Va. facing $3 billion shortfall

By JEFF E. SCHAPIRO TIMES-DISPATCH STAFF WRITER
Published: September 24, 2008

The declining economy could force additional Virginia spending cuts of nearly $3 billion, raising the specter of deeper reductions in public services and broader layoffs.

The worst-case scenario, prepared for Gov. Timothy M. Kaine and made public yesterday afternoon, would come atop $2 billion in reductions already enacted by Kaine and legislators.

The latest projection—tentative and subject to change—indicates revenues could fall another $2 billion to $2.9 billion during the remaining 21 months of the current two-year, $77 billion budget.

Suggesting that the economy is slipping into recession, Kaine told his economic advisers, “There is still a great deal of uncertainty. I don’t think that uncertainty is going away anytime soon.“

The grim prediction is contained in a confidential, 64-page report for Kaine and corporate executives who counsel him on revenue trends. Kaine released the document after his closed meeting with the business leaders yesterday at the Patrick Henry Building.

Kaine last month told the General Assembly money committees that another round of spending cuts is necessary. At the time, lawmakers predicted additional shrinkage in revenue of $1 billion or slightly more.

But since then, the Virginia economy has been buffeted further by, among other things, the meltdown in the financial markets, gyrations in fuel prices, and contraction in consumer spending.

“We’re seeing headlines that we’ve never seen in many of our lifetimes,“ Kaine said.

Kaine has directed state agencies to submit by Friday plans to trim spending by 5 percent, 10 percent or 15 percent.

The reductions, the scale of which has yet to be determined, will begin to be implemented in mid-October, once the administration officially recalculates revenue projections.

House Majority Leader H. Morgan Griffith, R-Salem, who attended the three-hour session in Kaine’s conference room, later urged prudence.

“It’s certainly not going to be fun making these cuts,“ Griffith said in a phone interview. “We need to be very cautious, which means we need to be looking to the worst-case scenario.“

House Republicans have said for months that they believed Kaine’s revenue estimates, which once called for robust growth, were overly optimistic if not unrealistic.

The report, circulated by e-mail, attributed the growing cash crunch to a plunge in salesand income-tax revenues, which make up 72 percent of the general fund.

That fund supports public education, law enforcement and social services.

Kaine, who has pressed unsuccessfully for higher taxes for transportation, has seen revenues dip since 2007. Initially, Kaine and the legislature balanced the budget through scattered layoffs, a clampdown on hiring, travel and contracting, freeing cash through increased use of bonds, and seizing dollars from the rainy-day fund.

Education and human services largely have been insulated from the economies. But Kaine, in his mandatory budget report to lawmakers in August, warned that no longer may be possible.

Contact Jeff E. Schapiro at (804) 649-6814 or .
Planning for budget cuts
Gov. Timothy M. Kaine earlier this month ordered the heads of state agencies to prepare three sets of budgets for 2009-10 reflecting spending cuts of 5 percent, 10 percent and 15 percent.