes to our revenue structure might therefore be imprudent. Better to bank it for a rainy day.
Just to be clear, the main backdrop for all of this good news at the state level is that the Federal government showered money on the economy in response to COVID-19. (Which, to be clear, was preferable to and ultimately cheaper than having the next Great Depression). But as a result, FY 2020 saw the largest Federal deficit since WWII (in terms of fraction of GDP. And FY 2021 is right on track to be the same size as that. (I discussed this some time back, in Post #946, A billion here, a billion there, and pretty soon you’re talking real money.)
Here’s a graph of the Federal annual deficit, as a fraction of GDP, going back to the end of WWII.
A lot of the current deficit was direct payments to various entities for COVID-19 relief. With the explicit hope that they would spend it. (And yet, somehow, we’re now surprised that inflation is up above 5% per year again?)
But that’s over now. Nobody is talking about any more helicopter money from Uncle Sam. (Nobody is talking about trying to balance the Federal budget, either, but my point is that the era of COVID stimulus is over.)
The other and less-appreciated aspect of this, aside from the sheer volume of free money that’s sloshing around, waiting to be spent, is the shift of consumer spending from toward goods (and away from services) that occurred during the pandemic.
Source: Statista.com, red annotations mine.
Why does that matter? By and large, sales taxes are collected on goods, not services. I’m not sure how it works in your state, but that’s surely how it works in Virginia. And now, with Federal enforcement, those taxes are collected both for purchases from bricks-and-mortar stores, and purchase via internet. (Detail on Virginia’s FY 2021 revenues showed something like a one-third increase in internet-based sales tax revenues. A lot of people seem to have on-line-shopped their way through the heart of the pandemic.)
As an American, I probably shouldn’t think this, let alone say it, but here goes: There’s only so much stuff you can buy. I think. I would expect that, at some point, there will be some limit to this historic shift in spending. Things will return to normal. And the temporary jump in state sales tax receipts will decline.
Here’s what I’m trying to get at. If things return to normal — a normal Federal budget, normal (that is, historical) patterns of consumption, then much of the existing all-states budget windfall should go away. We should, I think, see a general “return to baseline” for all of our fiscal data, including state budgets.
My point? Well, maybe we’ve somehow, seemingly by accident, entered some universal era of good times. But I wouldn’t bet on it. I’d bet that whatever-it-was that lifted all state fiscal boats in FY 2021 is not a permanent phenomenon. And if that’s right, it’s foolish to do a complete make-over of a state’s finances in anticipation of this being a permanent boon. No matter how well that plays with the
rubes voters who are, I am absolutely sure, completely unaware of what I have just pointed out above.
In summary: It’s not that Virginia had a record-breaking fiscal year. It’s that, somehow, absolutely every state budget had a good year. Many had a record-breaking year. And, without proof, I’m suggesting that, chances are, that’s a temporary situation. And that a prudent state government will act accordingly. See Governor Northam’s reaction, above.
Nuts or no nuts: A biased history of the last half-century of Commonwealth of Virginia government.
With the election results in, the only question remaining is whether or not we’re going to get sane-and-reasonable Republicans this time. And before you scoff, here in Virginia, up until our last Republican regime, we had nearly a half-century history of reasonable and thoughtful government on both sides of the aisle.
Not that I agree with many positions taken by Virginia Republicans.
But, until the last set (2010-2014), we didn’t see anything like the craziness that we’ve been getting at the national level. Nobody claimed the elections were rigged, that science was a hoax, and so on and so forth. At least, not the people in power.
In the past, I attributed that to the constraints that state governments face, that the Federal government does not. In general, there’s less scope to indulge magical thinking and ideology-over-practicality.
But our last Republican administration (McDonnell, 2010-2014) put that to the test. It was either the exception to the rule of clean and reasonable Virginia government, or a harbinger of things to come. And I get the feeling that we’re about to find out which it was.
With the McDonnell administration, It wasn’t just the tawdry graft, and the weird product pitches for dietary supplements in the middle of official business made Virginia something of a laughingstock. Out of the Attorney General’s office, it was the gratuitous witch hunt against one of Americans foremost climate scientists. To me, that’s what branded our 2012 cohort of elected officials as adherents to Republican anti-science craziness.
