To Ease Budget Crunch, Kaine Calls for Cutbacks; Layoffs Likely

RICHMOND, Feb. 12 -- Gov. Timothy M. Kaine announced Tuesday that Virginia probably will lay off employees and must cut back further on aid to state agencies, local governments, schools and colleges to help cover an unexpected $1.4 billion budget shortfall through 2010.

It was the second time in four months that Kaine (D) has proposed trimming state spending. Like state and local government leaders across the country, he is struggling to balance the budget during a slowdown in the economy. A sluggish housing market, lower-than-expected holiday sales and reduced corporate tax filings have added to Virginia's problem.

The governor said he will not propose raising taxes, cutting K-12 education spending, scaling back mental health programs or tapping car tax-relief funds. But Kaine proposed cutting funding to local governments by 5.4 percent and reducing money for school construction by more than $100 million.

Kaine ordered agencies and departments to slash spending by 3 percent over the next two years, a move that probably will translate to an undermined number of layoffs and smaller raises for state employees and teachers. The cuts must be approved by the General Assembly as lawmakers put together a $78 billion, two-year budget. The House and Senate will release budget proposals Sunday.

"The cuts, as I indicated, are significant," Kaine said at a news conference. "It is our best effort. It is a good-faith effort, and it tried to deal with this challenging economic reality in a way that minimizes intense pain."

In October, Kaine ordered a first round of cuts and layoffs to make up for what was then thought to be a $641 million shortfall in the current budget year, which ends June 30. The $1.39 billion gap announced Tuesday is on top of the $641 million.

Kaine wants to make up for some of the new shortfall by dipping into the state's $1.2 billion rainy-day fund the way he did in October. His plan calls for using a total of $423.5 million from the state's emergency reserves.

"These are challenging times," Kaine said. "It is important as we wrestle with the challenges on our side of the aisle to remember . . . that the people and businesses in Virginia are having challenges and that the people and businesses in this country are having challenges."

Some House Republicans have accused Kaine of having overly optimistic revenue projections and, in recent weeks, had criticized him of being slow to revise his estimates, leaving them less time to work on strategies for reducing the budget. Kaine's announcement came on one of the busiest days in Richmond: the hectic midpoint of the General Assembly's 60-day legislative session and the presidential primary.

"Unfortunately, this request was ignored, and we now face a $1.4 billion revenue shortfall five days before reporting out the House budget," said Del. Lacey E. Putney (I-Bedford), chairman of the Appropriations Committee. "While the committee has been working diligently over the last several weeks to balance the budget in anticipation of this shortfall, the magnitude appears to be even greater than we assumed."

Kaine said Tuesday that he has instructed state agencies to draft plans to cut spending by an additional half-percent in the current fiscal year and an additional 3 percent in the next two-year budget.

He also said he will scale back his initiatives, including those that would expand subsidized pre-kindergarten to 4-year-olds, improve foster care and launch a government program that will partner with small businesses to offer health insurance to low-income employees.