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McDonnell proposes ‘targeted cuts’ to make room for priorities

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After budget slashing dominated the first General Assembly session of his term, Gov. Bob McDonnell is eager to achieve some of his signature initiatives this year. Expect to see a major push for privatization of state-run liquor stores, new tax incentives to boost Virginia’s competitiveness, new plans for transportation, and targeted budget cuts to pay for these priorities. Armed by guidance from a wide range of advisory commissions, this “short” 46-day session should be anything but uneventful. McDonnell’s proposals must pass a divided legislature and be agreed to by the state Senate, which is controlled by Democrats. Virginia Business sat down with the governor to discuss the General Assembly session, the future of the U.S. Joint Forces Command and energy in the state.

Note: Virginia Business interviewed McDonnell before he released his budget amendment proposals. You can find those details of his plans here.

Virginia Business: You’ve asked government agencies to present you with a range of budget cuts.  Do you expect that cuts, combined with recommendations from the government reform commission, will mean more layoffs at state agencies? Will this be another tough year for budget cuts?

McDonnell: Every budget sessions is tough because it sets the priorities that Virginia government has for its citizens, so it’s always about priorities and choices. Depending on where you represent in Virginia, your priorities may be different. I have the advantage as governor of trying to do what I think is right for the state. It’s certainly not going to be as tough as last session where we cut $1.8 billion out of the 2010 budget and $4.2 billion out of the ‘11 and ‘12 budgets. I was clear that we’re not going to have tax increases in a down economy, so we made significant cuts, including areas like education and health care. This year cuts are going to be a more targeted and not as deep. There are still some areas where we’re looking for efficiencies and cost savings so some of it will be born by innovation and some of it will be born by just looking at programs or boards or agencies that can be consolidated or eliminated. Some will be relatively smaller cuts in certain areas. So that’s the approach that I’ve taken to the budget this year, and when we’re able to spend some surplus money on priorities and then spend some of the new revenue that we’re looking at on priorities, it’s not necessary to cut as deeply as we did the last couple years. There had been a historic two successive years of negative growth. We’re now under the positive revenue growth, so the cuts are more targeted and strategic.

VB: Are there going to additional lay offs at state agencies?

McDonnell: There will be a few. We’ve had a hiring freeze for a year. I’ve actually tightened that up this year with new language that was put in the budget. We saved close to $25 million by the freeze we had during the course of this year. It is a tool to make sure that we’re maximizing the productivity and the effectiveness of our state work force. We have 100,003 people and the question is, ‘Is that the right number? Do we have too many? Too little?’ and that’s what we’re going through as we make strategic realignments in state government. There will be some contractions in certain areas that might result in a few layoffs because we found a better way to deliver a particular government service.

VB: For transportation, the audits of VDOT have found a lot of unspent money and have presented ways to streamline public-private partnerships. However the six-year highway plan is $3 billion less than it was two years ago. Will you try to tackle transportation initiatives this session?

McDonnell: I have four priorities this session: government reform and strategic spending cuts, economic development and job creation, third is higher education and fourth is transportation.

With the new resources we have either from savings or from new money or from reprioritization, transportation is going to be an area that I’ll ask the General Assembly to make new investments in. There are two things we want to do. One is obviously new funding, that’s going to be a multiyear commitment. This year, given the economic and political realities of 2011, we’re not going to fix the entire problem, but I want to make a start and a down payment. It’s critical we start now.

And secondly, we’re going to have to make some qualitative reforms in the way we organize VDOT, the way we do public-private partnerships and the way we run our transportation infrastructure, so we’ll have legislation in both of those areas. In the first two weeks of January I’ll have the full transportation infrastructure plan that we will have laid out that will be introduced in a bill or the series of bills.

But the reason we need to start now, is, and this is critically important, is that we have great needs in the state. We’ve got the third largest state road network in America. We’ve got the third largest congestion center in American in Northern Virginia. We have significant challenges in certain areas to be able to continue to attract business because of our transportation infrastructure. We have never seen a time where the bids that we’ve got coming for road projects and bridge projects represent greater value. They’re coming in far lower that we expected. The interest rates that Virginia can borrow on are at historic lows. We can leverage money in ways that we haven’t seen in decades, and finally we need to get people back to work with construction projects now and start reducing the congestion.