Somehow, we’ve gone from Nixon creating the EPA and passing the Clean Air act, to Republican party that is not intrinsically different from the Catholic Church at the time of Galileo. If scientific fact conflicts with
doctrine ideology, Republicans in national office are required to dismiss the science. The notion that the ideology should change in the face of evidence is heresy.
(Edit: My wife rather forcefully reminded me of Virginia’s mandatory trans-vaginal ultrasound law, yet another gem from the McDonnell era. Which, being a guy, and trying to stay away from the whole reproductive-rights thing, I (thankfully) had forgotten about. I think that one definitely ranks right up there on the Republican nuts-o-meter. Assuming your standpoint is heath care and not merely a closeted taste for sadism.
For those of you not from Virginia, I’ll emphasize that that particular law only lasted briefly.
A friend reminds us of yet another horrific health-related episode, when the Republican governor stepped in to attempt to override a wife’s end-of-life decisions regarding her husband and life support. But that was the just-prior Republican governor (Gilmore, 1998-2002), not McDonnell.
In any case, our last Republican governor ruined one of my favorite jokes: What’s the difference between Maryland and Virginia? Fewer of Virginia’s former Governors have gone to prison. (You probably have to be from around here, and of a certain age, and even then, it’s probably not all that funny. But for a while, it seemed like every Maryland governor ended up indited for something.)
But even that Governor managed to end up with a small budget surplus. They may have had some crazy notions about fill-in-the-blank (graft, global warming, gun control), but they weren’t stupid enough to shit in their own nest in terms of taxation and spending. By and large, the same people who passed the first biennial budget had to be here to deal with the outcome of that, for the next biennial budget. And they acted accordingly.
I don’t mean to say that the entire recent history of Virginia government somehow shines. Certainly the era of massive resistance to desegregation of the schools stands out as a bleak chapter.
(In Virginia, if you come across a private K-12 school that started in the late 1950s/early 1960s, chances are good it was started to avoid integration. In Vienna, our biggest local private prep school is one of those.)
But all that happened before my family moved here in the 1960s. And once you get into the 1970s, it seems like Virginia government was mostly pretty reasonable, for want of a better term. Of late, we always seem to have a few Republican extremists from very rural districts. But they are relatively few and far between. In general, we’re a middle-of-the-road state with middle-of-the-road government.
And so, to me, that’s going to be the first litmus test for lunacy or not in our newly elected officials. At face value, the governor-elect already has that surplus fully spent, and then some, with various tax cuts. That sort of plunge off the deep end might have a lot of voter appeal. But it’s really not consistent with Virginia’s long-standing history of fiscal conservatism. Particularly when the source of that windfall might be drying up any time now.
Luckily, in Virginia, the legislature only meets briefly, and that’s not going to occur for another half year yet. And the Senate still has a majority of Democrats. So it’s not as if anything is going to happen soon.
And state government isn’t like the Federal government. That whole crazy “starve the beast” strategy of deliberate large deficits just doesn’t fly. If you burn down the house, fiscally speaking, with your first two-year budget, then its up to you to rebuild it with your second. In this case, if you have a grand old time giving away the current 4% surplus, and it turns out to have been transient, you get to be the one claw that money back.
By and large, Virginia is a case of “if it ain’t broke, don’t fix it”. And I think that most people who live there know it. Objectively,
- Virginia is somewhere around 35th in the U.S. in terms of total state tax burden. Maybe 25th in terms of combined state and local tax burden.
- Our public K-12 schools rank as the best in the South (where Maryland really isn’t the South), and somewhere between fifth and fourteenth in the U.S., depending on who’s doing the ranking.
- Our transportation infrastructure is reasonably sound. For example, we rank 42nd in the country in terms structurally deficient bridges as a fraction of the total.
- The September 2021 unemployment rate in Virginia is 3.8 percent (per the St. Louis Federal Reserve).our current unemployment rate is 3.8%.
In general, it’s a state where it’s hard to make the case that the state wastes your money or somehow provides poor value for it. So if somebody manages to screw that up, a la Kansas (from that font of Socialism, Forbes), I’d hope that people would notice.
