Governor’s budget proposal shows grim outlook for Va.

Here comes the pain.

Gov. Timothy M. Kaine yesterday presented a recession-revised budget for the next two years that closes a $2.9 billion shortfall by eliminating more than 1,500 jobs, doubling the cigarette tax, freezing state wages and making deeper cuts to education, health care and public safety.

Speaking to the General Assembly money committees in Richmond, Kaine also outlined a policy change to save money by reducing the prison population -- specifically, by not jailing people for minor technical violations of parole, and by allowing inmates convicted of nonviolent crimes to be released up to 90 days early.

"We have made the tough decisions to keep the budget balanced without any general tax increase and without compromising core services," Kaine told lawmakers at the General Assembly Building, in a meeting packed with nervous lobbyists and somber state officials.

The governor's proposal is the opening round of what will likely be a long, contentious election-year fight on state spending between Democrats and Republicans when the General Assembly convenes for a 46-day session Jan. 14.

By that time, the governor and other lawmakers acknowledged even more cuts could be necessary if the economic fortunes of the nation and the state continue to dwindle.

"I don't think all the bad news is out," said Sen. Kenneth W. Stolle, R-Virginia Beach.

Kaine's latest proposed round of cuts -- the fourth since 2007 -- would:
• cut budgets for the Virginia State Police, local police, local sheriff's offices and commonwealth's attorneys offices by 7 percent;
• trim the payroll of the Virginia Department of Transportation by 1,000 workers over the next two years through retirements, attrition and restructuring, with one-third of all cuts coming from the central office in Richmond;
• cap state spending on support staff in K-12 education in 2010 for a savings of $340 million and divert $55 million in state lottery funds from school construction to base instructional expenses;
• increase the budget cuts for state four-year colleges and universities to 15 percent in fiscal 2010;
• limit qualifications for certain services under Medicaid and freeze or reduce reimbursement rates for most health-care providers to save $418 million;
• eliminate the dealer discount tax rebate -- in which businesses are allowed to keep from 1 percent to 4 percent of the state sales tax they collect to cover administrative costs -- for a savings of $64.3 million in 2010;
• close a state training center for the intellectually disabled in Chesapeake and the last state-operated mental-health hospital for children, located in Staunton, for a savings of $47.6 million; and
• raise the tax on each pack of cigarettes by 30 cents, to generate an additional $148 million to cover increased Medicaid costs.

Kaine's budget proposal also contains limited new spending, including:
• a $26 million increase for need-based financial aid for state college students and an increase in the Community College Transfer Grant Program, which helps students transfer to four-year schools;
• a $5 million increase in the Governor's Opportunity Fund, a job creation program, plus sales-tax exemptions and income-tax credits to attract and promote "green" jobs to the state; and
• a $1 million grant to the Virginia Federation of Food Banks.

Kaine said cuts to public safety were roughly half of what most agencies had to trim, and he noted that K-12 education had been spared reductions in the first three rounds of cuts.

The governor also proposed reducing to $50,000 from $100,000 the annual tax credit that can be claimed by individuals designating land for open-space preservation. But he proposed extending the period during which they can claim the credit.

Funding for mental-health treatment, increased dramatically last year to reform the system in the wake of the Virginia Tech shootings, would be largely preserved, as would roughly $22 million in additional funding secured last year for expansion of the governor's pre-kindergarten initiative.

Kaine said the last two budget decisions he made in preparing the budget were to freeze state wages by canceling two scheduled pay raises, which will save $250 million, and to raise the cigarette tax.

He said the state spends roughly $400 million just for smoking-related costs to the Medicaid budget and the current tax on cigarettes only covered $160 million of that cost.

"That struck me as a much more prudent course than basically kicking people off the Medicaid rolls," he said.

Republican leaders said Kaine should have cut an additional $500 million to $600 million in anticipation of a greater budget shortfall that could reach $3.5 billion once year-end revenue numbers are calculated.

"If there's not resistance to this tax increase, by February I think we'll see a whole slew of other tax increases being proposed by the governor or other Democrats," said Del. H. Morgan Griffith, R-Salem, the House Majority Leader.

Republicans also questioned Kaine's proposed policy change to let nonviolent prisoners out up to 90 days early, which would save an estimated $5 million a year. Currently the director of the Department of Corrections can authorize release up to 30 days early.

"One of the advances of the last 13 years was the abolition of parole," said Sen. Ken Cuccinelli, R-Fairfax, one of three GOP lawmakers seeking the party's nomination to run for attorney general.

"This breaks with the public trust."

Contact Jim Nolan at (804) 649-6061 or .

Contact Tyler Whitley at (804) 649-6780 or .