Gov. Kaine to propose big cuts, doubling of cigarette tax

RICHMOND

Virginia's cigarette tax would be doubled, education spending cut and 1,500 state jobs axed under a plan Gov. Timothy M. Kaine will introduce this morning to balance the recession-racked state budget.

The governor also will ask legislators to freeze admissions into the state's Medicaid program, which provides health services for more than 810,000 low-income Virginians.

Kaine outlined the proposals during a Tuesday morning conference call with Democratic state lawmakers. Five legislators who participated in the call relayed information under the condition they not be identified.

Kaine, a Democrat, is slated to formally present his plan today in a 9:30 a.m. speech to the General Assembly's money committees. He told legislators Tuesday that the state faces a $2.9 billion shortfall in revenues needed to balance the state's two-year, $76 billion budget. About 18 months remain in the budget period.

The governor, according to the sources, will propose the following steps:

- Doubling the state's 30-cents-a-pack cigarette tax to produce an additional $150 million a year. The levy, at its current rate, is the third-lowest in the nation.

- Cutting $400 million from public schools, which had been budgeted to receive $5.7 billion in tax money this year.

- Diverting $80 million of lottery profits earmarked for public school construction to other programs.

- Borrowing $400 million for construction projects that were slated to be paid for out of cash.

- Carving 15 percent from state funding for state colleges and universities and 10 percent from its funding of community colleges. The figures include reductions of 5 to 7 percent at schools that Kaine ordered in October.

- Allowing some nonviolent felons to be released from prison up to three months early to reduce incarceration costs.

- Withdrawing $500 million from the state's $1.1 billion rainy-day fund.

- Eliminating about 1,500 state government jobs - 1,100 though layoffs that began last fall and 400 through attrition. Virginia's government, with a full-time payroll of about 100,000, has been in a hiring freeze since October.

- Slicing $400 million from health care programs, including Medicare. Kaine would restore $150 million of the money with proceeds from the cigarette tax increase, should the legislature approve the increase.

To help offset rising tuition costs, Kaine will seek an additional $25 million in financial aid for students attending public colleges and universities.

The proposed cigarette tax boost drew immediate opposition from Republican leaders, who predicted it would force layoffs in Virginia's tobacco industry. The tax proposal also was condemned by a spokesman for Altria Group Inc., the Richmond-based parent company of Philip Morris USA, the world's largest cigarette producer.

House Speaker William Howell, R-Stafford, noted that Philip Morris employs 5,500 Virginians. "These are all good-paying jobs," he said. "The average person has been working at Philip Morris for over 15 years, and we're just going to decimate some of these jobs."

Howell and U.S. Rep. Eric Cantor, a Republican whose Richmond-area district is home to Philip Morris facilities and employees, said the cigarette giant has invested more than $1 billion in the Richmond area since 2004 in modernizing its production plant, relocating the corporate headquarters for Altria and Philip Morris to the region, and building a research and technology center.

Bill Phelps, a spokesman for Altria, said it is "unfair to single out a single industry" for a tax increase. He predicted that the levy, if approved, would cause many Virginians to buy cigarettes in the neighboring states of North Carolina, Kentucky and West Virginia, where the levy would be smaller.

Gordon Hickey, a spokesman for Kaine, declined to comment on the governor's proposals. Kaine said in August that he would not seek tax increases to solve the state's budget woes.

"I think the most troubling part would be freezing access to the Medicaid program," said Michael Cassidy, executive director of the Commonwealth Institute, a fiscal-policy think tank.

"It's a safety-net program whose demand increases at times when the economy worsens," he said. "So for us to shut the barn doors on people at the very time they need this program would be a very troubling development."

Kaine's cigarette tax plan drew tepid support from the American Cancer Society, which favors quadrupling the current levy, raising it by 90 cents to $1.20 a pack, to discourage smoking.

"We're missing an opportunity to save more lives and reduce health care costs," said Keenan A. Caldwell, Virginia government relations director for the society.

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

Julian Walker, (804) 697-1564, julian.walker@pilotonline.com