Virginia will end up in the black for fiscal 2010 after reporting surprisingly robust revenue from tax receipts and cutting government spending, Gov. Bob McDonnell said Wednesday.

McDonnell estimated that the surplus for the fiscal year that ended June 30 will be at least $220 million after miscellaneous interest payments are made. The final figure will be made official in August after year-end adjustments.

"We didn't overbudget; we didn't overspend," McDonnell said at a news conference Wednesday.

In January, the commonwealth had been facing a $1.8 billion budget shortfall for the remainder of the fiscal year, which ended June 30.

"It's certainly good news," said Del. Kirk Cox, R-Chesterfield, vice chairman of the House Appropriations Committee. "We tried to be very prudent."

About $82 million of the surplus will go toward a one-time, 3 percent bonus for state employees, who haven't received a raise in nearly four years. Ten percent will be set aside for Virginia's Water Quality Fund, about $19 million will go toward K-12 education, and two-thirds of the undesignated balance will go toward transportation, McDonnell said.

Money grab   Anticipated use of the estimated $220 million surplus: »  $82 million for a one-time bonus for state employees »  $19 million for K-12 education »  10 percent, or about $26 million, for Virginia's Water Quality Fund »  Two-thirds of the undesignated fund balance will be put into the Transportation Trust Fund


Across the Potomac River, Maryland is facing a $1.5 billion budget gap in the current budget year, despite rising tax receipts, in part because of an impasse over federal health care funding.

Virginia faces the loss of $417 million in the Medicaid payments from the federal government. But, unlike Maryland, the commonwealth did not count on the federal funding in its budget projections.

Virginia lawmakers had to make significant cuts to services like education and health care services during this year's General Assembly to fulfill McDonnell's pledge not to increase taxes.

The commonwealth also will defer $620 million in payments toward the Virginia Retirement System, the state's $50 billion employee retirement fund, in fiscal 2011 and 2012 -- a deferment to be paid back over 10 years at a 7.5 percent interest rate. The state deferred nearly $140 million in VRS payments in the fourth quarter of 2010.

State Sen. Charles Colgan, D-Prince William, acknowledged that the state will have to make up for the withheld VRS payments in the coming years, but complimented McDonnell on getting through the tough budget season.

Stephen Farnsworth, a communication professor at George Mason University, said such deferral measures are no different from what ordinary citizens do with their household budgets.

"Nearly every state would love to have a surplus -- even a small one -- in these difficult times," he said.

Further challenges lie ahead for Virginia, especially with heath care costs.

The governor's office has estimated that the federal health care overhaul, passed in March, will cost the state $1.5 billion through 2022, much of which would come by adding people to Medicaid rolls.

"We are not at all out of the woods in this unprecedented economic downturn," McDonnell said. "We still have a long way to go to return Virginia to solid fiscal health."