Belts Will Be Worn Tighter This Year
The Challenge: Cutting $3 Billion From 2-Year Budget

By Anita Kumar
Washington Post Staff Writer
Thursday, January 8, 2009

RICHMOND Legislators will return to the state Capitol next week for a 45-day session that will focus on cutting $3 billion from Virginia's two-year budget, as the state faces one of its worst financial crises of modern times.

Legislators will consider several proposals by Gov. Timothy M. Kaine (D), including raising taxes on cigarettes and borrowing millions from the state's rainy-day fund, before voting on changes to the two-year, $77 billion spending plan.

"Every year, the governor proposes a budget, and every year the General Assembly improves on it,'' Sen. Walter A. Stosch (R-Henrico) said. "We are confident that will be the case again this year."

Kaine will try to leave his imprint on the state by making energy and the environment the focus of his fourth and final year in office. But he will be hampered by a lack of money for new programs and a divided General Assembly.

The House, controlled by Republicans, and the Senate, controlled by Democrats, disagree on many key issues and are expected to face partisan gridlock. Many proposals, including funding for road and transit projects, were killed last year, the first year since Reconstruction that the two chambers were controlled by different parties with no power-sharing agreements.

This year, legislators will debate issues that will include election laws, offshore oil drilling, driver safety and the regulation of companies that offer vehicle title loans. They also will consider a handful of hot-button issues that are brought up every year, including a ban on smoking in restaurants and bars and a requirement that gun sellers conduct background checks on people who buy firearms at gun shows.

But most of the session will be consumed with the task of amending the two-year state budget, which took effect July 1.

Virginia is struggling to balance its budget in the face of an economic slowdown, a weakening housing market and rising unemployment. The state is expected to take in less money this year than it did last year, something that has happened only twice in the past 40 years.

"People have to be willing to sit around the table and be willing to sacrifice in tough times," Kaine said.

He had projected a shortfall of at least $2.5 billion, but he announced last month that the shortfall had reached $2.9 billion. Republican legislators do not agree with the governor's estimates and say they expect the shortfall to be at least $3.5 billion.

"We're going to have more problems in the future,'' House Majority Leader H. Morgan Griffith (R-Salem) said.

Legislators generally agree with Kaine's proposed remedies: laying off thousands of workers, cutting state agencies by up to 15 percent and trimming a total of $800 million from K-12 education and Medicaid, which helps cover medical needs for the indigent, elderly and disabled. But some lawmakers have expressed concern about the governor's proposal to increase taxes, withdraw $490 million from the state's rainy-day fun and offer early release to some prisoners doing time for nonviolent offenses.

"When faced with a revenue shortfall, increasing the tax burden has a certain allure in its seeming simplicity,'' Sen. Mark D. Obenshain (R-Harrisonburg) said. "The reality, however, is that tax hikes penalize economic activity and place recovery itself in jeopardy. . . . It is an extension of the mistaken policies that led us to this point."

Kaine has said he wants to raise the commonwealth's tax on cigarettes from 30 to 60 cents per pack. The national average is $1.20 per pack. Virginia ranks 47th in the nation on cigarette taxes.

Senate Majority Leader Richard L. Saslaw (D-Fairfax) said he supports the cigarette tax increase. House Speaker William J. Howell (R-Stafford) said he opposes raising taxes in tough economic times, especially when it singles out one industry.

"A cigarette excise-tax increase would be unfair to adult smokers and negatively impact Virginia's manufacturers, tobacco growers, wholesalers and retailers and the jobs they provide,'' said Bill Phelps, a spokesman for Altria Group, parent of Philip Morris, which is based in Richmond.

As tobacco companies fight the increase, health advocates and other special-interest groups that do not want their budgets cut will lobby for it.

Keenan Caldwell, state director of government relations for the American Cancer Society, said the General Assembly should go further with the increase to prevent children from smoking and encourage healthier living.

It would be the second tax increase on cigarettes in five years. In 2004, the General Assembly approved a tenfold increase of its 2.5-cent cigarette tax, the nation's lowest at the time.

Kaine also wants to stop allowing retailers to keep a portion of the sales taxes they collect. Republican legislators and business groups consider the change a tax on small companies.

"Retailers throughout the commonwealth are struggling now because of the weak economy,'' said Julia Ciarlo Hammond, state director of the National Federation of Independent Business. "Taking away vendors' compensation now would further hurt an industry that's already in pain."

Kaine dismisses talk that legislators will outright reject his tax recommendations, saying he thinks the General Assembly will give them a fair hearing. If legislators reject the tax proposals, they will have to find $200 million in additional cuts in the budget.

"There needs to be some sharing of this burden, and I think most people understand that,'' Kaine said.