Correction to This Article
In some Aug. 21 editions, a Metro article about a Virginia budget shortfall incorrectly said that the state's "rainy day" fund holds $17 billion. It is $1.2 billion.

Kaine Orders Agency Spending Cuts, Has Eye on Rainy-Day Fund

By Tim Craig
Washington Post Staff Writer
Tuesday, August 21, 2007

RICHMOND, Aug. 20 -- Virginia Gov. Timothy M. Kaine has ordered state agencies to cut spending by 5 percent and will consider asking the General Assembly to tap the "rainy day" fund because of a $641 million budget shortfall.

In a speech to state legislators Monday, Kaine (D) said the state must slow its rate of spending because the housing market is weakening and some past budget decisions were made on assumptions that have not panned out.

"We must look closely at what our state government does to identify opportunities for efficiency and savings," Kaine said. "As we move forward, I ask that we again work together to make hard choices necessary to preserve our quality of life."

State revenue grew by 4.9 percent in fiscal 2007, even though Kaine and lawmakers spent as if it would grow by 6.5 percent. Like budget problems in other states, Virginia's can be partly attributed to a decline in home sales. Recordation tax revenue, collected on the sale of a house, has plunged 16 percent from last year, Kaine said.

The Kaine administration also underestimated how many people would take advantage of certain tax credits, including the land conservation credit. The inaccurate forecasting accounts for more than 45 percent of the shortfall in the 2007 and 2008 budgets.

Unlike in 2002, when then-Gov. Mark R. Warner (D) faced a multiyear $3.8 billion shortfall that required a major tax increase, Kaine called the latest budget projections "manageable."

In Maryland, a $1.5 billion shortfall looms. Gov. Martin O'Malley (D) ordered $200 million in cuts in May and is considering whether to push for a tax increase and slot-machine gambling to raise revenue. Kaine has ruled out a tax increase.

Virginia's shortfall probably will become an issue in the fall, when all 140 seats in the state legislature are up for election. Republicans have long railed at the 50 percent increase in the state's annual budget -- now $36 billion -- since Democrats captured the governor's seat in 2002.

The budget gaps could also restart the debate over whether the Republican-controlled House of Delegates was fiscally responsible early this year by ruling out a statewide tax increase to fund transportation improvements.

For Kaine, the budget woes could not have come at worse time.

In the fall, Kaine will prepare his 2008-2010 budget. Virginia governors traditionally try to put their stamp on state priorities in the midterm spending plan, because they are barred by the state constitution from seeking a second consecutive term.

Kaine will now have to convince the General Assembly that the state can afford to fund some of his campaign promises, among them enrolling more 4-year-olds in pre-kindergarten and protecting open space, even as spending in other areas is being reduced.

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