Va. Budget Shortfall Reaches $3.7 Billion

By Anita Kumar
Washington Post Staff Writer
Tuesday, February 17, 2009

RICHMOND, Feb. 16 -- Gov. Timothy M. Kaine said Monday that Virginia's budget shortfall has grown more than 25 percent since December, bringing the gap between revenue and spending to more than $3.7 billion over two years as the economy worsens.

But Kaine (D) told legislative leaders in a closed meeting that the federal stimulus bill, expected to be signed into law Tuesday, will offset the additional $800 million shortfall for the two-year, $77 billion spending plan that runs through June 2010.

State and local government agencies in Virginia are expecting about $4 billion from the stimulus package, but much of it will target specific programs and projects. That means state officials cannot count on the federal aid to restore cuts to state jobs and agencies already underway.

"The public thinks the stimulus is going to come in and save the day," House Majority Leader H. Morgan Griffith (R-Salem) said. "In reality, we're still at a reduction. . . . Some stimulus money has to go to other projects that are not in our budget."

Kaine had estimated in December that the shortfall would be $2.9 billion, but Republican and Democratic legislators accused him of underestimating the fiscal problem. Some lawmakers were predicting Monday that the shortfall could grow even more.

"I wasn't shocked when I heard the numbers -- actually, it made me feel sad,'' said Sen. R. Edward Houck (D-Spotsylvania), a member of the Senate Finance Committee. "It's just an indication of how bad the economy is in the United States and the state. The whole thing is a dose of ice-cold reality."

House and Senate committees offered competing plans last week for amending the state's budget, setting the stage for partisan clashes over spending in the final two weeks of the legislative session.

The Republican-controlled House approved its budget, but the Democratic-led Senate delayed passage until Wednesday.

Those budgets must be revised before the General Assembly adjourns Feb. 28, as legislators consider a larger shortfall and the influx of federal aid.

"To what degree can we safely and responsibly work [stimulus items] into this budget that is supposed to be done in two weeks?'' said Del. Robert H. Brink (D-Arlington), a member of the House Appropriations Committee. "It's really tough."

Kaine said he will continue to work with legislators after they leave Richmond at the end of the month to determine how the stimulus money should be spent.

About $4 billion is expected to flow to state and local agencies over 27 months from the federal stimulus package. But much of the federal aid will go toward specific programs. For example, the state expects to receive about $700 million for transportation projects.

Kaine and Finance Secretary Richard D. Brown said federal officials have not written regulations needed to determine how much money Virginia will receive or exactly how it must be spent.

"The problem with that money is it's one-time money,'' said Del. Clarke N. Hogan (R-Charlotte), a member of the House Appropriations Committee.

"The big challenge is not to take one-time federal stimulus money and then build a state budget on it moving forward that we can't possibly sustain."

However, about $1 billion of the federal stimulus money will directly help the state close its shortfall, officials said. That sum includes $800 million for Medicaid and $200 million in discretionary funds.

Kaine said the extra Medicaid funding will allow him to abandon restrictions he had proposed in December to cap Medicaid eligibility.

"What [the stimulus] means short term is that we don't need to make any more cuts,'' Kaine said. "It's a relief not to have to cut more."

Virginia has begun eliminating thousands of jobs, slashing agency spending by 15 percent and trimming almost $1 billion from elementary and secondary education and Medicaid programs, which help cover medical needs for the indigent, elderly and disabled.

Tax collections for January fell 15 percent, the worst drop in state revenue in at least a decade. The monthly report, released Friday, marks the state's sixth straight decline in tax receipts. State officials attribute the drop largely to a 26 percent decline in capital gains tax revenue and a 10.6 percent drop in individual income tax withholding receipts. Those two revenue sources account for much of the general fund.

Since the start of the fiscal year July 1, revenue has fallen about 5.5 percent, greater than the forecast of 4.8 percent.

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