So my message to the General Assembly is ‘Don’t wait.’ Invest now and help me to authorize funding approaches that will leverage our resources to build now. Things like [public-private partnerships], things like advanced use of surplus monies, things like bonds, all allow us to spend money now where we have historically low interest rates and historically good prices. I don’t want to hear from the General Assembly that we need to wait and have money trickle in over three, four, 10 years. I want to get things done now.

VB: Your commission on economic development and job creation said Virginia lacks enough incentives to attract emerging technologies. Are you going to address this concern?

McDonnell: Absolutely. That will probably be the top priority of the jobs and economic development proposals that we’ll make to the General Assembly. We’ll make a high-paying jobs are in the future. That’s what’s going to allow us to remain competitive in a global economy, and that’s why I’ve asked Virginia colleges to graduate more students in [science, technology, engineering and mathematics] disciplines. So absolutely, you’re going to see investments in a number of areas in jobs and economic developments, but a significant focus will be on emerging technologies.

VB: Your plans to privatize ABC stores drew resistance from many quarters. Can you develop a plan that will appeal to a majority of legislators?

McDonnell: We’re still working on it. Most of the legislature tells me they don’t think we ought to have a government monopoly. That’s a great start. So now we’re just talking about the details. What are the best business cases to make to get this done? Thirty-two states have done it, I’m confident Virginia can do it. We’ve been talking to business people and legislators and many others about what is the best model. We’ve obviously had discussions for months through the government reform commission, and we’ve looked at some other options. People had some concerns about the first model we outlined, which is fine.

There are dozens of ways to do this. I just need to find the right one that’s smart business,  that protects Virginia’s a revenue stream, but also can be accepted by the majority of the legislature. We’re still working through that, and we’ll have proposals in January on that. 

We are still going to use the proceeds from ABC privatization for transportation. That will be part of the overall strategies that we’ve got to be able to fund transportation by using some reprioritization, but also by using some new revenue streams.

VB: Something that will be different about 2011 will be redistricting. Do you plan on creating an advisory panel?

Yes…I think it’s important to have citizen input. We only do this every 10 years, so I think it’s important to have citizen input, to have citizens who want to be educated in the maps, and the districts, to really to help hold the government accountable and that the requirements of the constitution are upheld — that it’s fair, that it respects the contiguity of land masses, the community of interests…and obviously to reduce gerrymandering. That’s what I hope will happen.

Now, the good news this year is that by definition this will be the first truly bipartisan redistricting in Virginia history because it’s the first time we’ve ever had a split legislature since redistricting was done. And no other year in all of Virginia have we had two different parties in control of Republican House and a Democratic Senate. By definition you’re going to have a bipartisan map drawn, so that’s good. But we also want to make sure that concerned citizens and business people are able to know as much information as possible and give their input into it.

VB: Now that the Obama administration has delayed exploration for offshore oil and gas in Virginia, do you think that Virginia’s out of options in this area? Will you now look at offshore wind energy?

McDonnell: I’ve always been looking at all of those. My goal has been to make Virginia the energy capital of the East Coast and to use a comprehensive solution. Every natural resource and every technology should be deployed to reduce American dependence on foreign countries that are often adverse to American interests.

So to write off an entire industry, which is what the Obama administration has now done, is the wrong decision at the wrong time. I strongly and vehemently disagree with their decision. Naturally it hurts Virginia disproportionally because back in March the Obama administration says, “We’re going to go forward and Virginia’s going to be first.” That was great for us and we thought we’d generate as much as $200 million dollars that I was going to pump into transportation. So to me it’s bad also because it shows no confidence in American industry to correct the problems in the Gulf and no confidence in the U.S. government to fix the response mechanisms. Americans don’t give up, we persevere and we fix things and this is just the opposite.

But I’ve always said there’s much more than that. That’s just one piece of the overall strategy that would have created tens of thousands of jobs and billions and billions of capital investment and tax revenue over time.

But I said we need all the resources. The coal and natural gas industries in Southwest Virginia are some of the best in the nation. Virginia ought to be the nuclear capital of America — Lynchburg, Virginia, in particular with its enormous assets there. We just need to get some relief from the federal government to have a good disposal site for waste and better laws on the reprocessing of spent rods.

I have been a strong supporter of pursuing cost effective and practical alternatives. The problem is that most of the alternatives are not currently cost effective. They’re anywhere from two to three times more expensive than coal, natural gas and nuclear. I have strongly supported offshore wind and helped to form a coalition with other Atlantic Coast governors, the Atlantic Coast Wind Coalition.

