Kaine warns of spending cuts, won’t say where

RICHMOND — With a slow economy eating deeply into state tax collections, Gov. Timothy M. Kaine warned Monday of deep but still unspecified cuts to Virginia’s budget just seven weeks after it took effect.
Kaine said even spending priorities historically immune from cuts — such as public education and health care services for the elderly, indigent and disabled — are subject to review for reductions targeted by early October.
“The need to engage in a third round of budget reductions will mean, by necessity, that all programs, including those previously held harmless and all available strategies will be on the table,” Kaine told the budget and tax writing committees of the House and Senate.
But the Democratic governor who is among the few finalists Barack Obama is considering as his running mate offered no clues where he might cut, or even the magnitude of the projected shortfall. Legislators suspect it will top $1 billion.
Lawmakers from both parties expressed dismay that Kaine provided so little detail on a long-running fiscal malady so troubling that the administration took the extraordinary step of writing legislators one month ago to announce plans to freeze hiring, cut spending and possibly lay off workers.
After Kaine’s 20-minute speech, House and Senate Republicans noted that they had predicted in January and December that revenue forecasts on which Kaine based this budget seemed too rosy given soaring energy and food prices, weak employment growth and continued distress in housing markets from the mortgage loan crisis.
Concerned about the possible need for a special legislative session to address the downturn, they pressed Kaine’s finance secretary, Richard D. Brown, to estimate the severity of the fiscal drop, all to no avail.
Brown said the administration is awaiting federal economic data and meetings with two boards of business executives and economists who help Virginia governors predict revenue trends.
“It would probably be irresponsible of me to hit a number in advance,” Brown said. “Until we have that, I’m not going to speculate on the numbers.”
Sen. Walter Stosch, R-Henrico, said the problem could worsen in five or six weeks while the administration determines an exact figure.
“If we wait much more time ... it’s going to make it almost impossible to make that up,” Stosch said.
House Republican Leader H. Morgan Griffith of Salem noted that then-Gov. Mark R. Warner, also a Democrat, faced with grim economic news in 2002, not only defined the shortfall but outlined how deep cuts to state agencies would be made through the fall.
“What we hear today is we’re going to get some people together and figure out what’s going on,” Griffith said. “There’s not a lot to say because the governor doesn’t have an action plan.”
Del. Albert Pollard, D-Lancaster, asked whether the shortfall would be so deep that a remedy would be outside the governor’s legal authority. If so, he reasoned, lawmakers should be told soon whether to hold a second special General Assembly session in 2008.
Dire revenue reports from the final quarter of the fiscal year that ended June 30 provide a glimpse at state government’s worst money problem since it struggled with shortfalls totaling $6 billion from 2001 through 2003.
For example, receipts from income taxes paid by wage earners — nearly 60 percent of the general fund — grew by 8 percent from May through June of last year, but only 1 percent for the same period this year. Sales tax collections that had grown by 7.5 percent in the final fiscal quarter of 2007 flatlined at 0.4 percent during the same period this year.
But state finance experts don’t know how much worse it will get, Kaine told reporters after his speech.
“We have four weeks of data, so how are we going to adjust a 24-month budget?” he said. “That would not be smart.”
Kaine’s decision to examine all areas of spending, including those that had once been off-limits, shows the problem is serious. Such cuts could create hardships for public schools, public safety and law enforcement at the state and local level, and aid to local governments. All of those are areas where Virginians could feel the crunch firsthand.
“As we go into this round [of cuts], we’re really just going to have to look at everything,” Kaine said.
Republicans questioned whether Kaine could tend to the looming budget crisis while sustaining a heavy itinerary of campaigning and television interviews on behalf of Obama. He appeared Sunday as an Obama surrogate on “Meet The Press.”
Kaine confines his political activities to vacation time, evenings or weekends and refused Monday to engage in any discussion of what role he will play with Obama’s campaign during the fall.