Kaine Asks Agencies to Cut at Least $700 Million

Shortfall Bigger Than Predicted

By Anita Kumar

Thursday, August 6, 2009

RICHMOND, Aug. 5 — Gov. Timothy M. Kaine said Wednesday that state agencies will need to cut $700 million to $1.5 billion more this year as Virginia continues to suffer from one of the worst financial crises in decades.

Kaine (D) has asked state agencies for proposed cuts of up to 15 percent and will announce the specific trims by Labor Day. He said the shortfall will lead to layoffs, but he does not know how many.

The governor said there are signs that house and car sales are starting to rebound, but the state has not seen the results.

"We are seeing a couple positive signs. It is signs but not yet trends," he told reporters. "While we are seeing some positives, I'm not sure how much I am going to take this into account in this adjustment."

Kaine's announcement comes as governments in the region continue to wrestle with the recession's effect. Maryland has a projected $700 million shortfall this year, and the D.C. has approved higher taxes designed to help close a $666 million shortfall over the next three years.

In the past two years, Virginia has made deep cuts to education, law enforcement and health care and eliminated thousands of jobs.

Kaine told the legislative leaders and business leaders on his advisory council on revenue estimates about his latest projections for the year ending June 2010 in a closed meeting at his office.

Del. Phillip A. Hamilton (R-Newport News), vice chairman of the House Appropriations Committee, said he estimates the shortfall will be at least $1 billion. "There are going to be some very, very tough decisions that have to be made," he said.

State officials had previously estimated a budget shortfall last year of $300 million that would have to be paid this year, but Wednesday's announcement means that the number could be five times as much.

Kaine will announce the exact amount of the potential shortfall Aug. 19 at a meeting of the General Assembly's fiscal committees.

State revenue collections fell 9.3 percent last year — the most significant drop since at least the 1960s. That decline was the result of a dramatic reduction in individual and corporate income tax collections as well as a drop in recordation tax, sales tax and lottery revenue.

The General Assembly passed a two-year, $77 billion budget this spring that used $1.5 billion in federal stimulus money to help offset a $3.7 billion shortfall. About 379 state employees were laid off between July 1 and March 31. In addition, 510 employees were transferred or demoted. Lawmakers agreed to put $160 million in reserve for future economic problems. The state could use that money but would need to find more.

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