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Md., Va., D.C. Face Budget Upheaval

Next Step Is Tax Hikes, Service Cuts

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Washington Post Staff Writers
Wednesday, September 24, 2008; Page A01

Virginia officials said yesterday that the state budget shortfall may be as wide as $3 billion over two years, triple what they estimated a month ago, while District officials said they are facing a gap of $131 million after years of surpluses.

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Those forecasts and a projected shortfall of almost $1 billion in Maryland mean that Virginia and Maryland are considering cutting services they usually increase, including funding to state and local agencies, schools and colleges. Some of those reductions might include vital government services, officials said. District officials are just starting discussions about where to cut.

State and local governments across the country are struggling to balance budgets in the face of an economic slowdown, a weakening housing market and rising unemployment, all key factors in the revenue they collect.

"It's daunting. It's very daunting,'' Virginia Gov. Timothy M. Kaine (D) said. "These cuts will be tougher because some of the easier things we have already done. It's going to be difficult to do these cuts and just have them be opaque to people. They will be seen and felt."

Kaine said he will not propose raising taxes, but District officials said they might do so as a last resort. Maryland lawmakers raised taxes by almost $1.4 billion annually during a special session last year.

Kaine said he will begin implementing the cuts in Virginia in early October after releasing the state's new forecast for the rest of the two-year, $77 billion budget period that began July 1. Legislators will review Kaine's cuts when they convene in January, but he does not need legislative approval to begin.

State agencies are working on contingency plans, due Friday, to slash their budgets by 5, 10 or 15 percent. Kaine will use them as a blueprint for future cuts.

In the District, officials have identified a $131 million revenue shortfall, which will force the city to cut funding for programs in the fiscal year that begins next month, said sources who have been briefed by D.C. Chief Financial Officer Natwar M. Gandhi. The D.C. budget is about $5.6 billion.

The shortfall is due largely to income taxes, which have fallen off projections because of the troubles in the stock market, said the sources, who spoke on condition of anonymity because Gandhi intends to announce the figures today.

The District, which enjoyed large surpluses for years, had hints of the problem when Gandhi announced a $35 million budget gap for fiscal 2009. Mayor Adrian M. Fenty (D) and the D.C. Council made up that deficiency in part by raising cigarette taxes by $1 a pack. The new shortfall might not be as easy to swallow.

The city is projected to have $17 million left over from fiscal 2008, the sources said, but the rest of the gap will probably have to be bridged by budget cuts or tax increases, which require council approval.

In Maryland, legislative analysts projected this month that by fiscal 2010, the state could face a shortfall of almost $1 billion in its roughly $15 billion general fund.


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