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Feeling flush: Virginia's budget surplus doubles

roanoke.top.jpgVirginia's surprise $220 million surplus turned into a surprise $403 million suplus. By Hibah Yousuf, staff reporter

NEW YORK (CNNMoney.com) -- Most states were forced to slash expenses to end the year with a balanced budget, but severe cuts and better-than-expected revenue collections allowed a few lucky states to welcome surprise surpluses.

After facing a $1.8 billion shortfall in the middle of the year, Virginia closed its fiscal 2010 budget with a $403.2 million budget surplus, Governor Bob McDonnell said on Thursday. That's even higher than the $220 million surplus he previously estimated.

"But please don't get too excited," McDonnell said during an address to state congressional members. "Most of it is already obligated in statute or in the budget to meet various needs."

About $82 million of the unexpected surplus will go to boost state employee pay with a one-time 3% holiday bonus in December. They have not received a raise since November 2007.

The surplus will also award $18 million to the local school district and $36.4 million to Virginia's Water Quality Improvement Fund, which aims to clean up the Chesapeake Bay. Another $32.7 million will go to transportation, while public schools already received $18.7 million.

The governor has several months to determine what to do with the rest of the surplus.

McDonnell said much of the boost was thanks to state employees, who spent $175 million less then the budget allowed rather than whittling down balances to zero. Plus, Virginia collected $228 million more in individual tax revenues that it was expecting.

The state had forecast revenue to fall by 2.3% during the year, but it only slipped 0.7% lower from the previous year.

"This slight improvement is worth noting, but it does erase the fact that this was the first time in history that general fund revenues declined two successive years," McDonnell said. "Clearly, while the fiscal year finished with some optimistic trends, we must budget conservatively going forward."

Virginia is among about a dozen states -- including Arkansas, Connecticut, Kentucky, New Hampshire, North Dakota, Ohio and Maine -- that ended up with a budget surplus after making spending cuts to compensate for steep drops in revenue, said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers.

And while revenue collections have since stabilized, they are still only at the 2006 level, meaning that state budgets constraints will continue. For fiscal 2011, Sigritz said revenue collections will be $53 billion less than they were in 2008.

A loss of federal stimulus funds is also expected to add pressure.

In fact, without the $2.5 billion it received in stimulus funds, Virginia would not have been able to beat the odds, according to the Commonwealth Institute for Fiscal Analysis.

"Recovery Act funds helped Virginia avoid deeper cuts in key services like health care, education, and public safety," said Michael Cassidy, president and chief executive of the Richmond, Va.-based think tank.

But while the stimulus "helped soften some of the fiscal blow" of the recession, Cassidy said Virginia still "has a long way to go before its budgets are back in healthy shape."  To top of page

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