Gov. Kaine orders agencies to plan for up to 15% in cuts

RICHMOND

Gov. Timothy M. Kaine sounded new alarms Tuesday that Virginia's economy is ailing and ordered state agencies to begin preparing for deep spending cuts.

"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," Wayne Turnage, Kaine's chief of staff, wrote in a memo to state department heads.

Many of the reductions will begin next month to offset a shortfall in budget revenues that Kaine blames on the lagging national economy.

Turnage told agency leaders to submit plans by the end of the month for cuts of 5 percent, 10 percent and 15 percent of their budgets.

Kaine hopes the plans will allow him to move quickly in early October when his financial advisers complete a new forecast of state revenues that will determine the size of the state budget shortfall.

The governor has repeatedly declined to estimate the dollar value of cuts needed to balance the state's two-year, $77 billion budget that went into effect July 1. Legislators and budget analysts say the shortfall could easily exceed $1 billion.

The state would save about $100 million for every 1 percent, across-the-board reduction in agency spending, according to Secretary of Finance Richard Brown, although he cautioned he was giving a broad estimate.

Brown said that Kaine does not intend to order across-the-board cuts, however. Instead, he plans to review the proposals of agencies and rebudget each individually.

Kaine is expected to announce later this week that potential cuts to key departments such as education and public safety may be determined in a different manner than reductions for other agencies. They will be given targeted dollar amounts or specific programs to slice instead of broad goals based on fixed percentages of their budgets.

Gordon Hickey, Kaine's press secretary, said the agencies assigned to make targeted

reductions may wind up being hit as hard as those with percentage cuts. "We don't know right now," Hickey said.

Kaine, in a speech last month to the General Assembly's money committees, ruled out raising taxes to solve the budget problems.

Virginia's woes are not 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.

At the core of Virginia's problems are lags in collections of sales taxes and individual income taxes. They provide for 72 percent of the state's general fund, which supports education, public safety and health.

The new state budget, crafted last winter, was based on assumptions that sales tax revenues would grow 4.9 percent during the fiscal year and proceeds from state income tax withholdings on paychecks would expand by 6.4 percent.

Since March, however, sales tax collections have increased by 0.8 percent and revenues from state income tax withholdings have grown 1.6 percent from the same period in 2007.

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 have added to the problem. With people driving less, Kaine has said he anticipates a drop in revenues from Virginia's 17.5-cents- per-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.

Many Republican legislative leaders fault Kaine for basing his budget on rosy economic scenarios.

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