by Jessica Sabbath
Virginia Business
The downtrodden economy is setting the stage for a bleak General Assembly session.
Virginians are spending less, fewer homes are being sold and more residents are losing their jobs — depleting the state’s coffers of anticipated sales, recordation and income taxes. In little more than a year, more than $2.5 billion has already been slashed to balance the state’s budget during the economic downturn. And the pain’s not over yet.
With at least another $1.9 billion left to cut, now come the tough decisions. State officials acknowledge that funding for Medicaid and K-12 education — exempt from previous budget cuts — won’t escape this time. “You’ll see cuts virtually everywhere,” says Gov. Timothy M. Kaine. “There’s nothing that is sort of sacred or not going to be touched.”
These decisions will be especially difficult for legislators facing election in November when the positions of all 100 delegates will be up for grabs. Democrats are eager to pick up seats in the House of Delegates, where Republicans hold a six-seat majority.
The cuts also come at a time when Virginia’s families and cash-strapped localities already are struggling because of the recession. For example, parents of college-bound students could be hurt if further cuts to public colleges and universities force them to increase tuition. Many families saw their college savings evaporate as the stock market fell.
Cutting direct aid to localities would be a major blow for local governments already reeling from shortfalls because of plunging home values and rising foreclosure rates. Fairfax County faces a $500 million budget gap. Prince William County is coming up short by $190 million. For Loudoun County, the deficit stands at $176 million. These counties already are considering plans to slash capital projects and increase class sizes. Reducing state aid would only increase the pain.
Pinpointing a moving target
Lawmakers face the daunting task of cutting the right amount from the $77 billion biennial budget. With the timing of an economic recovery unclear, Kaine and lawmakers disagree over how big the shortfall will be.
In October, Kaine predicted the gap for the budget’s $34.5 billion general fund would be $2.5 billion. His economic advisers upped the ante in December, and now Kaine’s budget proposal assumes a $2.9 billion shortfall.
Many legislators, however, fear Kaine’s figures, especially on tax income revenues, are too optimistic. Senate Finance Committee staff believe the budget gap could range from $3.2 billion to $3.5 billion. Kaine says the state shouldn’t make any further cuts or lay offs unnecessarily.
“I don’t think that the governor’s revenue estimates are where they need to be,” says state Sen. William C. Wampler Jr., R-Bristol, the ranking Republican on the Senate Finance Committee. “There’s a pretty strong sentiment within the Senate Republican caucus that it doesn’t do us any good for the General Assembly or the governor to appropriate money that will never materialize.”
Whether the magic number is closer to $2.9 billion or $3.5 billion, Kaine already cut about $1 billion from the current budget. Under the cuts announced in October, almost 570 state employees lost their jobs, funding for public universities dropped, older prisons were closed, and funding for state agencies was cut.
Kaine’s proposals to make up for the rest of the biennial shortfall ($1.9 billion) now go to the General Assembly. (For details of his proposed budget amendments, see this story.) The Senate and House money committees will use his proposals as a guide to craft their own versions. Any differences will be hashed out in a budget conference committee before going back to both chambers for approval. Kaine can veto any items that he opposes, which then will be addressed at the annual veto session in April.
These decisions won’t be easy. The obvious cuts have already been made in previous reductions. Popular services can’t avoid the ax anymore.
Where to cut?
The sheer size of K-12 education makes it a target in this round of cuts. Direct aid to localities for public education makes up 34 percent of the general fund budget. “We have to look at it because of the size of it,” says Virginia Secretary of Finance Richard D. Brown.
Kaine says education cuts should focus on spending outside the classroom. The governor has proposed applying to schools’ support expenses the kind of standards and caps that already are used for instructional costs. “We’re looking heavily at what we’re spending on education outside the classroom,” says Kaine. Under Kaine’s proposal, the state would save $340 million by capping its contributions for support personnel, funding one support position for every 4.03 instructional positions. Any additional support positions would be funded locally.
Lawmakers also have offered a variety of suggestions to trim school costs, including increasing class sizes or cutting specific programs.
Del. Phil Hamilton, R-Newport News, says he sees potential savings in delaying the annual $80 million spent on textbooks and funding health-care insurance only for teachers participating in the state’s program. Only about 75 percent of teachers use the insurance, Hamilton says. Another possibility includes changing how remedial programs are funded, allowing localities to choose which ones to implement.
Medicaid is another immense expense. Last year, Virginia paid $2.2 billion in health-care reimbursements for 818,000 recipients. Lawmakers are not likely to change the program’s eligibility requirements, which already are among the most stringent in the country. “I don’t know how you can change the eligibility requirements and still have a program,” says Hamilton.
