Virginia Ceases Spending, Hiring

Administration Says Sales Tax Revenue Slowing

RICHMOND, July 17 -- Gov. Timothy M. Kaine's administration ordered state agencies to stop hiring, traveling and buying equipment and prepare for even more severe cuts as the state's budget surplus is almost gone amid an economic slowdown.

In a memo to agency heads, Wayne M. Turnage, Kaine's chief of staff, said a "troubling trend" has developed because income and sales tax revenues are growing at a slower rate than projected.

"While the exact magnitude of the revenue gap for the next [two years] is uncertain at this time, it may be significant based on our preliminary analyses," wrote Turnage, who ordered agencies to stop all but essential hiring, review all contracts, cancel discretionary travel and halt purchases of new equipment and software.

Turnage's memo, which comes as officials are scaling back highway construction and transit projects because of a lack of money, was released shortly after Secretary of Finance Jody W. Wagner issued a rare midsummer update on the state's finances.

Wagner said the state's surplus has dwindled to $5.4 million, down from more than $1 billion in 2006. She also said it will be difficult to reach revenue projections for fiscal 2009 and 2010. As part of Kaine's two-year, $77 billion budget, revenue was projected to grow by 2.2 percent this year and 6.8 percent in fiscal 2010.

"We must begin discussing the actions that should be taken to prudently manage a continued decline in general fund revenue growth based upon the circumstance of the current economy," Wagner wrote to Kaine on Wednesday.

Earlier this year, state officials thought that the sagging real estate market in Northern Virginia was driving the drop in revenue, but Wagner now says the economic slowdown may be much broader.

She said there appears to be "declining employment levels, slower income growth, lower consumer confidence and the continued downward trends in the housing market."

In early 2006, Virginia was flush with cash because of a booming economy and a strong demand for housing. Now, Wagner said it is possible that the state will experience negative growth this year, which has not happened since the slowdown after the Sept. 11, 2001, terrorist attacks.

Robert Vaughn, staff director for the House Appropriations Committee, said revenue from payroll taxes has been growing by less than 2 percent over the past four months. Sales tax revenue has grown by less than 1 percent during the same period, he said.

"That is 70 percent of revenues performing poorly," Vaughn said.

Final revenue results for fiscal 2008, which ended June 30, will be complete Aug. 18. State officials will then begin readjusting future revenue projections.