State’s budget shortfall could reach $1.5 billion

VIDEO: Political Columnist Jeff Schaprio says Gov. Kaine must feel like he has a target on his back

No matter how you look at it, the forecast is pain.

Spending in the current Virginia budget for fiscal 2010 will have to be slashed up to $1.5 billion if the most dire economic forecast for state revenue prevails, according to the Governor's Advisory Board of Economists.

That figure was the worst of three scenarios the board offered the governor.

Even the most optimistic forecast for state revenue during the current fiscal year, which began July 1, still calls for more than $730 million in reductions in state spending to balance the last year of the commonwealth's 2009-10 budget.

The standard, middle-of-the-road forecast projects a deficit of about $1.1 billion.

That means more cuts to state agencies and the services performed by state government. And at least some of the reduction plans recently submitted to Gov. Timothy M. Kaine by those agencies include job cuts.

"They do include some potential layoffs, and that is a possibility," Kaine told reporters late yesterday.

Since April 2007, Kaine has presided over $6 billion in cuts to the $77 billion fiscal 2009-2010 budget.

The grim outlook was presented at the biannual meeting of the Governor's Advisory Council on Revenue Estimates held yesterday at the Governor's Office on Capitol Square in Richmond.

The group, made up of leading state lawmakers, officials, economists and Virginia business executives, was first convened by Kaine in 2006 to help the administration arrive at a reliable forecast of state revenue with which to gauge spending.

Recommendations made by advisory council members to the three economic scenarios discussed at the meeting will be used to help Kaine formulate a revised forecast of state revenue to be presented Aug. 19 to the Joint Money Committees of the General Assembly.

"We have continued to see in the first half of calendar year 2009 very difficult economic circumstances in state revenues," Kaine told the committee at the beginning of the meeting.

He noted that from fiscal 2008 to fiscal 2009, general fund revenue fell 9.2 percent -- to about the same level of 2006. By comparison, federal government revenue has dropped 18 percent, he said. The state's fiscal year begins July 1.

Kaine said there have been only three other times since the 1960s when state revenue has dropped from one year to the next. Virginia has averaged 6.5 percent growth for the past 20 years. The biggest reductions came last fall, when $2.5 billion was cut, followed by additional cuts in the spring.

Last month, as the nation entered its 20th month of recession, Kaine instructed state agencies to formulate another set of operational "cut plans" factoring in 5 percent, 10 percent and 15 percent reductions. Yesterday, he said he would present his cuts from the recently submitted plans to the legislature by Labor Day.

The governor also signaled that he would tap into the state's "rainy-day" fund, which stands at $575 million, to help balance the budget this year.

Despite the continued need for belt-tightening, Kaine said there were "some positive signs" that will factor into the writing of the 2011-12 budget. He said he was committed to writing that budget, over which the next governor will preside, without any general-fund increase in taxes.

He also said Virginia, with its 7.2 percent unemployment rate, lower than the national average, is faring better than most other states, which face double-digit revenue dips and more austere cuts to their spending.

Kaine said that because Virginia has been "willing to make tough decisions that need to be made," the state "hasn't missed a paycheck" or been forced to furlough workers or delay paying its vendors. It has maintained its AAA bond rating and has not increased general-fund taxes.

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