What I’m trying to get at is that if you put all the pieces on the table, there’s a lot to lose, and not a lot to gain, from a big bold fiscal move right now. So I think we’re going to see just how rational or irrational out new administration is going to be, pretty much from the outset. And if they are nuts, we’ll find out this winter.
Reportedly, the Governor-elect was ready to cancel the state income tax until somebody explained that this would immediately bankrupt the state. To his credit, when somebody told him that, he backed away from that plan. Which, I think, already distinguishes him from Republicans at the national level.
Radar detectors are still illegal in Virginia
There is a point to this next section, I think. And if that point violates your fundamental right to receive anything broadcast over the public airwaves, tough noogies.
Let me end this section with just one example of Virginia policy. In the early 1990s, Virginia became the number one source of guns for gunnrunning in the U.S. (That is, straw purchases of bulk lots of guns, for transport across state lines and eventual illegal resale). We were supplying murder weapons for much of the U.S. East Coast.
Now, if there is a hot-button issue in the rural South, it’s gun control. And yet, this was a serious problem. Our solution was to pass a law limiting legal handgun purchases to one a month. It wasn’t a radical idea. We copied it from South Carolina, which had tried that decades before. It wasn’t unduly burdensome, nor did it attempt to address problems beyond the immediate and obvious one. There were no limits on long guns. In fact, there were no real limits on handguns — Virginia residents could apply for a waiver for the limit on handgun purchase. All it did was stop people from driving to Richmond, filling the trunk with guns, filling the tank with gas, and driving up I-95 to New York and points north. Or, at least, stop them from doing that easily and legally.
By all objective accounts, this law was effective in reducing gun running from Virginia, with minimum burden on Virginia citizens. Gun zealots will try to rewrite history, but in fact Virginia dropped way down the list of sources of illegal guns soon after that was passed. We became just another part of the background noise of illegal gun trade in the U.S., rather than its star player.
That common-sense law stood from 1993 to 2012. It was repealed by — wait for it — our last Republican governor. Not exactly a surprise. Nor is it a surprise that it has re-instated via legislation signed in 2020. Because, in Virginia, that’s something that can only happen when Democrats control all branches government. In addition to all the prior exceptions, I think the new law also exempts anyone with a concealed-carry permit in Virginia.
I cannot help but view the one-gun-a-month law as being of a piece with my favorite unique Virginia law: Radar detectors are illegal. In Virginia, use of radar detectors (or radar jammers or laser jammers) on the public roads is against the law. (Not fully unique: DC is the only other US state-level jurisdiction that outlaws them. They are also illegal in most of Canada. And all states ban them for commercial drivers. Source: Cobra Electronics.)
Why? Because, if you are honest, you’ll admit that the only reason to use a radar detector here is to break the law in Virginia. And so, if the only point is to break the law, then Virginia should do what it can to make that illegal.
The fact that Virginia has maintained this law despite numerous challenges financed by radar-detector manufacturers is a testament to something. This law is, after all, a restriction on a citizen’s fundamental freedom to receive any signal broadcast over the public airwaves. I’ll vote for it being a testament to common sense.
And, if you are honest, you’ll admit that the only reason to
use a radar detector fill your trunk with handguns is to break the law in Virginia. in another state. And so, rationally, if the only point is to break the law, then you should do what you can to make it illegal.
Doesn’t seem all that hard to understand. But we’re now going to have an entire industry-financed push to repeal the law.
And now, I guess we’ll see what happens next. Will there be repeal attempts, despite the absolute and total lack of hardship imposed on Virginia gun owners. Will we get repeal purely for sake of ideology? Or will common sense win out? You’d think you wouldn’t have to ask, but with Republicans now running much of the government, I assume this is back in play again.
So I guess that’s my second test of just how nutty things are now going to get in Virginia. We have a common-sense law that seems to get the job done but impose no practical hardship. Are our state Republicans now going to try to repeal that, based solely on their ideology? Let’s hope we don’t find out.
Sometimes, there’s a sound reason to keep something illegal, even if it doesn’t comport with your particular notion of personal freedom.