Virginia sets example with another budget surplus, as McDonnell burnishes VP profile

Virginia Gov. Bob McDonnell is touting his state's ability to do something many other governments could not -- end the year with a surplus, for three years running.

In times of budget strain and pain, the state's record begs a question. What's Virginia doing right?

McDonnell cited several keys to Virginia’s financial success during years of tough economic times, including a focus on economic development and job creation. “That is what’s driving the economic surplus,” he said.

But the governor also stresses another rule in Richmond which hasn't quite made its way to Washington. McDonnell says he told state Cabinet members and agency leaders early in the year to maintain quality service and pay their bills but don’t spend all of the money in their budgets – something the federal government has failed to do.

“That's what Washington does,” he said. “That’s why they have trillion-dollar deficits. There’s a lack of discipline.”

The rosy budget news, meanwhile, has allowed McDonnell to raise his stature as a potential vice presidential contender on the Mitt Romney ticket. While touting the state's finances this week, the governor rapped President Obama and Congress for their fiscal shortcomings.

McDonnell said Monday that Virginia has finished fiscal 2012 with roughly $129 million more in the general fund that forecasted. The state finished with a $311 million general-fund surplus in fiscal 2011 and a $220 million surplus in fiscal 2010.

He said the state’s unemployment rate of 5.7 percent, well below the national average of 8.2 percent, has resulted in a steady flow of income and sales taxes.

The state also is expected to report in mid-August as much as $100 million in savings and account balances left over from agencies, based on numbers from previous years.

As for Washington, McDonnell was especially critical of the massive, across-the-board spending cuts that will soon kick in because Congress failed to negotiate a balanced-budget deal.

“They basically hung the Sword of Damocles over everybody’s head,” he said.

McDonnell made clear dramatic cuts are need and blamed both political parties and chambers of Congress for the current budget crisis. However, he appeared most critical of Obama.

“The president has been invisible,” he said, “a bystander on this issue.”

The 58-year-old governor has appeared numerous times on the campaign trail with Romney.

McDonnell said this spring he was not a potential candidate, but over the past several weeks he has instead said he will not discuss the issue.

Still, McDonnell is on several short-lists for the job, with the Romney campaign recently mentioning his name and expected to make a pick within the next few weeks.

Virginia’s general fund pays for such core state services as public safety, health care and aid to public schools.

The surpluses, however, don’t represent year-over-year growth.

Collections for the fiscal year that ended in June 2009 were $14.3 billion, a 9.2 percent drop from almost $15.8 billion for the previous budget year just as Wall Street began a frightful slide.

One year later, fiscal year 2010 collections dipped to $14.2 billion, the smallest general revenue yield since 2006.

The rebound began in fiscal 2011, when collections barely topped $15 billion. Monday's report means general revenues are about at their 2008 levels, McDonnell said.

The Associated Press contributed to this report.