Out of the Red: Virginia's Economic Turnaround

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RICHMOND, Va. -- As many states work to stay out of the red, Virginia is coming off of a budget surplus. And the man behind the Old Dominion's journey back to the black is Gov. Bob McDonnell.
    
When he took office in January 2010, Virginia was just beginning to emerge from the worst economy in modern history. Gov. McDonnell began his first day in office facing a near $2 billion budget gap and a fiscal forecast that projected a $4 billion budget gap over the next two years.
    
His predecessor, Gov. Tim Kaine, offered a parting suggestion that included trimming $2 billion out of the state's $80 billion budget and raising taxes to generate the other $2 billion.

However, raising taxes wasn't an option for McDonnell. He had just spent the last year campaigning against tax hikes.

Rolling Back the Clock
    
Instead, the conservative governor worked with Virginia's Democratic Senate and Republican House to roll back the clock four years, returning state spending levels to those of 2006.
    
"When you make the cuts, you force people throughout the administration or throughout the bureaucracy, if you will, to do things better and smarter. And you know what? They will," McDonnell said.    
    
He admitted the cuts were politically uncomfortable. Public safety was spared, but every other agency was cut - even education. 

The governor then used some old-fashioned business incentives to keep state agencies from going on their infamous year-end spending sprees that drained their budgets of any leftover money. 
   
"We said 'Look, you save money, you'll have a 3 percent bonus.' So they saved about $175 million and we spent about $80 million on bonuses," McDonnell explained. "I mean, it really worked well - private sector incentives to get people to conserve and save and be more efficient."
    
In fact, McDonnell's policies worked so well that six months after taking office, the new governor announced that Virginia would finish the fiscal year with a $403 million surplus.
   
"You've got to bring in great private sector initiatives and be efficient and then spend well on those things that government is supposed to do and then let the churches, the synagogues, the private sector, the benevolent organizations, the rest of our great institutions and society - let them do the work that they are appointed to do," he explained.
    
The private sector seems to like the climate.  Since McDonnell took office, Virginia has added nearly 68,000 jobs.  His administration has had a personal hand in attracting nearly 16,000 of them and at 6.8 percent, Virginia has one of the lowest unemployment rates in the nation.

An Example for Washington?
   
It's a remarkable turnaround governors across the country would love to copy. And as Congress and the president begin the new year tackling America's $1.3 trillion spending gap and nearly $14 trillion debt, Gov. McDonnell said they could learn a thing or two from the Virginia way.
  
"You know, it all comes down to this basic, simple premise that I think every person who graduated from kindergarten understands. And that is you can't spend more than you have for any sustainable time or you go broke," he said. "And that's what's happening."
    
He called current levels of spending in Washington "immoral."
    
"We looked at state spending over the last decade and it had doubled," he noted. "It had grown 28 percent faster than the rate of population and inflation, which is a pretty good measure of how much spending should grow. So it told me we got areas that we can cut and streamline."

McDonnell Charges Ahead
    
And he's still at it. 

In his new budget released last month, McDonnell is cutting or re-programming nearly $200 million. And in a controversial move, he's asking state employees to contribute to their pension plans, which will result in a pay cut. 

He's also working to pull Virginia out of the liquor business by privatizing liquor stores owned and run by the state - a market the Commonwealth took over after prohibition. McDonnell wants to pour the savings into Virginia's aging transportation system.
   
"We want a performance-based budget," he said. "We don't want to just feel good putting money into things; we want results.  And that's what people expect out of government, more results for less money. And that's the track we're on."
    
It's a track toward more conservative policies that McDonnell says have a proven record for prosperity.

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