HD19 - Review of State Spending: December 2004 Update


Executive Summary:
The Code of Virginia (§ 30-58.3) directs JLARC to develop an annual report on State spending growth, and to identify the largest and fastest growing functions and programs in the State budget. This is the fourth report in JLARC’s series on State spending, and it analyzes spending and budget growth over the period between FY 1995 and FY 2004. Previous reports in the series examined growth since FY 1981.

Total State spending (including capital projects) increased 68 percent from FY 1995 to FY 2004. However, when accounting for inflation (23 percent) and population growth (13 percent), State spending increased by a more modest 22 percent growth rate, or 2.3 percent average annual growth over the ten-year period. The State operating budget (excluding capital projects) increased 66 percent over the period (from $15.9 billion to $26.4 billion). Spending growth in Virginia was matched by the pace of growth in other states, as Virginia’s per-capita, inflation-adjusted growth continued to be ranked in the mid-30s relative to all 50 states.

State spending and appropriation growth was concentrated in traditional core services of State government. Three agencies in addition to the Personal Property Tax Relief Program accounted for 55 percent of the overall growth in appropriations: the Departments of Medical Assistance Services, Education, and Transportation. Two of the eight broad government functions accounted for 60 percent of the growth in total State spending: education, and individual and family services. In addition, six budget programs accounted for 53 percent of the overall appropriations growth, with Medicaid, public education (Standards of Quality), and personal property tax relief exhibiting the most dollar growth over the period.

The primary factors driving State spending growth over the ten-year period were inflation, population growth, and economic growth. Factors beyond these pervasive phenomena included State initiatives, changes in agency workloads, and federal matching requirements. Major State initiatives included the personal property tax relief program (begun in FY 1999 and totaling $892 million in FY 2004) and the re-benchmarking of the State Standards of Quality. Federal matching requirements for the Medicaid and highway construction programs led to a combined increase of $3.3 billion in State spending.