Kaine warns: Taxes not bringing in enough, major cuts ahead

RICHMOND

Virginia may be on the brink of major budget cuts, including reductions in education and transportation spending, Gov. Timothy M. Kaine warned Monday.

In a speech to the General Assembly’s money committees, Kaine announced that he had ordered a new forecast of the state’s revenues to determine the size of an expected budget shortfall he blamed on the lagging national economy.

The governor said his financial advisers should complete the reassessment in early October, enabling him to create a specific plan to curb spending.

Kaine repeatedly declined to estimate the scope of cuts that might be needed to balance the state’s two-year, $77 billion budget that went into effect July 1. Legislators and budget analysts speculate the shortfall will exceed $1 billion.

“We will continue to do all we can to protect core services, but the need for tough decisions will require examination of all areas of state spending,” Kaine said.

Kaine did not elaborate on what type of transportation or education funding might be cut.

The governor, a Democrat, ruled out a tax increase to solve the current problems. He unsuccessfully proposed raising levies in the spring to improve transportation.

Virginia’s economic problems are by no means unique. A spring survey by the National Conference of State Legislatures found 31 states had to close budget gaps for the fiscal year that ended June 30.

“Virginia is doing slightly better than the national economy, but it’s caught in the downdraft,” said John L. Knapp, a senior economist at the Weldon Cooper Center for Public Service at the University of Virginia.

Sales taxes and individual income taxes provide for 72 percent of the state’s general fund, which supports education, health programs and public safety.

Since March, however, revenues from state income tax withholdings on paychecks have grown only 1.6 percent from the same period in 2007 and sales tax proceeds have expanded by 0.8 percent. That indicates that wages and consumer spending are lagging.

The trend is ominous for the current state budget, which is based on assumptions that receipts from individual income taxes will grow by about 5 percent and sales tax proceeds will increase by about 4 percent.

In addition, troubles in the real estate market have caused a precipitous drop in revenues from a state tax on recording deeds.

Steep gasoline prices are adding to the problem. With people driving less, Kaine said, he anticipates a drop in revenues from Virginia’s 17.5-cent-a-gallon gasoline tax, which is earmarked for transportation. Virginians also are buying fewer vehicles and switching to smaller, less-expensive models, reducing proceeds from the tax on their sales.

The prospects of new cuts to road building come on top of a $1.1 billion reduction made earlier this year by the Commonwealth Transportation Board.

After completing his 20-minute speech, Kaine was criticized by Republicans for not providing exact figures for the shortfall.

“We need a number to start making decisions,” said House Majority Leader Morgan Griffith, R-Salem. “Every week that goes by you don’t make budget cuts, the cuts that are needed are going to grow deeper.”

Republicans also noted that they had complained this winter that Kaine based his budget on rosy economic assumptions.

Kaine, in a subsequent interview, dismissed the criticisms, arguing that his projections have been historically reliable and that other states are encountering problems similar to Virginia’s.

Kaine declined to say whether he would be hampered in solving the state’s economic woes should he be selected to run for vice president with Illinois Sen. Barack Obama, the presumptive Democratic presidential nominee. Kaine is reportedly on a short list of candidates to be Obama’s running mate.

Warren Fiske, (804) 697-1565, warren.fiske@pilotonline.com