General Assembly budget leaders warned today that Virginia will head into its 2004-06 fiscal cycle facing a shortfall of close to $1 billion, even after its year-long effort to close a $6 billion gap between revenue and spending.
House Appropriations Committee Chairman Vincent F. Callahan Jr. (R-Fairfax) and Senate Finance Committee Chairman John H. Chichester (R-Stafford) said spiraling government costs in health care and other areas, coupled with the one-time budget fixes the state must employ this winter, will continue to strain Virginia's treasury for at least the next three years.
"The bottom line is that we will muddle through this fiscal period and face serious problems in the next one," Callahan said at a state Capitol news conference. "We're going to have to pay the piper at some stage down the road."
In a separate interview, Chichester largely concurred with Callahan, saying the House leader's analysis "isn't breaking any new ground, but the reality of it is upon us. You can't correct the dilemma we find ourselves in in one year."
The pessimistic views of Callahan and Chichester, the two most senior Republicans in the GOP-led assembly, will color the legislature's work this session as lawmakers close the remaining $1.2 billion of the $6 billion shortfall they have confronted for the past year.
If their forecast is accurate, it could mean five consecutive years of painful contraction in state government -- a reality that not all lawmakers are prepared to face in this legislative election year, the leaders said.
"It hasn't dawned on everyone here," Chichester said. "They want to get through November. That's the short-term horizon."
Callahan seemed to agree, saying at a news conference of House Republican leaders that elected officials had submitted 651 separate budget amendments amounting to a combined $1.9 billion in additional spending. "That's the opener," Callahan said sardonically. He later shared the grim budget forecast in a short speech on the House floor.
When Democratic Gov. Mark R. Warner took office a year ago, he worked with Republican leaders to close a $3.8 billion shortfall, and he ordered $858 million in emergency cuts on his own in October. Warner has recommended a spending plan to resolve the final $1.2 billion, using a variety of budgetary tools, including taking $374 million from the state's "rainy day" fund.
"The rainy day fund, for all practical purposes, is now depleted," Callahan said.
Callahan and Chichester were careful not to blame Warner for using one-time patches to help repair the worst state finances in 50 years, but they said governors and the General Assembly have become overly reliant on those tools without addressing the long-term structural imbalances in a state budget that now exceeds $25 billion annually.
Continued tight finances would dim Warner's prospects for leaving his stamp on the 2004-06 budget, the only spending plan during his four-year term that he can truly call his own. Virginia governors may not succeed themselves.
Callahan said the Appropriations Committee staff had estimated the shortfall for the fiscal year beginning in mid-2004 to be $704 million, followed by a $191 million budget gap the following year, for a total of $895 million.
The staff's forecasting model assumed several things about state spending: The car-tax cut would remain frozen at 70 percent, no teacher pay raises would be funded, and state revenue would grow at the relatively optimistic rate of about 5 percent per year.
The committee staff also suggested that Virginia might follow the pattern of its 1990-92 recession. The state needed five years to dig itself out then.
John M. Bennett, Warner's secretary of finance, agreed that next year's budget will be tight. However, Bennett said Callahan's projection might be overly pessimistic, adding that the administration was still crafting its own revenue analysis for 2004 and beyond.
"If there is a shortfall in the next biennium, which is likely, the basic choices will still be the same," Bennett said in an e-mail response to a reporter's inquiry. "If we can get out of this [economic slump] in two years . . . I'd say we were doing something noteworthy."