Va. budget shortfall gets help from stimulus

RICHMOND

Virginia public schools, colleges and health care will be temporarily spared more than $1 billion in proposed cuts thanks to the federal stimulus program, the General Assembly learned Monday.

But if the economy does not improve in two years, when the windfall begins to run out, lawmakers may need to consider another round of deep cuts to the Virginia budget.

"My concern is that we're going to set ourselves up for such a cliff effect that it will be unlike anything we've seen," said Del. Chris Jones, R-Suffolk. "We need to clang the bell and let people know that this is one-time money. When they see the cuts aren't going to be made, they're going to expect the money to continue."

The stimulus report offset a piece of bad economic news lawmakers received Monday: The shortfall of tax revenue needed to pay for programs grew by a historic $822 million during the last three months.

In December, Gov. Timothy M. Kaine projected that Virginia faced a $2.9 billion budget shortfall. He increased that estimate to $3.7 billion on Monday based on much-lower-than-expected tax payments.

Over all tax collections in January were down 15 percent compared with the same month's collections last year, the sharpest decrease recorded since the governor's office began compiling monthly revenue reports in 1960. Much of the drop-off was caused by a 26 percent decline in "nonwithholding" taxes primarily paid by investors and the self-employed.

Kaine announced Monday that Virginia can expect $1 billion in direct budget relief from the stimulus plan. The cash will pay for about $800 million in state Medicaid obligations and provide about $200 million for use as state lawmakers see fit.

With the federal money and revised tax shortfall estimate factored in, the General Assembly now has to lop $2.7 billion to balance the budget, as required by the state constitution. The House and Senate have proposed competing spending plans that call for reductions in virtually all services.

Perhaps the greatest angst has been caused by roughly $590 million in cuts to public education proposed by Kaine and budget writers in each chamber. Kaine has urged local school boards to make the bulk of the cuts by trimming school support staffs such as custodians, cafeteria workers and curriculum specialists.

The stimulus infusion will eliminate the immediate need for those reductions. It will provide $500 million in school money to localities for each of the next two years provided state government does not lower its funding level for education.

State colleges may also be spared from proposals to cut up to 15 percent of their state funding. The stimulus would provide them $120 million over each of the next two years to ease tuition increases.

Some lawmakers voiced concern, however, that once the money runs out, students will be slammed with three years worth of tuition increases at once.

All told, Virginia will receive about $4 billion in stimulus money, although only a quarter of the money will go toward reducing the budget shortfall. Much of the money comes with restrictions.

The money the state will receive includes:

- $699 million to build highways, with a priority for areas suffering high unemployment.

- $355 million for food stamps.

- $137 million to improve public transportation and rail.

- $100 million to insulate and heat low-income homes.

- $81 million to improve water quality.

- $50 million for unemployment training and vocational education.

- $48 million in direct local support for public safety.

- $40 million for unemployment and training programs.

- $38 million to subsidize day care.

- $34 million to build low-income housing.

- $25 million for homelessness prevention programs.

- $10 million for vocational education.

Many Republican state legislators, echoing the words of their brethren in Congress, faulted the stimulus plan for starting federal programs and not putting enough money into activities that will create jobs.

But no one was talking about turning down the money.

"It gets us off the hook, at least for the time being," said Del. Kirk Cox, R-Colonial Heights.

Pilot writer Julian Walker contributed to this report.

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