Analysis: Cuts to put Virginia in unprecedented straits

By Bob Lewis

RICHMOND

For the third time a little over a year, Gov. Timothy M. Kaine's chief of staff, Wayne Turnage, has sent the memo state employees dread — the one ordering them to cut spending.

That's a record.

In six years under two governors as Turnage's predecessor, Bill Leighty sent only two memos telling state's bureaucracies to draw up plans for pruning their budgets up to 15 percent.

So now, with the state facing at least a $300 million shortfall from the fiscal year 2009 budget that expired June 30, Kaine prepares to lower the official revenue forecast on which budgeted state spending is based for the fourth time since September.

Another record nobody wanted.

"We're approaching a 9 or 10 percent loss in revenue," said Finance Secretary Richard D. Brown. "I mean, ... you don't have anything in history like that."

This go-around, the cuts will be harder than ever: discretionary travel was jettisoned last year; office equipment upgrades and replacements were put on indefinite hold; vacant jobs remain so under a hiring freeze. Now, in recommendations due by July 22, directors of state agencies have few places left to cut but the muscle and bone of state government — employees. It could also affect the readiness of services state government provides.

Few agencies have more face time with the public than the Department of Motor Vehicles. The DMV, unlike most state agencies, generates some of its own operating funds. But even there, grim times await, DMV Commissioner D.B. Smit wrote Thursday in a memo bracing his employees.

"(W)e don't know how significantly DMV will be affected; however, we are expecting and preparing for substantial reductions," he wrote.

At the Virginia State Police, the fiscal crisis has stretched the thin blue line of law enforcement even narrower. Unfilled vacancies from attrition and from officers leaving for other jobs have diminished the ranks of the statewide enforcement and investigative agency. And this year's State Police Academy class, at 32 recruits, is among its smallest.

How bad can it get? Consider the Virginia Department of Transportation's plight.

VDOT laid off 230 workers just last month, part of an ongoing drawdown of 1,500 departmental jobs by July 2010. The hard times forced cuts of more than $2.5 billion from the six-year master road building plan, with voiding long-sought new road projects and shuttering 19 Interstate rest stops prominent among the privations.

It's a concession to evaporating gasoline tax collections and years of legislative failure to agree on new transportation revenues. Virginia's 17.5 cents-per-gallon gasoline tax — the backbone of transportation funding — is unchanged from 1986, when gas sold for about 90 cents a gallon. Its revenue yield was steadily eroding because of greater automotive fuel efficiency long before the economy tanked.

The state's general revenues, which underwrite such basic services as health care, law enforcement and public schools, are just as troubled.

June's revenue report, when it's released in August, is likely to signal the 11th month in a row that general tax collections were below those for the same month the year before, or four straight negative fiscal quarters. That's far longer and sharper than any stretch during 2001-03 downturn that helped prompt passage in 2004 of a $1 billion tax increase.

The resulting $300 million shortfall comes in spite of previous rounds of cuts, in spite of $500 million drawn from the state's "rainy day" reserve fund, and despite a one-time windfall of $1.5 billion in federal stimulus money.

From the scores of state agencies, Brown and state budget director Daniel Timberlake say, Kaine can expect to salvage only $25 million to $50 million in unspent balances he can apply toward the shortfall.

The scope of the damage will become clearer to Kaine, the governor who will succeed him in January, and to the legislature's money committees over the next six or seven months.

In writing his final budget, to be submitted less than a month before his term ends, Kaine has to either decide what must be cut, how to generate more revenue or some combination of the two. Then lawmakers and his successor will be left with a final reckoning of how to end this austere fiscal year in the black and build a new budget from scratch that funds state government into 2012, gambling that happier times await.