State budget likely to need another $250 million in cuts

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The state budget will likely need to be cut another $250 million to $300 million for the current biennial budget, the House of Delegates Appropriations Committee was told Tuesday.

The cuts would come on top of the $1.35 billion reduction announced in August, Staff Director Robert P. Vaughn told the Appropriations Committee on the first of its two-day retreat in Richmond. Almost $6 billion has been cut already from the two-year budget.

“You’re going to clearly have some tough decisions,” Vaughn told the committee. “The more we can make some permanent reductions…that can get you ready for the next biennium.”

Vaughn also expressed concern about the budget becoming structurally imbalanced with one-time cuts. Only $750 million of the budget-cutting strategies by Gov. Timothy M. Kaine in August were savings that will carryover to future years.

Things don’t look much better for the next biennium budget. Vaughn predicts a shortfall of $2.6 billion for fiscal years 2011 and 2012 because of increased mandatory spending and revenues that are expected to take a long period to recover.

Although economic news has indicated the national recession is over, the recovery is unpredictable, Vaughn warned: “It may be a slow road to recovery. During previous recessions we did not see the same slowdown in consumer spending.”

Richmond Federal Reserve President Jeffrey Lacker echoed similar sentiments in an earlier presentation before the committee. He said the Virginia and national economy should grow at a moderate pace next year despite concerns in the commercial real estate sector and the weak labor market. However, he recognized that the effect on the public sector lags behind current conditions. “Indeed, this portion of the business cycle often poses the most acute fiscal problems at the state and local level due to the typical lag in incomes,” he said.

Vaughn said state revenue collections through October were down 7.6 percent below the current fiscal year. Payroll withholding taxes, which make up 60 percent of the state’s general fund, are down 3.9 percent through October. Budget forecasts had predicted an increase for the year of 2.1 percent.

In addition, tax refunds are about 26 percent above levels from the fiscal year. The state has already paid out $45 million.

Sales tax revenues were 5.8 percent below fiscal year 2009 levels.

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