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Virginia's problem with overly optimistic budget projections became well-known earlier this year when a slower economy made its previously enacted reduction in its car tax no longer seem affordable.

Because the initial indications that revenues in the commonwealth might not be as high as anticipated, the fight over the unrealized budget projections has broken out into bitter political warfare between GOP Gov. James Gilmore and the Republican-controlled Virginia legislature. The fact that Gilmore is also chairman of the Republican National Committee and is pushing for what many see as cuts in education to pay for the next installment of the car tax cut has increased both the stakes and the vitriol.

But although Virginia's budget troubles may be the best known, they are anything but unique. In February, San Francisco Comptroller Ed Harrington warned that, like Virginia, his city's revenues would be less than projected in large part because the economy was not growing as fast as had been anticipated.

Around the same time as San Francisco was facing its new budget realities, the National Conference of State Legislatures and National Association of State Budget Officers issued separate reports showing that states in every region of the country were now expecting a revenue shortfall compared to their previous budget forecasts. With the less optimistic budget news continuing since then, some states, including many that had enacted tax cuts and spending increases the past few years, are now considering tax increases to make up for the anticipated shortfalls.

This is why the news in Washington this week that federal surplus projections might not be as good as had been earlier anticipated should be considered anything but a surprise. Given the current state of the economy and the dramatically increased surplus projections that were included in both the Congressional Budget Office's January budget outlook and Bush administration's fiscal 2002 budget, the real surprise would have been if the optimistic forecasts had actually been achieved.

The fact that the indications are preliminary does not make them any less troubling. It now appears that the fiscal 2001 surplus could be some $6 billion less than had been projected only a few months ago. That is almost 5 percent of the $125 billion on-budget (not counting Social Security) surplus projected for this year.

In addition, the fact that this reduced surplus is occurring in fiscal 2001 means that the starting point on which the revenue growth for the next decade is based will be lower. Using this lower base and assuming that the 5 percent reduction continues translates into a whopping $155 billion reduction in the on-budget surplus between fiscal 2002 and 2012, that is, over the same 10-year period about which Congress and the President are now arguing.

The preliminary data about the new lower revenues reveals the unbridled optimism toward the federal surplus that has existed all year for what it really is--hope and prayer rather than solid budget analysis. The claim that many in Congress and the White House have been making--that given recent history, the surpluses are far more likely to be higher rather than lower--is finally being revealed as baseless.

Unfortunately, the preliminary information on the lower-than-expected fiscal surplus is not likely to be confirmed until after--perhaps even well after--Congress and the White House have agreed on this year's budget. The revenues collected this month, which is the most important for judging overall revenues because of the April 15 deadline for individual income taxes, will not be known until the Treasury issues its report toward the end of May. Congressional leaders are hoping to get the budget resolution conference report adopted by then.

More important, the next official updates of the projected surpluses over the next 10 years will not occur until the Office of Management and Budget issues its midsession review in July (see the Question of the Week below) and CBO issues its economic and budget outlook in August. The Bush administration and leadership plan is to get the tax bill enacted by the middle of July.

This means that even if Treasury officially confirms in May what the preliminary data indicated in April--that revenues for the year will be lower than anticipated--it does not have to be taken into account before the many of the key decisions are made.

All of which makes you wonder whether the latest experiences over budget cutbacks and tax increases in Virginia, San Francisco and the many states reported by NCSL and NASBO will be repeated in Washington in the not-too-distant future.

Question Of The Week

Last Week's Question. Lots of chuckles and a few outright laughs from the answers to last week's question, which asked the would-be comedy writers among us to come up with an answer to "Why did the federal budget analyst cross the road?" The winner of the "I Won A 2001 Budget Battle" T-shirt is Hazen Marshall, deputy chief of staff to Senate Majority Whip Don Nickles, R-Okla., for the response "... to get to the other side-by-side." (Note: A "side-by-side" is the format used to compare competing legislative proposals). Honorable mention (but no T-shirt) to Mike Patterson from Newburgh, Ind., and Dom Pommer of the Army Corps of Engineers in Washington, for "... because it was better than crossing Congress." Honorable mention also to this anonymous entry: "What roads? Bud Shuster took all of the roads off-budget several years ago."

This Week's Question. As noted above, the Office of Management and Budget is supposed to issue a midsession review by July 15, and this year's midsession review could be more important than usual if it shows a lower surplus than the one projected when the President's budget was released earlier in the year. That is causing some to wonder if the White House will try to delay releasing this report until after Congress makes a final decision on its tax package. The question: From whom does the White House have to get permission if it wants OMB to delay the release of its midsession review? Send your answer to scollender@nationaljournal.com by 5 p.m. EDT on Saturday, April 28, and you might win your own "I Won A 2001 Budget Battle" T-shirt to wear at that first softball game of the year. You must include your mailing address so we can get the T-shirt to you if you win. If there is more than one correct response, then the winner will be selected at random from all of the correct responses.