In Virginia, says Secretary of Finance Aubrey, “we have a math problem.”
The first part of the problem: the two biggest sources of state revenue – individual income taxes and sales taxes – account for about 80% of all the money Virginia takes in are growing at a pace of about 3.5% a year.
The second part: the two biggest items where the state spends money – K-12 education and health care (primarily Medicaid) – account for about 75% of spending, and have been growing at rates ranging between 5% and 7% a year.
Income, that is, is growing by about $600 million a year. The flow of money out is growing by about $800 million to $1 billion a year.
“We have a structural issue,” Layne said.
It’s an issue that’s been masked by fiscal year 2019’s big final surplus, but it’s been brewing for a while.
Part of what’s driving it is that more and more of Virginia’s state spending is mandated – that is, required by state law, the state Constitution or the federal government.
“We’re more like Washington that way,” said Layne.
The other is the slowing of the U.S. economy. It’s not just the decline in estimated real Gross Domestic Product growth in the second quarter to 2% from 3.1% in the first quarter and sluggish growth in payroll employment that worries Layne.
He’s feeling disconcerted by this summer’s inverted yield curve (when short term interest rates are higher than long term ones) – and even more by an unexpected shrinking in manufacturing, with the closely watched Institute of Supply Management Index dropping for the fifth month in a row to fall below 50 for the first time since the Great Recession.
And the impact of that is that the math problem Layne presented is going to seem even harder to solve.
Shad Plank is the Daily Press blog that tracks Virginia politics. It takes its name from the traditional Shad Planking political get-together, though hopefully it is tastier than the roasted fish featured at that Sussex County event. To contact Dave Ress with tips or questions, call 757-247-4535 or email dress@dailypress.com.
