'Painful cuts' part of Kaine's Virginia budget proposal

By Julian Walker and Michael Sluss

The Virginian-Pilot and The Roanoke Times

RICHMOND

On the eve of his budget presentation to the General Assembly’s key money committees, Gov. Timothy M. Kaine said his proposal to plug a multi billion-dollar state revenue hole will include spending cuts, new revenue sources and more layoffs of state workers.

While a repeal of the annual $950 million state car tax rebate to localities and a cigarette tax increase have been rumored budget-balancing options, the governor offered few details Thursday about his budget’s contents – other than to say “there’s not going to be a lot of good” in it.

“It’s going to make some painful cuts while protecting services that Virginians really need right now,” Kaine added.

Although Kaine didn’t reveal much, state officials familiar with his proposal confirmed some details late Thursday.

Kaine’s plan will require state employees to assume a portion of their contributions toward the state pension system, officials said. The state has typically covered the 5 percent employee contribution rate for state workers. Under Kaine’s plan, that amount would be reduced to 3 percent over the next two years, sources close to the budget discussions confirmed Thursday.

Kaine announced in September that he would reduce state contributions to the Virginia Retirement System by $104 million in the final quarter of this fiscal year to help balance the budget. And he said then that state government would ask state employees to pick up a portion of the contributions to the pension system.

Another known quantity is the governor’s proposal to eliminate the so-called “dealer discount” that allows merchants to keep a slice of the sales tax they collect. Last year, merchants kept about $61 million. An identical proposal was rejected by lawmakers in the 2009 legislative session. On Thursday, Kaine reiterated his support for ending that program.

“Any decision that I’ve already made once, you’re likely to see coming back,” he said, before noting that “not every one” will be recycled in his latest budget. Kaine last year proposed doubling the state’s cigarette tax, to 60 cents per pack, to help cover escalating Medicaid costs, but lawmakers rejected the proposal during the winter legislative session.

In recent weeks, Kaine has hinted that new taxes could be part of the final budget he submits to lawmakers, saying repeatedly that “everything is on the table” as the administration works to offset a shortfall that could approach $4 billion. Kaine said his top priorities will be protecting essential state services and preserving the state’s bond rating.

Before this round of cuts, Kaine had cleaved about $7 billion from recession-ravaged budgets since 2007.

The budget he submits today will cover the remainder of the current fiscal year and the two-year period that begins July 1.

Gov.-elect Bob McDonnell can propose changes to the budget plans after he takes office Jan. 16.

McDonnell, a Republican who won a landslide victory last month, has said he will oppose tax increases. He will have a solid GOP majority in the House of Delegates aligned with him on the issue, while Democrats cling to a slim majority in the state Senate.

McDonnell and Republican legislative leaders argue that voters sent a clear message about taxes in the November elections and that recession-weary Virginians should not have to shoulder a greater tax burden while the economy continues to sputter.

But that means the new governor and the General Assembly would have to make deeper spending cuts tha n Kaine will propose in the budget plan he rolls out today.

“It makes our job harder, because he didn’t do his job,” said House Majority Leader Morgan Griffith, R-Salem. } Griffith’s counterpart in the House, Minority Leader Ward Arm­strong, D-Henry County , said that whatever Kaine presents is the “first step in a very long process” that the General Assembly has considerable sway over.

Kaine, who also serves as chairman of the Democratic National Committee, said the budget has not been “shaded one way or the other” based on political calculations.

“The budget that I’m going to announce tomorrow is exactly the same budget that I would have announced if Creigh was going to be governor,” Kaine said, referring to Democratic gubernatorial nominee Creigh Deeds. “And it’s exactly the same budget I would have announced if I had had a second term as governor.” One budget item that should please McDonnell is a proposal to pump $12 million into the Governor’s Opportunity Fund in each of the next two years. That aspect of the plan was reported by The Associated Press on Thursday.

That pot of money can be used by governors to provide deal-closing incentives to companies looking to establish or expand facilities in Virginia. McDonnell, who received a budget briefing Thursday along with members of his transition team, campaigned on boosting the fund as one way to bring more jobs to the state. Julian Walker, (804) 697-1564, julian.walker@pilotonline.com

Michael Sluss, (804) 697-1585,mike.sluss@roanoke.com