$1 billion in additional state budget cuts expected

Virginia’s cash crunch is going from bad to worse, possibly shorting the state budget another $1 billion and forcing more cuts in services and layoffs.
Ahead of Gov. Timothy M. Kaine’s much-anticipated revenue report to the General Assembly on Monday, lawmakers from both parties are predicting the shortfall for the current two-year, $77 billion budget could reach or surpass nine figures.
“That wouldn’t surprise me,” said Senate Finance Committee Chairman Charles J. Colgan, D-Prince William.
“Yes — it could very well be that high,” said Sen. William C. Wampler Jr., the Finance Committee’s ranking Republican.
Kaine — who, in tandem with legislators, earlier this year pruned spending by more than $2 billion because of the continuing economic downturn — is saying little, for now, about the steps that he’ll take to balance the budget.
“We’re going to be relatively well off compared to other states, but we’re going to suffer as the national economy has its challenges,” said Kaine, referring the collapse of the credit markets, rising housing foreclosures and increasing energy costs.
Kaine said he would probably apply the same basic principles to the next round of economies that he did previously — to not cut across the board, but target more precisely areas that can be reduced. Some lawmakers and lobbyists aren’t sure that’s possible.
For Kaine, the accelerating erosion of the state’s finances comes at a politically perilous time: As a prospective vice-presidential running mate for Democrat Barack Obama, Kaine cannot risk being perceived — in Virginia, a swing state, and beyond — as indecisive on a potentially defining issue such as fiscal discipline.
“He will probably propose what is in the best interests of his vice-presidential ambitions,” said Del. M. Kirkland Cox, R-Colonial, chief Republican whip and a frequent Kaine critic.
Kaine’s options for managing the latest gyrations of the budget will likely be shaped by his priorities. Since revenues began their retreat in spring 2007, Kaine and the legislature have generally sought to spare education, human services and law enforcement.
But even Kaine’s allies say that may not be the case this go-around.
Sen. R. Edward Houck of Spotsylvania, the No. 2 Democrat on the Finance Committee and chairman of the Senate Education and Health Committee, said that it “will be very difficult” to spare schools, colleges and health care.
So far, layoffs have been few. Barely 70 state workers have lost their jobs, though dozens of other positions across the bureaucracy remain vacant as the Kaine administration looks to attrition to hold down payroll and benefits costs.
Kaine also has clamped down on purchasing and travel.
One-time fixes account for most of the savings, including $900 million in agency reductions, $300 million by recalculating state aid for local schools and a cut of nearly $240 million in direct assistance to localities.
The state freed up funds by drawing $350 million from the rainy-day fund — a constitutionally required cushion against fiscal emergencies — and by paying for $400 million in transportation and public-building construction with bonds rather than cash. About $1 billion remains in the “rainy-day fund.”
For counties and cities, economic decline hits them twice: first, through sagging locally generated revenues; then, by way of reductions in aid from Richmond.
They expect Kaine’s report to the General Assembly money committees will have grim consequences for city councils and county boards of supervisors.
“We expect, and are preparing for, very bad news,” said Michael L. Edwards, a lobbyist for the Virginia Association of Counties.
“We’re not hurting real bad, but we are hurting,” said Del. Riley E. Ingram, R-Hopewell, a member of the House Appropriations Committee and chairman of the House Counties, Cities and Towns Committee.
Ingram is seeing the downturn first hand, as a real estate broker in the Hopewell area. A year ago, his firm was selling 26 to 30 homes a month, now it’s down to 14 to 16, he said.
“I pay state taxes, my company pays state taxes,” said Ingram.
Ingram expects Kaine to outline the extent of the problem, then give the legislature a say in how to erase the shortfall - at least for the next few months. Initially, at least, Ingram expects there will be no employee layoffs, but payroll reductions through attrition.
Robert P. Vaughn, staff director of the House Appropriations Committee, predicted revenues will fall $800 million to $1 billion for the next two years. Sales and payroll withholding taxes are particularly anemic, he said.
Because the fiscal year is in its second month, Vaughn expects the impact of the spending cuts will not be felt until next year.
And state employees, thousands of whom live in the Richmond area, are “apprehensive,” but have not received a heads-up about what to expect, said William P. Elwood, director of the Virginia Governmental Employees Association.
Jeff E. Schapiro and Tyler Whitley are staff writers for the Richmond Times-Dispatch
Times-Dispatch staff writer Jim Nolan contributed to this report.