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Va. Shortfall Is Possible, Kaine Says
Schools, Transportation 'On the Table' for Cuts

By Tim Craig
Washington Post Staff Writer
Tuesday, August 19, 2008

RICHMOND, Aug. 18 -- Gov. Timothy M. Kaine warned Monday that he may have to cut spending on schools and transportation this fall because the worsening economy is driving the state's budget into a shortfall that some lawmakers say could top $1 billion.

Addressing the House and Senate money committees, Kaine (D) said past spending cuts have avoided reductions in vital government services but there are growing indications that those services may not escape the next round of reductions.

"We will continue to do all we can to protect core services, but the need for tough decisions will require examination of all areas of state spending," Kaine said.

Kaine said he won't know the full extent of the shortfall in the $77 billion budget for 2009-10 until October, after he revises revenue estimates downward. He said he would not propose higher taxes to meet the new challenge. Legislators appear to be bracing for the most significant spending reductions since 2002 and 2003, when Gov. Mark R. Warner (D) had to cut thousands of state positions to close a multi-year, $6 billion shortfall.

Like the District and Maryland, Virginia is experiencing the shock of a weakening housing market and rising unemployment rates.

Top House and Senate Republicans, who on Monday accused Kaine of being too slow to address revenue concerns, say the shortfall could easily top $1 billion. They said Kaine should take action now, contending that he may seek to duck tough decisions until after the Nov. 4 election.

Earlier this year, Kaine was optimistic that the economy would rebound in time to keep his 2009-2010 budget in balance. But Kaine said Monday that home sales and sales tax revenue are falling short of expectations.

Sales tax revenue was projected to increase by 4.9 percent during fiscal year 2009, which began July 1, but Kaine said collections have grown by less than 1 percent over the past four months. Income tax revenue, projected to grow by 6.4 percent this year, is now increasing by about 1.6 percent.

To account for the shortfall, the extent of which won't be known until after the Governor's Advisory Board of Economists meets in the fall, Kaine raised the prospect of cuts in public education.

"We have held public education harmless from the effects of the slowing economy, and as a result, school divisions are about to begin a new school year with significant increases in state funding," Kaine told legislators. "The need to engage in a third round of budget reductions will mean, by necessity, that all programs, including those previously held harmless . . . will be on the table for review."

In addition, Kaine said a drop in state and federal gas tax revenue could mean additional cuts in highway construction projects, which could further cripple efforts to ease gridlock in Northern Virginia.

The cuts would be in addition to reductions of $1.1 billion over six years in the state's highway construction budget. Those decreases, made earlier this year, put dozens of highway and mass transit projects on hold.

The prospect of reducing public school aid, local government services and transportation underscores the budget challenges that Kaine and lawmakers may be facing.

Direct aid to schools accounts for about 34 percent of the state's two-year, $34 billion general fund budget. In fiscal 2009 and 2010, the state is supposed to spend about $12 billion on aid to schools, a 13 percent increase over the previous two-year budget, according to the House Appropriations Committee

"As we go into a next round of cuts, it is clear that the choices will be more difficult" than in recent years, said Kaine, who said that nearly every state is grappling with similar budget difficulties.

District officials plan to review their fiscal 2009 budget in coming weeks, but they have expressed concern about a potential drop in revenue in coming years.

If the sluggish economy continues, Maryland could face a budget shortfall of about $200 million in the fiscal year that started last month, legislative analysts reported last month.

The sour outlook follows a year in which Gov. Martin O'Malley (D) and lawmakers approved increases in several taxes and conducted several rounds of reductions to address a gap of more than $1.5 billion in Maryland's $15 billion general fund budget.

Kaine is ruling out a tax increase to solve the immediate budget problem, though he proposed new taxes this year in a separate transportation funding initiative that stalled in the legislature.

But the debate over Virginia's latest budget challenges have become fiercely partisan.

After Kaine's remarks, Republicans blasted him for not providing precise figures on the shortfall.

GOP leaders also questioned whether Kaine, who has been discussed as a potential running mate for Sen. Barack Obama (D-Ill.), the presumptive Democratic presidential nominee, has been too distracted to address the state's budget challenges adequately.

"Maybe it's bigger than any of us have ever assumed. Maybe the governor is trying to hide what it is," said House Majority Leader H. Morgan Griffith (R-Salem). "We've got a situation now where the state of Virginia's budget is bleeding and the governor is standing there saying, 'Oh my, we've got to figure out which artery got cut.' "

In an interview, Kaine said he wants to make sure information is accurate before he orders cuts.

"Floating a number on the back of the envelope really doesn't make much sense," Kaine said.

But GOP leaders said Kaine ignored warnings this year that his proposed budget was too optimistic. At the time, Kaine was pushing to fund several priorities, including an effort to expand subsidized pre-kindergarten for 4-year-olds.

Staff writers David Nakamura and John Wagner contributed to this report.

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