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.

"I think we can handle the shortfall," said House Majority Leader H. Morgan Griffith (R-Salem). "But it is going to be very difficult for any new programs to start."

Kaine said his Cabinet secretaries will look for ways to trim their operating budgets by 5 percent. He also will reduce all 2008 non-state agency grants by 5 percent. Cabinet secretaries will also have to approve each new hire and personally authorize out-of-state travel, Kaine said. Several Cabinet secretaries declined to comment Monday on whether the cuts would affect services.

Even as he called for fiscal restraint, Kaine vowed to push to extend state-funded pre-kindergarten to 17,000 4-year-olds eligible for reduced-price school lunches.

If approved by the General Assembly, the initiative will cost $75 million annually.

Kaine, who will formally unveil his budget in January, said he also wants to increase spending on mental health, an issue highlighted by the April 16 massacre at Virginia Tech. "Both pre-K and mental-health issues are areas to me, when resources are tight, you better target your resources to where they do the most good," he said.

Kaine also said the General Assembly may want to explore taking money from the state's $1.2 billion rainy-day fund to meet the budget shortfall. Republican leaders said it is unlikely they would use the surplus while the governor wants to expand pre-K programs.

"It is problematic to come forward with new proposals when you are talking about tapping rainy-day funds," said House Majority Whip M. Kirkland Cox (R-Colonial Heights). Kaine said he will decide in the fall on whether to push for the rainy-day funds.

Senate Minority Leader Richard L. Saslaw (D-Fairfax) countered that the state must expand pre-K to more disadvantaged students.

"If kids come from an environment with no books at home, you can pretty much predict the outcome over the next 12 years," Saslaw said. "The longer you wait, the farther they are going to fall."

Kaine acknowledged Monday that it is unclear how long the drop in revenue will last. Some Republicans said he is passing the tough decisions on to a future governor by suggesting use of the rainy-day fund.

"We are talking about a long-term problem, but we are looking at short-term solutions," said Del. Clarke N. Hogan (R-Charlotte).

Other legislators say the Republican-controlled House of Delegates' opposition to using taxes to pay for transportation is partly to blame for the deficit. In December, after his plan to raise the sales tax on vehicles failed, Kaine announced that the state had a $500 million surplus in the fiscal 2007 budget. Kaine earmarked that one-time money for transportation needs.

In February, the General Assembly and Kaine agreed on a transportation plan that didn't include a statewide tax increase. "What happened in the last session is coming back to haunt us," said Senate President John H. Chichester (R-Northumberland), who had been an advocate of a tax increase to pay for new roads.

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