2009 General Assembly: Budget debate unfolds

-- Budget-balancing -- job one of the 2009 General Assembly -- could require something old (spending cuts), something new (higher taxes), something borrowed (debt-backed bonds) and something blue (Democrats).

The legislature returns Wednesday for a 46-day, election-year session, the overarching theme of which is the deepening recession that has blown another hole -- this time, at least $3.2 billion -- in the two-year, $77 billion budget.

Gov. Timothy M. Kaine, a Democrat heading into the final legislative session of his four-year term, is proposing a patchwork solution that is raising the hackles of allies and adversaries.

Kaine is recommending reductions, even in previously shielded education programs; additional layoffs of state employees, bonds for construction to free up cash, and doubling the cigarette tax to 60 cents per pack to generate $155 million for Medicaid, which provides health care for the poor and aged.

"I've had good discussions with many members of the Republican leadership since I rolled out the budget on December 17, and they are finding a lot of things they like," Kaine said.

He added glibly, "And they are telling me some things they don't like."

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The budget debate will unfold against a highly charged political backdrop. The campaign to choose Kaine's successor is rapidly accelerating. Further, his new job -- chairman of the Democratic National Committee -- threatens to intensify partisan tensions with House of Delegates Republicans, who defend their shrinking majority in the fall.

"It's going to be a very challenging session," said Del. Samuel A. Nixon Jr. of Chesterfield, chairman of the House Republican Caucus. "We want to work with [Kaine] as closely as possible."

But Nixon said that if Kaine, who as DNC boss becomes President-elect Barack Obama's principal partisan missionary, proposes what is perceived as a national Democratic agenda on the legislature, Republicans will balk.

Republicans control the House, holding 53 seats to 45 for the Democrats. Two independents usually vote with the Republicans.

All 100 House seats are up this year. The election is crucial because the majority party will control the next redistricting in 2011, which could determine legislative power for the succeeding decade.

In the Virginia Senate, Democrats hold a slim majority -- 21 of 40 seats. Senators do not face voters for two more years, ensuring a partial Democratic say in redistricting.

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Virginia has been wrestling with a restive economy for nearly two years and previously reduced spending by more than $2 billion. Though the latest projected shortfall is $3.2 billion, it could grow -- forcing even deeper cuts -- if revenue-collection figures due in early February show further erosion because of rising joblessness and sagging sales.

Del. Franklin P. Hall, D-Richmond, a member of the House Finance Committee, where Kaine's proposed cigarette-tax increase could die, said the shortfall might reach $4 billion.

"We have to look at the budget and see where we can do the least damage," said Hall, whose constituents include two groups stung by the Kaine budget: state employees and tobacco workers.

The budget will be the marquee issue of the 2009 session. No less contentious are such proposals as additional restrictions on smoking in public, closing the gun-show loophole on firearm purchases, making it easier to vote early, clamping down on payday and car-title loans, and the early release of nonviolent felons to trim prison costs by $5 million.

With House elections ahead, Nixon said he expects what are known as "brochure bills" -- legislation that does not necessarily become law but can be trumpeted by delegates seeking re-election.

However, delegates must be selective, if not artful, in sponsoring bills. Under the Republican majority, House rules have restricted members to 15 bills. Previously, there were no limits on the number of measures introduced by delegates.

There is no cap on legislation proposed by senators.

E.M. Miller Jr., director of the bill-writing Division of Legislative Services, said drafting requests for legislation have fallen by 600 since last year.

Lawmakers, mindful of public and editorial criticism of protracted overtime in recent sessions, are promising to complete their work within the allotted 46 days.

But Hall said the session could go longer as legislators wrestle with painful spending cuts.

Kaine said Obama's proposed economic-stimulus package, which may clear Congress in February, could provide a fiscal cushion for the state, pumping millions into transportation and other jobs-generating construction projects.

An early Obama ally and vice presidential finalist, Kaine has been advising the incoming president on infrastructure spending. Kaine said the initiative could "lighten our burdens and cares a little bit."

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Interest groups are already lining up against some of Kaine's proposals.

The tobacco industry, including Richmond-based Philip Morris USA, opposes the 30-cent increase in the cigarette tax, while the National Federation of Independent Businesses is resisting Kaine's proposal to eliminate a $64 million-a-year rebate to retailers for collecting the state sales tax.

Michael J. Cassidy, executive director of the Commonwealth Institute, said scrapping or capping the dealer discount should be part of a broader examination by the General Assembly of the cost of industryor interest-specific tax breaks that his economic think tank estimates drain $600 million from the treasury.

"They're illustrative of the hidden side of the budget," Cassidy said. "You put these things into the tax code, and they're on autopilot."

The tobacco tax is favored by hospitals, nursing homes and other health-care providers to prevent further shrinkage in reimbursements from the state under Medicaid and to head off cuts in high-cost services, including pediatrics and mental health.

"Time and time again, health care is one of the first places cut to balance the state budget," said Ann Fleming, a senior vice president at Mountain States Health Alliance, operator of hospitals in rural Southwest Virginia.

"After a while, those cuts add up to a severe impact on access to health care."

Colleges and universities are opposing Kaine's recommended cuts in their budgets. The proposed reductions, up to 15 percent, are highest of any state program.

Sen. Walter A. Stosch, R-Henrico, a senior member of the budget-writing Senate Finance Committee whose district is home to J. Sargeant Reynolds Community College, said he expects lawmakers will attempt to restore some funding for higher education. Contact Jeff E. Schapiro at (804) 649-6814 or .

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