Gov. McDonnell again seeks budget-cut scenarios

RICHMOND

As he did last year, Gov. Bob McDonnell has told state agency heads to develop a range of spending-cut proposals and submit them for consideration as his team builds Virginia's next two-year budget.

The directive to plan 2, 4 and 6 percent reduction scenarios came in a Sept. 30 letter sent by McDonnell's chief of staff, Martin Kent.

In addition to those cuts, the governor is forming work groups to identify possible reductions to higher education, public education and Medicaid, programs that represent considerable expense on the state ledger.

"As we have begun to review the budget requests submitted by agencies, it has become increasingly apparent that the many critical needs of our state will have to be met with what may be increasingly limited resources," Kent wrote in the letter, which advised agency heads to submit their ideas by Oct. 17.

Although McDonnell isn't the first governor to tell state agencies to prepare austerity plans - Tim Kaine gave similar instructions to subordinates during his tenure - this latest order is another reminder that the economic downturn continues to cause revenue problems for the state.

A report released last summer by the Commonwealth Institute for Fiscal Analysis estimated that Virginia faces an $800 million shortfall over the next two-year budget cycle.

Relatively speaking, Virginia has fared better than many other states during the recession. Its unemployment rate has ticked up in recent months but remains around 6 percent, nearly 3 points lower than the national average.

And the state has closed the past two fiscal years with a revenue surplus, though much of that extra cash has to be reinvested under state law.

Some of the surplus can be attributed to the state collecting slightly more tax revenue than anticipated. However, it is at least partly due to lawmakers slashing spending and delaying other state obligations, such as pension contributions.

Similar challenges lie ahead as lawmakers with competing interests look to fund government operations they consider priorities and make targeted spending cuts. Virginia must repay with interest $620 million withheld last year from the state pension system, which has a future unfunded liability of $18 billion. The state faces an estimated $319 million price tag to update public education standards. And Medicaid expenses are rising.

There's also the uncertainty created by the federal debate over spending and debt reduction, which could significantly affect Virginia, whose economy is anchored to defense spending.

Yet even as the state confronts the federal scenario and prospect of additional cuts, McDonnell also has an eye on new spending to advance his agenda as he approaches the midway point of his term. That focus includes increased college degree attainment and a pro-marriage push to reduce dependence on public aid programs. Both initiatives appear to require new money.

McDonnell also remains committed to his plan to privatize state-run liquor stores and make changes to Virginia's retirement system for state employees and teachers.

Asked about the letter,McDonnell spokesman Tucker Martin said the governor remains committed to balancing the budget without raising taxes.

"Gov. McDonnell is committed to keeping Virginia on a fiscally sound path in a very difficult and uncertain economy," he said. "The governor will continue to balance Virginia's books by responsibly reducing government spending, ensuring that we invest wisely in the core functions of government that citizens depend upon."

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