Kaine doesn’t say no to possibility of a tax increase

RICHMOND, Va. - Facing a projected budget gap of as much as $3.5 billion, there is no doubt that the two-year spending plan being prepared by Gov. Timothy M. Kaine will include cuts.

The question is whether it will include increases in things such as fees and taxes.

The man who takes over Kaine's job in January, Gov.-elect Bob McDonnell, made it clear yesterday that he hopes the outgoing governor will not include any tax increases in his fiscal 2011-12 spending plan.

"In this economic situation, I certainly think we do not want to impose any new taxes on Virginia businesses or families," McDonnell said. "I'm very much opposed to raising taxes."

Kaine, however, would not say no to the idea.

"Everything is on the table," he said. "We've got to make [the budget] balance, and it's got to be fiscally responsible.

"I'm mindful of the fact that I propose and the legislature disposes."

Last year, for instance, Kaine proposed to double the per-pack tax on cigarettes sold in Virginia to help pay for the state's Medicaid costs, one of a number of large gaps in the budget between expenses and revenues caused by the economic recession. The proposal was killed by the General Assembly.

Kaine said his priorities in writing the upcoming budget are to preserve "core services," while maintaining Virginia's AAA bond rating and its "strategic edge" in attracting business to the state.

Asked if it were possible to accomplish all of these things without seeking an increase in taxes of some kind, Kaine replied: "That's what we'll determine."

McDonnell said if necessary, he would submit amendments to Kaine's budget after he takes office.

"The closer we are, the less I will have to do when I take office in January," McDonnell said.

Remarks by Kaine and McDonnell followed a meeting of the Governor's Advisory Council on Revenue Estimates at Capitol Square in Richmond. The council, composed of lawmakers, administration officials and industry executives, reviews economic indicators and state revenue forecasts to advise the governor in preparing the budget.

On Dec. 18, Kaine will present a budget to the General Assembly's Joint Money Committee. The budget he is crafting includes revised spending for the remainder of fiscal 2010, which ends June 30, in addition to spending proposals for fiscal 2011 and fiscal 2012.

Last week, revised revenue forecasts presented to lawmakers indicated up to an additional $300 million shortfall in the $77 billion budget for fiscal 2010.

Lawmakers also were told last week that revenue could fall roughly $619 million in the next two-year budget cycle, while spending needs could increase another $2.9 billion, primarily because of increased costs of the Medicaid health-insurance program that serves poor and disabled Virginians.

Kaine, who has cut more than $6 billion from the budget since March 2007, said yesterday that no function of government will be spared, including Medicaid, public education and higher education.

"You're going to see adjustments to virtually everything in state government in this budget," Kaine said. " . . . People are going to see an awful lot in this budget they don't like."

McDonnell, who also attended the two-hour meeting, did not disagree with Kaine's assessment.

"I think we're looking at some tough choices to make over the next couple of years," he said, echoing Kaine's comments that the state, with a 6.3 percent unemployment rate compared with the national average of 10.2 percent, is faring better than many states.

But McDonnell also said it is time to make investments in certain areas that will lead to job creation, such as expanding the Governor's Opportunity Fund for economic development; providing tax credits to small businesses; and investing in energy, Virginia tourism and the film industry.

"These are things that if we do right now, I believe in six months or a year will return great dividends," McDonnell said.

In previous discussions, Kaine has said he wanted to spare the incoming governor budget hardship by making the tough and unpopular decisions on state spending before he leaves office.

"I'm not looking at the November election results in terms of what I should do," Kaine said. "I'm just looking to do what I know is the right thing to do after talking to a lot of very smart people."

He said it was likely he would be the first governor "in recorded history" who leaves office with a budget no bigger than when he took office.

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