Any savings likely will come from holding the line on reimbursements to health providers. Kaine recommends cutting Medicaid by $418 million by capping some Medicaid services, delaying new services and freezing or reducing provider reimbursements.
Kaine also wants to double the cigarette tax increase to 60 cents per pack to generate about $148 million each year for Medicaid. Republicans have attacked the plan, saying it could lead to more job lay-offs in the state.
Other attempts to close the budget gap will include $500 million from Virginia’s “rainy-day fund” and more layoffs for state workers. Kaine and lawmakers agree they should make targeted budget cuts rather than across-the-board reductions. Kaine has proposed minimal cuts to economic development agencies to help spur economic growth.
Wampler says it’s also important for the state to consider lasting cost reductions. “We’re going to have to be very, very careful not to balance this budget just on one-time fixes such as another draw on the rainy-day fund, or swapping out cash for debt on capital projects,” says Wampler, “because this slowdown could last longer than the remaining year and a half.”
Transportation needs unmet
During the past three legislative sessions, lawmakers have battled over how to raise millions for new road and transit projects. But most legislators believe any funding plan for transportation won’t make it out of the budget’s shadow this year. “We sit here today with empty pockets,” says state Sen. Charles J. “Chuck” Colgan, D-Prince William, chairman of the Senate Finance Committee. “This is not the year to increase taxes … as badly as transportation funding is needed, we have to wait until at least next year to address it.”
Now the Virginia Department of Transportation (VDOT) is dealing with its own crisis. State transportation funding comes from a separate money pot, which has been slammed by the recession. A decline in gasoline tax and automobile sales tax revenues has left VDOT scrambling to make up for an estimated $2.6 billion hole in its budget during the next six years. Money for new construction has practically been deleted. “We’re required by law to pay for maintenance before we fund new construction,” says Jeffery Caldwell, VDOT’s chief of communications. “New construction is the last thing we’re able to pay for, so we’re significantly cutting back.”
The Commonwealth Transportation Board is meeting this month to revise VDOT’s six-year highway construction plan. The board was forced to cut $1.1 billion from the plan last June because of declining revenues. Now it must figure out how to cut another $1.2 billion from the $10.1 billion budget.
Construction isn’t the only issue. To make up for lost revenues, VDOT is cutting 900 jobs, consolidating offices and reducing services. Even such basic tasks as tree trimming and snow removal are on the list.
In 2007, the General Assembly approved a transportation package that included $3 billion in bonds for construction over 10 years. State officials hailed it as the largest investment made for the state’s aging transportation system in more than 20 years. But now the sale of those bonds is on hold because of budget concerns. The 2007 plan also created regional transportation authorities in Northern Virginia and Hampton Roads, but the Virginia Supreme Court ruled the authorities’ taxing powers unconstitutional. Lawmakers failed to agree on alternative regional plans during a special session last year.
Bob Chase, president of the Northern Virginia Transportation Alliance, still plans to lobby lawmakers to boost transportation funding this year. “While we’re not asking them to solve the entire problem in this session, we think it’s reasonable to ask the General Assembly to address the maintenance issue and fix the regional packages in Northern Virginia and Hampton Roads,” he says.
Chase argues that the weak economy could be the opportune time to invest in transportation: “One of the best ways to turn the economy around and to shorten the recession is to invest in things that matter, such as transportation.”
Energy and environment
Putting the gloomy forecast aside, Kaine plans to push major environmental initiatives during his final General Assembly session as governor. His Commission on Climate Change developed more than 100 recommendations to decrease the state’s carbon footprint and improve energy efficiency.
Despite the budget shortfall, Kaine wants the commonwealth to make investments in the environment. Kaine has proposed a sales tax exemption and income tax credit designed to attract “green” jobs and investments in Virginia.
Kaine can accomplish some initiatives through executive orders while others could involve policy changes that won’t cost the state any money. “We’ll be looking at issues such as whether there are ways we can adjust statutes or regulations to promote more energy efficiency and conservation,” says Kaine.
Some proposals include tweaking recent reregulation of electric power companies to increase their emphasis on conservation.
Arguments for new investments might be hard to make in a down year, but Kaine and some legislators see a silver lining in the budget shortfall. It will force the state to examine its priorities and further evaluate the effectiveness of programs and funding.
“I’ve told my team a crisis is a terrible thing to waste,” says Kaine. “So let’s just not cut, let’s cut to reform and get the budget in a good position so that when the economy rebounds, we will have shed some things we don’t need to do, or put some policies in place that will position us for greater success.”
There are no comments for this entry