“It has become clear that several factors are placing immense pressure on the Commonwealth’s finances and, therefore, will necessitate immediate action to plan prudently for the future,” wrote Martin L. Kent, who warned that a failure to reach a compromise in Washington could lead to “a second recession.”
Although the request to trim the state budget is routine, there is an added sense of urgency heading into next year, McDonnell spokesman Tucker Martin said.
“We ask agencies for spending reduction proposals and strategies every year,” Martin said in a statement Thursday.
“This year is no different,” he added. “The importance of this exercise is heightened by the unprecedented uncertainty presented by the looming federal fiscal cliff, and additional budget pressures currently facing Virginia.”
Martin said McDonnell (R) is seeking ideas for savings and has not made any final decisions on budget reductions.
The request contrasts with the state’s relatively healthy fiscal picture. Virginia posted a budget surplus of nearly $130 million for fiscal 2012 and has reported surpluses for each of the past three fiscal years.
Kent’s memo cites the rising cost of health care as another reason to identify potential budget cuts, pointing to the increasing financial burden of Medicaid and rising costs of the state employee health insurance program and inmate medical care.
“Balances sufficient to cover this continued growth do not exist,” Kent said in his memo, first reported by the Associated Press.
The fiscal 2012 surplus will go toward paying bonuses to state workers Dec. 1 and to cover various required costs. New revenue “likely will be limited,” the memo warns.
McDonnell’s request came two days after an election that is returning President Obama to the White House and a divided Congress to Capitol Hill.
House Speaker John A. Boehner (R-Ohio) signaled Wednesday that he is open to compromise to avoid the fiscal cliff and is “willing to accept new revenue” as part of the discussion.
But after a contentious presidential campaign that focused largely on the economy and partisan infighting, it is unclear whether Congress can reach a budget compromise by the end of the year to avert deep cuts. If it fails, sequestration — automatic spending cuts projected to total $1.2 trillion divided evenly over nine years — is set to begin taking effect Jan. 1.
The cuts will heavily affect defense spending, and federal officials say the first year’s cuts could amount to $109 billion.