We passed a bill to create a Virginia offshore wind authority…I have traveled to Europe and met with the public and private sector leaders in Holland and Germany and England to talk about how they got started 10 years ago. I think cost-effective wind energy production is huge. The jobs and capital investment in Virginia [associated with wind energy] is a great boost to the Port of Hampton Roads, and a way to produce renewable energy. So I also think we have a lot of emerging technologies that I want to support in biomass, in waste-to-energy, and in solar.

We have been working on trying to attract some solar manufacturing companies to Virginia from other countries and from other states. So, all of those strategies have got to be a part of it. Conservation needs to be a part of it, incentives to reduce the demand is also part of the overall network, so while I’m very disappointed in the president’s decisions, there are any number of options to get us to our energy capital goal. I just held a first-ever Governor’s Energy Conference, and there was an unbelievably good turnout. Over 1,000 people showed up here from around the country, most from the East Coast, to talk about these issues and I think it’s going to help us craft strategies to move forward.

VB: After you met with Gates, are you more satisfied with his decision to disestablish the U.S. Joint Forces Command (JFCOM), and do you think Hampton Roads will be less affected than originally thought?

McDonnell: No, on the decision. We still don’t have very much justification prior to the August 9 announcement that blindsided me and every member of the United States Congress. That’s why you have a unanimous bipartisan opposition to the secretary’s actions.

At the same time, through our constant intervention and the formation of our military facilities panel led by [former] congressman Tom Davis and regular communication with the Congress, led us to several meetings now with the Pentagon, most recently with Secretary Gates and chairman of the Joint Chiefs of Staff, [Navy Admiral Mike] Mullen.

And I think we now have a seat at the table. The secretary made several commitments to us. We now have a work group that will be working with General [Ray] Odierno on exactly what that plan looks like to restructure JFCOM. Look, we understand that they’ve got to retool things in the defense department to help save money. We fully support that. We’re a nation that’s $14 trillion in debt so I applause Secretary Gates for doing that. But at the same time, we think there are certain functions that are so well done by JFCOM that they cannot move those inside the Pentagon or anywhere else. It’s things like modeling and simulation, the Joint War Fighting center.

We just want the ability and a seat at the table to work with the general and we got a great group led by Admiral Harold W. Gehman …who’s heading up my work group on behalf of the state to meet with, so I feel good about that. We have a similar group that will be led by congressman Davis in Northern Virginia to talk about the 30 percent contractor reduction, which I think is arbitrary, and there’s really no proof that that’s actually going to save money for the Department of Defense.

We’ve made specific requests also to look at other commands that Secretary Gates might move to Virginia as part of this overall realignment. So if he’s going to eliminate certain jobs in the military in Virginia that we add some new commands. And I think what we all agreed on was that there’s no better place in America for the defense department to be located than in Virginia. The Pentagon, the largest Navy base in the world, any number of major military bases, they know what a great neighbor Virginia’s been for 234 years, and they acknowledge that. I think we’ve set a good base of communication for them going forward but there are still a lot of unanswered questions.

VB: In the wake of former Secretary of Finance John Forbes’ conviction of stealing $4 million from the Tobacco Commission, what steps need to be taken to ensure the money is being spent properly?

McDonnell: That happened eight or nine years ago, although the conviction happened now. Since then I think there are some things that have been done in a natural order to increase accountability and responsibility of the commission. Our staff is in contact with Delegate [Terry] Kilgore, who’s now chairman of the commission, he’s taken this very seriously. He’s going to make sure that he looks at what happened then, what improvements they’ve made and to ratchet up accountability for the tobacco commission. It’s entrusted with hundreds and hundreds of millions of dollars of what is supposed to be solely invested in revitalization the economy of Southside and Southwest Virginia. I’ve asked them to be a big partner with me in helping to attract businesses.

In fact, I appeared before them last week. I asked them to do a particular deal to bring a major alternative energy company to the Southside. So I think the leadership there now with the Delegate Kilgore and others, I think they are running well, but like any area of state government, there’s room for improvement. He’s well aware of that and I know he and the executive director are now analyzing what happened eight or nine years ago and finding ways to make improvements, and I’m waiting for them to make their recommendations. I’m going to continue to appoint people to that commission that are zealously dedicated to protecting the public trust.

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